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Monday, March 29 2021

Florida’s insurer of last resort, Citizens Property Insurance Corp., has become the insurer of first resort as thousands of new policies flood into it each week and the private homeowners insurance market continues its downward spiral.

“The reality is the marketplace in Florida is shutting down,” Citizens President and CEO Barry Gilway said at a rate hearing before the Florida Office of Insurance Regulation this week.

Gilway painted a dire picture of the Florida domestic market to state regulators at the March 15 hearing, noting that five years of sustained losses from excessive litigation, contractor schemes, major catastrophes and the increasing cost of reinsurance has led to diminished insurance capacity and higher costs for consumers. Florida carriers’ net underwriting losses for 2020 are expected to reach a combined $1.6 billion, Gilway said, with income losses totaling nearly $840 million.

“Companies that are operating in the market are not profitable, have not been profitable, and frankly some of them are having to pay high rates of return just to get the capital in order to continue writing the level of business that they are writing today,” he said.

Florida insurers are taking significant steps to reduce their exposure in areas where there is high litigation rates or high reinsurance costs, he said. The result is four companies in Florida are now closed for new business; at least 12 companies have strict underwriting restrictions such as limits on new business/renewals based on location, age of home, age of roof; required minimum Coverage A limits and policy cancellations.

In addition to coverage restrictions, carriers are offsetting their losses with rate increases. The Florida Office of Insurance Regulation has approved 105 rate changes, 90 of which were for rate increases, over the last year, with 55 of those for rate increases of more than 10%.

Ratings agency Demotech, which rates 66% of the Florida market, is also requiring the companies it rates to restrict their writings geographically and the types of homes they write in order to retain their FSR rating.

“They are doing that basically to improve the overall profitability of these companies and make sure that when the insured does get insurance there is sufficient financial wherewithal on the part of the company to support any anticipated claims volume,” he said. “There’s a lot of restrictions on the market.”

Gilway told regulators Citizens is growing by 5,000 new policies per week and is expected to reach a policy count of 700,000 by the end of the year as carriers continue to raise rates and cut back on capacity.

Citizens’ rate of growth is further exacerbated by the competitiveness of its rates, Gilway said, noting that its homeowners policies are priced lower than the average private market rate 91% of the time.

“The capacity in the marketplace has shrunk to the point where unfortunately Citizens is becoming not the market of last resort but, in many cases, the market of first resort,” he said, adding that is never the intention for a residual market mechanism.

The concern is that Citizens could return to its 2011 policy count level where there was an assessment risk of $11.6 billion to all Florida policyholders in the event of a 1-in-100 year event. Gilway said at that point, the insurer wrote 23% of the Florida market. Its top priority is protecting the company’s surplus so it can pay claims and keep all Floridians from being stuck with paying assessments.

“As we grow, then the potential for assessment grows,” Gilway said.

Citizens’ has its own share of litigation troubles as well. Gilway told regulators that 800 lawsuits were filed against the insurer in February and 78% of the claims it receives are from nonweather water losses. While assignment of benefits reforms passed two years ago have cut its AOB litigation in half, litigated claims are still a significant driver of its rate need.

The Citizens Board of Governors approved 2021 rate recommendations in January that call for a statewide average increase of 7.2% for personal lines policyholders – homeowners, condominium unit owners, mobile homeowners, dwelling, and renters. Homeowner policies would increase by an average 6.1%; condo owners would see an average 9.4% increase; and renters rates would increase 4% on average. The proposed commercial lines increase is 9.5%.

Citizens is required by law to recommend actuarially sound rates, while complying with a legislative glide path that caps individual rate increases at 10%. The insurer’s uncapped rate indication is 25.9% for homeowners and 85.6% for commercial lines.

The proposed rate recommendations came after Citizens Board deferred action on a slate of rates that called for an average 3.7% increase in personal lines coverage, including a 2.2% increase in homeowners coverage. The board directed Citizens actuarial staff to work with OIR to address the growing disparity between Citizens rates and those charged by private insurance companies in many areas of the state.

