
BlogMonday, April 26 2021
After many years of trying, Florida is closer than ever to repealing its 50-year-old motor vehicle no-fault law. However, many industry stakeholders have expressed opposition to the legislation passed by the Florida Senate last week and its companion bill approved by the House Judiciary Committee Monday, saying the proposals will actually raise rates for many Florida drivers and be ineffective at weeding out fraud. Florida’s current no fault law requires drivers to carry personal injury protection coverage of $10,000. If passed, the new law would instead require that drivers carry bodily injury liability coverage with limits starting at $25,000 per person. Senate Bill 54 and House Bill 719 would also create a new framework to govern motor vehicle claims handling and third-party bad faith failure to settle actions against motor vehicle insurance carriers. The bills also require policies include a medical payments option of $5,000, though under the House version insureds can opt out of purchasing the coverage. SB 54’s minimum liability requirements for motor vehicle ownership or operation include:
Insurers may also offer medical payments coverage with limits of $10,000, without a deductible, to cover medical expenses of the insured. Insurers can offer other policy limits that exceed $5,000 and may offer deductibles of up to $500. SB 54 requires that insurers must reserve the first $5,000 of MedPay benefits for 30 days to pay providers of emergency services or hospital inpatient care. The exclusion of a specifically named individual from specified insurance coverages under a private passenger motor vehicle policy, with the written consent of the policyholder, is also authorized under the bill. “Florida is one of only two states in the country that does not currently require drivers to carry liability coverage that would immediately kick in if they cause harm to another person while operating a motor vehicle,” said Senate President Wilton Simpson in a statement. “For everyone’s protection, drivers must be insured at sufficient levels. PIP coverage levels are clearly insufficient. It’s the right time for Florida to move to mandatory coverage for bodily injury liability.” Included in the Senate version of the bill and added Monday to the House version is the creation of a new framework for motor vehicle insurance bad faith actions. The bill requires insurers to follow claims handling best practices standards based on “long-established good faith duties related to claims handling, claim investigations, defense of the insured and settlement negotiations,” a Senate statement said. But industry groups say the proposed bad faith reforms will not reduce lawsuits, which is a primary driver of costs for the state’s insurers. “Meaningful reforms to Florida’s deeply unfair bad faith system should be included to help reduce lawsuits,” said Michael Carlson, president and CEO of the Personal Insurance Federation of Florida. “While the Senate bill includes an attempt at bad faith reform, it has been weakened by the trial bar to the point that it may not help reduce lawsuits.” The American Property Casualty Insurance Association’s (APCIA) Assistant Vice President of State Government Relations Logan McFaddin said the proposals lack “any meaningful reforms to Florida’s bad faith laws, which will only serve to fuel the current cycle of lawsuit abuse, worsen Florida’s legal environment, and could lead to even higher costs for consumers.” Specifically, McFaddin said HB 719 is a “considerable step backward and [will] do nothing to alleviate the current abuses of Florida’s bad faith laws.” PIFF and APCIA said the passage of the proposed PIP repeals would likely raise costs for Florida drivers, particularly those who buy the minimum required insurance or who currently buy bodily injury coverage at amounts below what the proposed law requires. Florida’s uninsured motorist rate would likely increase from its current 20%, the groups said, as more low-income and underinsured drivers will be unable to purchase higher amounts of coverage. Florida drivers currently pay the highest premiums in the nation, according to MarketWatch data. “In Florida, approximately 40% of drivers carry minimum limits that are below what would be required under SB 54. Under the current proposal, these drivers could see their auto insurance costs rise by $165 to as much as $876 a year,” said McFaddin. “Florida cannot afford the higher insurance rates generated by HB 719 and SB 54,” Carlson said. Senator Jeff Brandes was the lone vote in the Senate against SB 54. Brandes supported a previous version that did not include a mandatory MedPay option, and said there was insufficient time to gather data on if the amended bill would lower rates for Florida drivers. Brandes voiced concern the new version would increase the number of uninsured drivers in the state and harm low-income policyholders. “We have no basis for making claims that rates will go down,” he said. “Twenty percent of Floridians are driving around without auto insurance and if we raise prices, more Floridians will drive around without insurance – that is a huge problem for me.” APCIA’s McFaddin said lawmakers are attempting to eliminate the major public policy “through a rushed process without an objective study on the cost impact to consumers.” However, Senator Danny Burgess, SB 54 sponsor, asserted his bill would eliminate fraud in the system that would lower costs and would offer an overall reduction in rates. The bill, he said, is trying to right a “very broken system.” “The goal of this legislation is to lower the number of uninsured and underinsured drivers and provide a greater safety net in the event of an accident. Replacing our current no-fault system with a bodily injury liability system more appropriately places liability where it should be – with the party that caused the accident,” said Burgess. He added the new framework for handling bad faith litigation, “will lead to better outcomes for both insured Floridians and their insurance companies.” A report from the Office of Insurance Regulation in February noted that overall loss trends for automobile insurance losses in Florida are continuing to increase for the most significant coverages such as BI liability, PIP, and comprehensive coverage. The increases are a result of cost drivers such as a higher rate of fatal crashes in Florida than the rest of the country, higher loss trends for BI and PIP, and the costs of services associated with auto insurance such as medical care, hospital care and motor vehicle body work. “These trends in auto insurance rates will likely continue, regardless of whether PIP remains or is replaced by BI,” the report stated. “If PIP is repealed and replaced with mandatory BI and MedPay, without addressing bad faith and litigation trends, increased litigation and claims costs associated with the new mandatory coverages could increase premiums dramatically.” HB 719 now goes to the full House for a vote. If passed and signed by the governor, the new system would take effect Jan. 1, 2022. Wednesday, April 07 2021
WASHINGTON— FEMA is updating the National Flood Insurance Program’s pricing methodology to communicate flood risk more clearly, so policyholders can make more informed decisions on the purchase of adequate insurance and on mitigation actions to protect against the perils of flooding. The 21st century rating system, Risk Rating 2.0—Equity in Action, provides actuarially sound rates that are equitable and easy to understand. It transforms a pricing methodology that has not been updated in 50 years by leveraging improved technology and FEMA’s enhanced understanding of flood risk. “The new pricing methodology is the right thing to do. It mitigates risk, delivers equitable rates and advances the Agency’s goal to reduce suffering after flooding disasters,” said David Maurstad, senior executive of FEMA’s National Flood Insurance Program. “Equity in Action is the generational change we need to spur action now in the face of changing climate conditions, build individual and community resilience, and deliver on the Biden Administration’s priority of providing equitable programs for all.” The National Flood Insurance Program provides about $1.3 trillion in coverage for more than 5 million policyholders in 22,500 communities across the nation. Understanding the magnitude of even the smallest changes of a program of this scale, FEMA devoted thousands of hours to develop the new pricing methodology to ensure equity and accuracy. In developing the new rates, FEMA coordinated with subject matter experts from the U.S. Army Corps of Engineers, U.S. Geological Survey and the National Oceanic and Atmospheric Administration along with experts from across the insurance industry and actuarial science to ensure alignment with federal regulations, systems, guidance and policies. The new methodology allows FEMA to equitably distribute premiums across all policyholders based on the value of their home and the unique flood risk of their property. Currently, many policyholders with lower-value homes are paying more than they should and policyholders with higher-value homes are paying less than they should. To provide more equity, FEMA now has the capability and tools to address rating disparities by incorporating more flood risk variables. These include flood frequency, multiple flood types—river overflow, storm surge, coastal erosion and heavy rainfall—distance to a water source and property characteristics such as elevation and the cost to rebuild. The cost to rebuild is key to an equitable distribution of premiums across all policyholders because it is based on the value of their home and the unique flood risk of their property. This has been an industry standard for years. FEMA is conscious of the far-reaching economic impacts COVID-19 has had on the nation and existing policyholders and is taking a phased approach to rolling out the new rates.