Citizens is also seeking approval by OIR to charge new policyholders actuarially sound rates instead of allowing them to join the insurer with capped premiums that existing Citizens policyholders receive, as is the case now. The exception would be in Monroe County where rates would be capped at 20% because Citizens is essentially the only insurer option. If approved by OIR, the recommendation would increase rates for new business by an average of 21%, Citizens said previously.

OIR will accept public comments on the proposed rates through March 26. If approved, the 2021 rates would go into effect for policies renewed after August 1.

Friday, March 26 2021

Florida homeowners already have been slammed with rising windstorm insurance rates this year but they’re likely to get an unexpected reprieve on protection against the other major hurricane threat.

Federal flood insurance rates were poised to spike dramatically this year in Florida and other coastal states but that appears on hold for most homeowners because of push back — at least for this year.

The Federal Emergency Management Agency, which controls the National Flood Insurance Program, has been telling flood insurance brokers for weeks that the planned rollout of new (and for Floridians, potentially much higher) rates won’t happen all at once in October as originally planned.

FEMA now plans that only new policies will be subject to the new rate structure, known as Risk Rating 2.0, on October 1. Everyone who already has a flood insurance policy won’t see a rate change until April 2022.

Del Schwalls, immediate past chair of Florida Floodplain Managers Association, confirmed to the Herald that FEMA has told his members of this change in the scheduled rollout.

“That is the only delay I’m aware of,” he said.

FEMA declined to confirm or deny that the agency was considering a delay, which was first reported in Politico this month.

“FEMA currently is finalizing its planned release of Risk Rating 2.0. Once that process is complete we will announce specifics related to the National Flood Insurance Program’s new rating system. At this time, any information would be pre-decisional, and as such, it would be inappropriate to comment further,” David Maurstad, senior executive of FEMA’s National Flood Insurance Program, said in a statement.

Risk Rating 2.0, the biggest revamp of the federal flood insurance program in decades, is meant to set new prices that actually align with the risk of flooding homeowners face. That could mean lower rates for some homeowners, but experts say it will likely lead to higher rates for coastal homeowners. Florida, which holds about a third of all flood policies nationwide, could see some of the biggest impacts.

The overhaul has been in the works for years for a federal system that has run billions in the red because of the massive losses from a string of storms, starting with Hurricane Katrina in 2005, which cause more than $125 billion in damage, much of it in badly flooded New Orleans.

The new system is expected to be a more accurate view of flood risk, one that takes rainfall and sea-rise-driven tidal flooding into account and doesn’t set rates solely on whether or not a building is in a flood zone.

The program was initially set to debut in October 2020 but was delayed a year under political pressure. Politico reported that political pressure, this time from the Biden administration, was yet again the reason for a delay.

On April 1, FEMA is supposed to release the new rates it plans to charge homeowners, as well as the math behind their decision. But that too could be pushed back. The New York Times reported this week that Senate Democratic Majority Leader Chuck Schumer is pressing FEMA to put off the release over concerns that the new rates will be more expensive for his New York constituents.

Neither FEMA nor Sen. Schumer’s office responded to a request for comment, but a spokesperson for Schumer told the Times that the agency should focus on “affordable protection” for communities nationwide.

“FEMA shouldn’t be rushing to overhaul their process and risk dramatically increasing premiums on middle-class and working-class families without first consulting with Congress and the communities at greatest risk to the effects of climate change,” Alex Nguyen said in a statement.

Raising rates is politically unpopular on both sides of the aisle, although experts say it’s needed to help the nation adapt to climate change. Currently, any changes to premium prices are capped at 18% a year.

Florida’s two Republican senators have a history of objecting to any reforms to the NFIP that would drastically raise rates for Floridians. As governor, Rick Scott openly opposed the major flood reform act of the day — the 2012 Biggert-Waters Act — arguing a dramatic rate hike would hurt the real estate industry.

As a senator, spokesperson McKinley Lewis said in a statement that Scott still supports keeping rates from rising quickly.

“Senator Scott supports a long-term, stable solution to the NFIP that is fair to Floridians. He continues to work with his colleagues on a permanent fix to the NFIP that will keep rates stable and remove the unfair burden on Floridians, as well as reforms to the private market that would strengthen the overall flood insurance market and give consumers more choice,” he said.