FEMA continues to engage with Congress, its industry partners and state, local, tribal and territorial agencies to ensure clear understanding of these changes. Monday, April 05 2021
More than a million Floridians will see their flood insurance premium rise next year, FEMA said Thursday. The good news is, most will see increases of less than $120 a year. The bad news is that homeowners will likely see annual rate hikes like that for the foreseeable future. The National Flood Insurance Program, which underwrites most flood insurance policies in the U.S., is changing the way it calculates what each property has to pay. The new strategy, called Risk Rating 2.0, is meant to help pull the program out of its $20 billion debt and encourage people to live in safer, less flood-prone homes. The new program will stop charging flood insurance premiums based solely on whether a home is within or outside of a flood zone and instead consider a range of factors like distance from the ocean, rainfall flooding and the cost to rebuild a home. “It allows us to set accurately sound rates and communicate flood risk better than we ever have before,” David Maurstad, senior executive of FEMA’s National Flood Insurance Program, said in a press conference to announce the changes, the most dramatic change to the program in 50 years. Starting April 2022, this pricing revamp will lead to higher prices for a majority of Florida’s 1.7 million policyholders — the most of any state — as well as a decrease for about 20% of policies, more than 340,000 policyholders. For the million-plus who will see increases, about 68% of policyholders will see their premiums rise less than $120 a year. Eight percent, about 134,000 policyholders, will see increases as high as $240 a year. About 73,000 policyholders will see their annual rates rise higher than that, but still within the congress-set cap of 18% a year. And that’s just year one. Rates will continue to rise every year at that 18% level until the annual insurance premium reflects the real cost of protecting the home, a figure that will be provided to homeowners along with the annual cost increases. Andy Neal, chief actuary of the NFIP, said in the press conference that they expect half of the policies to be at their full, proper price in five years, with 90% of policies at full risk in 10 years. “That last 10% takes us a good five years to get to a majority of it, and some will take even more of that,” he said. This reflects one of the major findings of the Risk Rating 2.0 revamp: higher-value homes are generally underpaying for flood insurance and lower-value homes are generally overpaying.The riskiest (and therefore most expensive) properties to insure are more likely to be homes that are expensive to rebuild, Neal said. That price, known as the replacement cost, is the same figure home insurers use to come up with premiums. Now flood insurance will do the same, which is likely to raise the cost of insurance for those homes. “Larger increases are highly correlated with high replacement cost, but there are some exceptions,” Neal said. “This is an effort that’s about equity in pricing.” Although most current policyholders won’t see a change in their rates until next year, on October 1 policyholders that are up for renewal can choose to switch to the new premium if it’s lower than their current one. October 1 is also the date that this new method of pricing applies to new flood insurance policies. Because FEMA hasn’t released much information about what that change might look like, advocates for affordable flood insurance are worried about the potential impact for the real estate market. “We’re leery of how that’s going to touch us, because it’s never touched us in a good way,” said Mel Montagne, head of Fair Insurance Rates in Monroe, an advocacy group that aims to keep flood and home insurance affordable for residents of the Florida Keys. Last time the NFIP was reformed, it sent premiums skyrocketing and ground real estate transactions to a halt in the Keys for months, before the changes were rolled back. Montagne recalled one $200,000 ground level home in the Keys that saw its premium jump to $20,000 a year. “It was absolutely ludicrous,” he said. However, the new Risk Rating 2.0 strategy appears to have some new protections to prevent the sins of the past. For one, congress’s 18% annual cap keeps premiums from rising overnight. Under Risk Rating 2.0, the maximum for a single-family home’s annual premium would be about $12,000 a year, a number that could change going forward. Currently, there is no cap for a maximum policy, and Maurstad said the maximum annual policy price tops $45,000. The NFIP is also maintaining most of its discounts, like the ones for properties newly mapped into flood zones. That will likely be important in Miami-Dade, where new draft flood maps will be released in May. In a county webinar last week, one snapshot of the draft maps revealed plenty of properties in the Little River area will soon be considered in flood zones, which means that flood insurance will be mandatory. There will also be new discounts for homeowners who protect their homes by elevating them, install flood panels or elevate important outdoor equipment like their AC units. Other NFIP discounts for homes built before FEMA’s building standards existed will also apply, as will discounts for cities and counties that participate in FEMA’s Community Rating Service, which offers big discounts on flood insurance to communities