Sen. Marco Rubio has co-sponsored several bills to sustain or reform the National Flood Insurance Program, including a major bipartisan bill in 2019 that didn’t succeed.

“Flood insurance is a necessity in Florida, and as the private insurance market responds to increased flooding we must make sure the federal backstop remains an accessible and sustainable option for Floridians. Rates changes are unfortunately unavoidable, but they should happen alongside fundamental reforms that focus on much-needed mitigation efforts and guided by new mapping that allows the federal government, local communities, and homeowners to make informed decisions,” Rubio said in a statement.

Friday, March 12 2021

The Florida Office of Insurance Regulation will conduct a rate hearing on Monday, March 15 on proposed rate increases from Citizens Property Insurance Corp.

The hearing will be held virtually at 9 am EST and will include testimony and public comment on the insurer’s proposed rate filings.

The Citizens Board of Governors approved 2021 rate recommendations in January that call for a statewide average increase of 7.2% for personal lines policyholders – homeowners, condominium unit owners, mobile homeowners, dwelling, and renters. Homeowner policies would increase by an average 6.1%. Condo owners would see an average 9.4% increase. Renters rates would increase 4% on average.

If approved by OIR, the 2021 rates would go into effect for policies renewed after August 1.

The approved rate recommendations came after Citizens Board deferred action on a slate of rates that called for an average 3.7% increase in personal lines coverage, including a 2.2% increase in homeowners coverage. The board directed Citizens actuarial staff to work with OIR to address the growing disparity between Citizens rates and those charged by private insurance companies in many areas of the state.

The insurer said the higher rates would make it more competitive with the private market and slow the flow of policyholders returning to Florida’s insurer of last resort. Since March 2020, Citizens’ policy count has grown from 443,444 to 551,613, an increase of 26.4%. Citizens is now receiving more than 3,000 new customers per week, the company said at its March 3 board meeting. It is preparing for 150,000 additional policyholders by the end of the year as private insurers continue to raise rates, limit coverage and exit particular markets to stem rising losses.

Citizens is required by law to recommend actuarially sound rates, while complying with a legislative glide path that caps individual rate increases at 10%, excluding coverage changes and surcharges. However, private insurers are implementing rate increases far in excess of the 10% cap, widening the premium gap between private insurer and Citizens policies.

The board also approved in January a recommendation that new policyholders pay actuarially sound rates instead of joining the insurer with capped premiums that existing Citizens policyholders receive. If approved by OIR, the recommendation would increase rates for new business by an average of 21%. A recent report commissioned by Citizens identified the need for the insurer to make changes to the Citizens’ glide path for rate increases.

Thursday, March 04 2021

It’s the start of another Florida Legislative Session with a familiar theme — insurers pushing for reforms they say are needed to help the state’s distressed insurance market. Only this year the need is more urgent than ever, according to industry experts and stakeholders, as consumers face unprecedent rate increases and constrictions in coverage availability.

“We’re advocating that the legislature take a good look at some of the issues that are plaguing the Florida property insurance market right now to see if we can make some reforms to stabilize not only the performance of the carriers, but also the impact that has on the consumers,” said Florida Insurance Commissioner David Altmaier in an interview with Insurance Journal. “One of the major — if not the major focal point for our office … is working on this very challenging time.”

Altamier is one of many sounding the alarm about the Florida insurance market that has been described as in a state of crisis. Consumer advocates, insurance agents, insurers and realtor groups are all urging Florida lawmakers to enact reforms that stem excessive litigation and insurance costs now hitting the pockets of Florida consumers.

In January hearings before the start of the 2021 session, Altmaier told lawmakers that Florida’s domestic marketplace had lost $1 billion during the first three quarters of 2020, more than double its underwriting losses in 2019. That has translated into steep rate increases for policyholders and there appears to be no sign of relief. The Floirda Office of Insurance Regulation has approved 105 rate changes, 90 of which were for rate increases, over the last year, Altmaier said, with 55 of those for rate increases of more than 10%.

“Clearly, these losses have negative outcomes for our consumers,” he said.

The deteriorating financial condition of Florida’s domestic companies is blamed on several factors: excessive litigation, contractor schemes, several years in a row of major catastrophes and the increasing cost of reinsurance.