that guard against flood damage. Miami Beach residents get a 25% discount under CRS. That used to only apply in full to residents in flood zones, which cover 93% of buildings in Miami Beach, but under Risk Rating 2.0 it will extend to every property in the city. Amy Knowles, Miami Beach’s chief resilience officer, said that discount saves residents about $8.2 million. “We do want flood insurance to be accurate, but as a coastal city we’ve got to be able to afford it,” she said. “We’re doing everything we can as a city to offset the cost of federal flood insurance.” Making flood insurance more expensive is unpopular on either side of the political aisle, and Congress could step in to lower the 18% cap or force the NFIP to make more changes to lessen the impact of the suggested price hikes. In 2019, all of South Florida’s U.S. House members from both parties, with the exception of Democratic Rep. Frederica Wilson, signed a letter to House leaders expressing concern with the proposed flood insurance rate changes. “While FEMA intends Risk Rating 2.0 to provide more accurate and transparent flood insurance pricing, this untested proposal could lead to increased premiums, forcing homeowners to drop coverage, or even worse, lose their home,” the lawmakers wrote. Reps. Mario Diaz-Balart, Debbie Wasserman Schultz, Ted Deutch, Lois Frankel and Alcee Hastings all signed the letter, along with former Reps. Donna Shalala and Debbie Mucarsel-Powell. The letter also stated, “our constituents cannot suffer from a double-digit rate increase in addition to the fees and surcharges FEMA could impose on policy holders under Risk Rating 2.0.” Diaz-Balart’s office said Thursday his position on NFIP rate changes is unchanged from the 2019 letter he signed. “I worked with my colleagues across the country to push FEMA to lower the cap on annual premium increases and take into account how rate increases will impact regions like South Florida that are extremely vulnerable to climate change and hurricanes,” Rep. Debbie Wasserman Schultz said in a statement. “FEMA should be assessing flood insurance affordability for our region, especially during COVID.” But risk experts say those high prices serve a purpose: pushing people away from vulnerable spots, a process that will only get more important as sea levels rise. Del Schwalls, the immediate past chair of the Florida Floodplain Managers Association, praised FEMA for joining the private flood insurance market by charging customers the proper amount for their policies. “I think this is exactly what we’ve been asking for, and at times begging for,” he said. “Now people aren’t subsidized into a false sense of security. If you tell them their risk is insanely high but they’re paying $1,200 a year, their gut tells them you’re wrong.” As that $1,200 premium balloons to a $5,000 premium a decade down the line, Schwalls said homeowners might be more likely to consider elevating their home or other floodproofing improvements as a way of saving money. Or, they might decide the risk is too great and move inland. “When you get a policy premium that is equal to your risk, it informs your decisions,” he said. 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.
“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 LegislationThe 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 PrioritiesThere 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. Wednesday, February 24 2021
Three bills currently working their way through the Florida Legislature are designed to tackle the rising costs of homeowner roof claims, the costs of attorney fees in homeowner’s claims and issues surrounding notice to insurance carriers. The proposed legislations come less than two years after Florida enacted an assignment of benefits law for homeowners’ property claims. But these latest efforts are meant to address the increasing costs of homeowners insurance due to market forces that were not addressed by the 2019 AOB bill. While these bills are preliminary and not law yet, it shows a shift in the legislature to reel in the liberal rules of lawsuits relating to property insurance claims. Among the bills currently being considered is Senate Bill 76, which amends Florida statute (627.428) to award attorney’s fees for claims arising under the lodestar fee. Deviation from this method would be reserved for only rare and exceptional circumstances that competent counsel could not be retained in a reasonable manner. The lodestar method determines what a reasonable fee for an attorney would be and requires the following determinations:
Further, SB 76 would allow insurance carriers to limit coverage on roof claims. Under the provision, a carrier can include a roof surface reimbursement schedule endorsement to the insurance policy, which allows for reimbursement for repairs, replacement and installation based on the annual age of a roof surface type, unless the roof is less than 10 years old. The schedule also would provide reimbursement amounts of no less than 70% for metal roofs, 40% for concrete, clay tile, wood shaker, and shingle roofs, and 25% for any remaining roof types. SB 76 also extends certain statutes to cover all property insurance claims instead of just a windstorm or hurricane claim, which would bar property claims if the insurer is not provided notice of claim or supplemental claim within two years of the date of the loss. The bill, if passed, would add a statute (627.70152), which would affect all property insurance policy lawsuits. Specifically, the statute would require any claimant(s) to provide at least 60 days’ notice of their intention of initiating litigation against their insurance carrier prior to filing the lawsuit. The notice must include:
The new provision would give carriers the ability to inspect and evaluate the demand and allow the carrier to abate any lawsuit if said notice was not provided in compliance with the proposed statute. Attorney’s fees under this statute would provide a similar sliding scale structure as the assignee of an assignment of benefits related to property insurance claims and would be based on a demand to judgment quotient. SB 76 was approved by the Senate Banking and Insurance Committee and is awaiting a hearing by the Judiciary Committee. The Florida House of Representatives’ companion bill to SB76 – House Bill 305 – would amend the same statutes as SB 76, except it does not involve adding the claimant’s requirement to provide notice of intent to initiate litigation proposed in SB76. This bill is currently awaiting a hearing by the House Banking and Insurance Subcommittee. The Florida Senate also introduced Senate Bill 212 as a standalone bill addressing just the attorney’s fees issue of reasonableness and multipliers. SB 212 would only entail adopting the lodestar fee for property insurance policy lawsuits. SB 212 is currently awaiting a hearing by the Florida Senate Banking and Insurance Subcommittee. These bills would provide insurers the ability to address the growing number of roof claims that were either not damaged by wind or hail or could be repaired yet facing litigation due to insureds, or their representatives, demand full replacement. Further, SB 76 would force claimants to provide notice to a carrier of their intent to file their lawsuit, giving the carrier an opportunity to re-evaluate the claim. All three of these bills would go into effect on July 1, 2021 if passed and signed by Governor Ron DeSantis. Monday, February 22 2021
If the nearly 4.3 million residential homes (1-4 units) across the country with substantial flood risk were to be insured through the National Flood Insurance Program (NFIP), the NFIP rates would need to increase 4.5 times to cover the risk today. New research, The Cost of Climate, from First Street Foundation, a nonprofit research and technology group working on flood risk, quantifies the financial impacts of flood risk carried by American homeowners, and how those impacts are growing as flood risks worsen due to a rapidly changing climate. First Street Foundation researchers calculated average annual loss (AAL) statistics for each residential property in the contiguous United States, which is the dollar value of damage associated with flood risk each year. The foundation found that while the total expected annual loss for the estimated 4.3 million properties with substantial risk is $20 billion this year, it grows to nearly $32.2 billion a year in 30 years – an increase of 61% – due to the impact of a changing climate. These estimates suggest the NFIP, which has lost more than $36 billion since its inception, will face growing losses in the years ahead without reform. “Quantifying flood risk in economic terms creates a new context for homeowners to understand their risk, and for buyers to consider when evaluating a property,” said Matthew Eby, founder and executive director of First Street Foundation. “Flood risk brings with it real and potentially devastating financial impacts that aren’t being priced into the market. We’re providing key insights into how flooding can impact the financial bottom line of property owners along with solutions that can protect their largest investment.” The Foundation’s analysis was conducted in part with home value data acquired from ComeHome by HouseCanary. The Federal Emergency Management Agency (FEMA), which runs the NFIP, is working to change the pricing of flood risk at the individual property level to more accurately reflect the risk of today’s climate through the forthcoming “Risk Rating 2.0” initiative. The FEMA rating change will set new premiums for properties both inside and outside of Special Flood Hazard Areas (SFHA) based on their individual flood risk. However, that risk-based pricing has been delayed. FEMA had initially announced that new rates for all single-family homes would go into effect nationwide on October 1, 2020, but decided it needed additional time to broaden its analyses of the proposed rating structure across its entire book of business, so that it included communities behind levees. FEMA delayed implementation of Risk Rating 2.0 by one year to October 1, 2021. The FEMA extension means all NFIP policies – including, single-family homes, multi-unit and commercial properties – could change over to the new rating system at one time instead of a phased approach as originally proposed. Private flood insurers approach risk assessment and pricing differently and offer different limits and endorsements than the NFIP. Climate Impact First Street Foundation’s new report highlights the impact that climate change and a risk-based approach could have on individual homeowners. The 2.7 million properties at risk outside the SFHA would require a 5.2 times price increase to roughly $2,484 a year to cover their current risk. The 1.5 million properties within SFHAs, which are mandated to buy flood insurance if they hold a federally backed mortgage, would require an increase of 4.2 times, to $7,895 a year. “If the necessary adjustments to premiums were put in place to accurately reflect property level risk, those homes which previously benefited most from group based subsidized rates would see a reduction in their underlying value,” said Dr. Jeremy Porter, head of Research and Development at First Street Foundation. First Street Foundation has added dollar estimates of flood damage for individual residential homes to its flood risk assessment tool Flood Factor. The new feature provides homeowners with flood damage cost estimates based on depth of flooding, demonstrate how these costs will change from today to 30 years from now due to a changing climate, and offer a cumulative projection of flood damage costs over the typical life of home ownership, or a 30-year mortgage. In earlier research, First Street Foundation found that government-produced maps showing 8.7 million homes and properties at significant flood risk may have underestimated the amount of real estate at risk by 67%. Or, in other words, an additional 6 million properties face a significant risk of flood. The nonprofit is making accurate climate change-adjusted flood scores available for every property in the U.S. today. NFIP Unchanged The NFIP’s current rating structure has not fundamentally changed since the 1970s. It evaluates structures using their flood zone on a Flood Insurance Rate Map (FIRM), occupancy type, and the elevation of the structure. FEMA’s nationwide rating system combines flood zones across many geographic areas, and calculates expected losses for groups of structures that are similar in flood risk and key structural aspects, assigning the same rate to all policies in a group. Under Risk Rating 2.0, according to FEMA, flood zones will no longer be used in calculating the premium. Instead, the premium will be calculated based on the specific features of an individual property, including structural variables such as the foundation type of the structure, the height of the lowest floor of the structure relative to base flood elevation, and the replacement cost value of the structure. Risk Rating 2.0 will also incorporate a broader range of flood frequencies and sources than the current system, as well as geographical variables such as the distance to water, the type and size of nearest bodies of water, and the elevation of the property relative to the flooding source. Given the threat of sea-level rise, NFIP policymakers should rethink policies that encourage development in flood-prone regions, according to the Washington, D.C. think tank R Street. R Street has proposed that the NFIP cease writing coverage for new construction in 100-year floodplains and that NFIP rates for any new construction should be adjusted to reflect future changes in assessments of flood risk. The study, Do No Harm: Managing Retreat By Ending New Subsidies, says that climate change will exacerbate the financial problem, as sea-level rise turns what once were 1-in-100-year floods into 1-in-10-year or even annual floods. Wednesday, January 20 2021
Florida’s property insurance market is “spiraling towards collapse” and requires immediate attention if there is any chance of protecting the market, consumers, and ultimately, the state’s economy, according to an analysis about to be presented to the Florida Legislature. The report points a finger at the state’s “litigation economy” as the main contributor to insurance market woes— seeing it as more of a direct cause than the many weather events Florida has suffered. Among its findings:
The report, “Florida’s P&C Insurance Market: Spiraling Towards Collapse,” was authored by Guy Fraker of Cre8tfutures Innovation System & Consultancy. Fraker has worked with the insurance industry for 30 years, including on auto insurance and autonomous vehicles, and with primary carriers, reinsurers and related sectors. In tracing how the market got to the crisis point, the report identifies four Florida laws passed between 2011 and 2019 as fostering the litigation crisis. They are statutes governing assignment agreements, mandatory replacement cost coverage for residential roofs, multi-year statute of limitations to file a first notice of loss and the one-way attorney fee. Also, two state Supreme Court rulings have exacerbated matters. This litigation environment has carriers steadily hemorrhaging capital and surplus. Fraker’s report says the roughly 6% of homeowners insurance claims being litigated are equal to the cost of a “good solid Cat 3 hurricane” every 12 months. “This market is at a critical inflection point. The longer and broader these trends continue, the more likely the state will face a recovery measured in generational time horizons,” the report warns. “The time for hoping some theoretical break point doesn’t materialize is over.” Fraker was commissioned last year to do the Florida market analysis by insurers, lawsuit reform groups, and others. Florida State Senator Jeff Brandes, a member of the Senate Banking and Insurance Committee who has been sounding alarms about the Florida property insurance market, helped spearhead the effort. Fraker’s study argues that the state’s residential P/C insurance marketplace “faces a convergence of existential threats in the form of increasingly unpredictable claims litigation, from rising costs of risk capital and from its persistently high exposure to natural catastrophe risks.” The report argues that “targeted legislative reforms are needed in order to preserve the insurance industry’s viability while serving