Barry Gilway, president and CEO of Citizens Property Insurance Corp., which is seeing an increase of about 3,000 new policies per week as private market conditions tighten, said litigated cases for insurance companies increased from 27,000 in 2013 to 85,000 in 2020. “That is the primary driver of unprofitability,” Gilway told lawmakers at a Florida House of Representatives committee hearing in January.

The industry is supporting several bills that they say will help stem the abuse, but these bills are competing for attention in an unusual legislative session thanks to a lingering pandemic.

Stakeholders also acknowledge that it will be tough to convince some lawmakers to enact legislation after insurers won a seven-year battle for assignment of benefits insurance reform in 2019. Those reforms were meant to help the insurance market decrease costs, and recent OIR data shows the law is having a positive impact on reducing litigation associated with AOBs. Gilway said Citizens’ AOB litigation has decreased by 48% since 2019 and overall litigation has decreased 20%. For all other carriers, AOB litigation has decreased 37% and overall litigation increased by a little less than 1%. Attorney and contractor workarounds to the AOB law has exacerbated other litigation.

“AOB reform helped significantly,” Gilway told lawmakers. “[But] the reality is, while AOB is going down, first party litigation is going up. The increase in first party litigation is really overshadowing any benefits we have got from AOB — it’s shifting from third party over to first party.”

Litigation costs have helped fuel adverse loss development for companies of $418 million in 2018 and $682 million in 2019, Altmaier told lawmakers.

While there is compelling evidence that shows the AOB law has been effective in curbing the use of AOBs, “we also think that there is compelling evidence that demonstrates first party litigation continues to increase, and we have equally compelling information that shows … the disparity in cost of claims between a litigated claim and a non-litigated claim, and so I think that it’s a critical conversation for us to be having,” Altmaier said.

He added, “I can certainly understand how after working on AOB for several sessions in a row and finally getting some reform it can be frustrating when the very next session people come back and say, ‘litigation is still a problem.’ So that really underscores [OIR’s] role in being very data-driven.”

Stakeholders outside the industry are also coming out in support of reforms.

“Consumers are being faced with dire circumstances and options centered around homeowners insurance coverage,” said Insurance Consumer Advocate Tasha Carter, who noted she hears daily from policyholders receiving large rate increases or who are unable to find coverage at all.

Most consumers are not aware of why their rates are going up and are particularly frustrated because they have never filed a claim. Carter said she explains the issues in the market and “they have a better understanding of what’s happening, but ultimately they’re still looking at it from a personal and individual perspective and how these things will ultimately affect them,” she said.

Groups like Florida Realtors and the Florida Chamber of Commerce have urged the legislature to act this year as the insurance market’s problems trickle into other industries.

“Florida’s economy is the envy of the nation, but we must address persistent home and auto insurance fraud and abuse that hurts consumers and threatens our state’s overall competitiveness,” said Mark Wilson, president of the Florida Chamber.

Trey Goldman, legislative counsel for Florida Realtors, a real estate association in the state representing 200,000 realtors, said he’s heard many concerns from members about rates, availability and underwriting guidelines and how real estate transactions could be affected.

“We sell property, and we can’t sell property without property insurance,” he said. “Many members are reaching out … insurance is not important until it’s very, very important.”

Proposed Legislation

The main bill supported by the insurance industry is Senate Bill 76, introduced by Senator Jim Boyd, chair of the Florida Senate Committee on Banking and Insurance and an insurance broker.

SB 76 seeks to tackle roofing claims abuse and attorney fee multipliers, and would shorten the current deadline for new, supplemental and reopened property claims from three years to two. The bill would allow property insurers to offer homeowners policies that adjust roof claims at actual cash value if the roof is older than 10 years old. Further, it requires a 60-day notice of a property insurance claim before a suit can be filed against an insurer and gives insurers 30 days to inspect the property.

The bill would mandate that attorney fees in property lawsuits be awarded based on how successful the insured was in recovering the amount demanded in the lawsuit rather than using the current fee multiplier. Boyd said the legislation would benefit both parties by encouraging insurers not to underpay valid claims while also encouraging claimants to make reasonable demands and would provide “fair access and reasonable guidelines” for both insurers and insureds during the claims process.