property owning Floridians and Florida’s economy,” while adding that “without intervening public policy solutions, the residential property insurance marketplace will experience failure.” Fraker said in an interview with Insurance Journal that he agreed to do the report on “behalf of Florida’s economy and Florida’s consumers, not the industry [or] any other stakeholder groups.” Florida Property Market Report Recommendations There is no panacea to fix the Florida market, according to the Fraker report. “For those seeking a single reform to turn this market around, such an answer does not exist,” Fraker writes. Instead, he says, Florida legislators in the 2021 and 2022 sessions must take multiple actions to get this crisis under control. The best reforms would include terminating any attorney contingency fee statutes that create arrangements unique to the insurance industry, followed by eliminating fee enhancements, particularly from litigation reliant upon the Concurrent Causation in order to prevail, the report states. “Despite rhetoric lacking in facts to the contrary, those statutes included in this analysis have not evened the playing field for the consumers who dispute their insurers,” it claims. His other recommendations include:
“Multiple legislative reforms are the only lock capable of closing Pandora’s box,” the report states, and the worst-case scenario without reform will be devastating to Florida’s economy and take a generation to fix. In a statement to Insurance Journal on the report, Florida State Senator Jeff Brandes, a member of the Senate Banking and Insurance Committee, said, “Mr. Fraker’s report presents a new and objective voice and greater transparency than ever before for much needed legislative action.” Brandes, who sits on the Banking & Insurance Committee, has said one of his primary legislative goals over the next two years “is to put the Florida insurance market on a sustainable path.” In compiling the report, Fraker said he interviewed insurance executives from companies, regulators, lobbyists/advocates, plaintiff counsel firms, defense counsel firms, building and roofing contractors, consumer advocates, reinsurers, ratings agencies, as well as investors and a climate scientist. He also analyzed litigation records and reviewed thousands of documents from regulators. While Florida has faced three consecutive years of major hurricanes from 2017 to 2019, insurers have insisted that the insurance problems are tied to an exponential increase in litigation. Florida domestic carrier results showed a continuous drop in surplus over the last five years that culminated in a single year underwriting loss of more than $1 billion through the third quarter of 2020. Florida Insurance Commissioner David Altmaier told the Senate Banking and Insurance Committee on Jan. 12 that carriers were on pace to nearly double their losses in 2020 compared with 2019, as their surpluses fell from $6.7 billion to $6.1 billion in just the first three quarters of the year. The combined ratio for Florida domestics was over 100% in the third quarter of 2020 and has been “trending upward for several years.” Carriers writing property risks in the state have been responding by pulling back capacity in certain areas including south Florida and more recently central Florida, along with filing for rate increases. Altmaier said insurers submitted 105 rate filings in 2020 for increases of 10% or more and 55 of those filings were approved; in 2016 only six rate increases were approved. Florida’s insurer of last resort, Citizens Property Insurance Corp., has received a flood of new policyholders over the last year as consumers struggle to find coverage in the private market. The problems are also starting to impact Florida insurers’ ability to get reinsurance capital in the catastrophe prone state. “These losses are having a direct impact on the surplus position of our industry,” Altmaier said. “As capital and surplus deteriorates, companies lose the flexibility to be able to write additional business … that has consequences for the consumer.” Litigation Explosion Fraker blames a convergence of several events that have “moved the market from stabilizing towards total collapse.” Fraker said four individual Florida statutes governing assignment agreements, mandatory replacement cost coverage for residential roofs, multi-year statute of limitations to file a first notice of loss and the one-way attorney fee statute were passed between 2011 and 2019 “individually and in an isolated form without real consideration for how they might someday form a relationship.” Additionally, two Florida Supreme Court decisions – Joyce vs. FedNat (2017) that found a contingency fee multiplier does not need to be reserved for rare and exceptional circumstances; and Sebo vs. American Home Assurance (2016) where the court shifted to using the Concurrent Causation Doctrine that permits a covered cause of loss (such as wind) to combine with damage caused by non-covered cause of loss – helped propel the market towards crisis. “The combination of these policies and court decisions represents an ideal combination for significant financial exploitation,” the report states. “The volume of claims following each major storm became the fuel and the architecture for an economic engine distinct to Florida generally referred to as ‘Litigation.'” Insurers have racked up more than 200,000 lawsuits since 2013, many of them stemming from non-catastrophe water damage and roofing claims, and many of them with assignment of benefits agreements attached. After reforms were passed in 2019, there was a dip in AOB lawsuits, particularly for Citizens, Fraker notes. However, by the third quarter of 2020 plaintiff attorneys had established a work around to AOB with a “Demand to Pay,” instead filing first party suits against carriers. According to Fraker, the cost of this litigation cannot be understated. He found that while there has been an obvious influence of catastrophic storms on claim frequency, non-catastrophe claims have accounted for approximately 60% of all litigation filed against Florida’s domestic companies while 40% of the litigation is associated with cat losses. In analyzing more than 3,000 insurance cases, Fraker found that litigation costs are 17% higher for Florida insurers than in other catastrophe-prone states. The fees paid to attorneys by Florida carriers for this litigation are on average more than 750% of the damages paid to the plaintiffs/insureds. In one case Fraker examined, the plaintiff attorney was awarded 21,041% of the damages in fees. Insurers have paid out more than $12 billion in fees to attorneys since 2013 and were engaged in more than 221,000 suits between 2014 and 2020, according to the report. The costs of all this litigation equals approximately $3 billion in expenses “being forced upon Florida property owners,” the report states. In 2019 alone, Florida insureds paid between $2 billion and $2.7 billion in costs allocated to suits in the form of increased premiums. Fraker said just 8% of damages are paid to insureds while plaintiff attorneys receive about 71% of the insurance litigation cash flow “because they are allowed to, not because plaintiff attorneys are motivated to do harm.” Insurer defense costs range from 237% to 307% of damages, or 21% of total litigation. “Florida’s P&C litigation economy may be rooted in hurricane recovery. However, like every emergent economy, the state’s litigation economy required nurturing and protections in order to become established,” the report says. “Yet, unlike an economic system balanced by governance relevant to all stakeholders, Florida’s litigation economy operates almost entirely at the expense of insurers, then ultimately the State’s economy and resident consumers. As a result, the value of corporations, the value of jobs, and spendable consumer income is either destroyed or greatly degraded.” Forecasting Litigation It isn’t just Florida insurers paying the price of the litigation. Reinsurers and investors are paying close attention to the Florida market because it is no longer profitable, and they are now seeing a negative return on their investments. Fraker quoted one executive he spoke with for the report as saying, “I’d rather invest in time shares on the West Bank than to invest in the Florida insurance industry.” “Understand this proxy for an additional tax generates zero community, county, or state benefits because these billions are diverted away from Florida’s economy,” the report notes. There isn’t likely to be relief from rate increases for consumers either, as reinsurance rates increase for carriers and uncertainty about future litigation costs make it difficult for the industry to reliably model for litigation, the report notes. Florida carriers already pay 30% to 35% more on reinsurance premiums than other hurricane prone states and soaring litigation costs creates more concern. Fraker said insurers have underestimated preliminary damage assessments immediately following a hurricane by an average of 300% because of unforeseen litigation costs and that is also influencing reinsurance rates. For reinsurers as well as domestic carriers reflecting upon 212,000 litigated cases since 2015, the inability to reliably model litigation “is the final push off the cliff for Florida’s P&C market.” Fraker said because “there’s no way to reliably forecast the dollars and cents of this litigation storm,” he created a new financial construct called the litigation probable maximum loss (LPML). It is similar to the probable maximum loss (PML) model companies use in modeling catastrophic storm damage, but the LPML forecasts the range of litigation frequency and severity from thousands of insurance litigation data points extracted between 2016 to 2020. “Output from forecasting litigation costs through this construct is an assessment of litigation frequency and severity uncertainty, which is significantly influencing reinsurance rates in Florida which then becomes a cost burden affecting Florida’s domestic carriers, and ultimately for Florida consumers,” the study notes. Florida consumers are the ultimate victims of what is happening Fraker says, as they are essentially paying a “hidden tax” to fund the litigation. This hidden tax averaged $487 per family in 2019, and is growing annually by 25.6%, totaling about $680 per family in 2020. That “tax” is being paid to less than 2,500 attorneys and contractors in the state. Meanwhile, the narrative by plaintiffs’ attorneys that insurance companies created this crisis because of poor claims’ handling practices is a “catastrophic PR failure” on the part of the industry, Fraker said. “The reality is whether it’s a catastrophe claim or not, 92.5% of all claims are closed within a year; 80% of the claims that require more than one year involve representation by a third party,” he said. The carriers in the marketplace have between a 95.2 and a 98.3 policy holder retention rate, he noted. |