The changes to roofing policies would prevent the abuse of claims by predatory attorneys and contractors, he told the Senate Committee on Banking and Insurance at its Feb. 2 meeting.

“Property insurance rates are going up and this is driven in large part by an extraordinary number of roofing claims in Florida,” he said.

Florida is facing a litigation crisis, he said, noting that from October 2020 to December 2020 there were almost 21,000 lawsuits reported to the Department of Financial Services. Thirty-four attorneys filed more than 100 cases, with one attorney filing 1,234 cases in that 90-day period. “That’s 13.4 claims a day, including holidays and weekends,” he said.

Claims data shows that just 8% of damages are paid to insureds in property suits and 21% goes to defense costs, while plaintiff attorneys receive about 71% of the pot.

“We are not saying attorneys can’t be paid but they should be paid fairly, and the claimants should be the main ones that receive the compensation in the event of a claim,” Boyd said.

Attorney and adjuster groups disagree about the bill’s fairness, however, saying it would make it harder for policyholders to sue their insurer and gives more power to carriers.

“If this bill passes, this will substantially restrict policyholders’ and homeowners’ access to the courts,” Attorney Matthew Collett told lawmakers at the Feb. 2 Senate Committee on Banking and Insurance hearing.

Florida Association of Insurance Agents President Kyle Ulrich disagreed with that assessment.

“Nothing in this legislation would prohibit any homeowner from filing suit against their company in the event of a dispute,” he said.

Insurance Consumer Advocate Carter said she supports the reduction of the claims filing deadline in the bill but only as it relates to new claims, not the limitations on limiting supplemental and reopened claims. She is still reviewing data on the attorney fee provisions.

Pandemic Priorities

There is concern from the industry that reforms may be hard to accomplish during a session that is overshadowed by the pandemic and Florida’s budget, which the legislature is required to pass.

More than 2,500 bills have reportedly been filed so far and passing COVID-19 liability reforms for businesses and healthcare organizations is a clear priority by top lawmakers, including Governor Ron DeSantis.

But stakeholders say reform cannot wait another year.

“I think it’s beyond just urgent, it’s desperate, frankly,” said Florida Property Casualty Association President Roger Desjadon. “If you were to look at the rate increases that have been going in for the industry, there’s a reason for that. And that reason is because all of these cases, the lawsuits, the overinflation of claims have gotten totally out of hand. So, the rates have to reflect that, and the rates that you see are rates that are reflecting that.”

Without a change, Desjadon said rates will continue to escalate, reinsurers will become more reluctant to write Florida companies and provide aggregate coverages, which means companies are going to have to take more losses on their surplus.

“It’s a vicious cycle and I think it’s gotten to a point now where if something isn’t done, I think you’re going to see a contraction of the market. You’re going to see Citizens grow a lot, and you’re going to see rates going up dramatically,” he said.

“Time is of the essence,” Gilway agreed. “Because you can’t wait for another year or two years. You are going to have more and more companies that just decide that Florida is not an economic reality for them, and they can apply their capital elsewhere.”

Personal Insurance Federation of Florida President Michael Carlson said without law changes that will quickly impact the market, Citizens will continue to increase its policy count and some insurance companies will not survive. As of right now, “that’s where we’re headed,” he said.

Legislative reform is critical to helping consumers, ICA Carter said. She also supports legislation that would clarify and prohibit unlicensed adjusting, protects consumers when they sign a contract with a public adjuster, and would improve company communications with policyholders going through the claims process. She said targeted legislative changes could have a “significant and positive impact on the market.”

“I am very concerned about the affordability and availability as it relates to homeowners insurance in the state,” she said. “I anticipate that if legislation is not passed this session … we’re going to see the situation for policyholders continue to deteriorate and to become more dire, and that’s my biggest concern.”

Commissioner Altmaier said that though there are a variety of stakeholders with different viewpoints, OIR plans to tell the story of what is happening through data and that ensures the consumer is top of mind.

“I think if we can continue to do that, we can make some meaningful progress this session,” he said.

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