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The federal government Friday rolled out a flood-insurance program revamped to reflect worsening climate change, a program that will raise rates for millions of homeowners in wealthy coastal areas and humble inland communities alike.

The Federal Emergency Management Agency in April announced the first significant update to the beleaguered National Flood Insurance Program, which covers about 5 million properties. Premiums have risen steadily, but the program is more than $20 billion in debt, thanks in part to rising seas and stronger storms. Now, a quarter of the participants will see lower costs, while the remainder will see premiums rise in increments as high as 18% annually. The maximum total increase will be $12,000, a level that will affect only the most expensive real estate.

“Climate change is going to make housing more expensive than it already is,” said Daryl Fairweather, chief economist at Redfin Corp. “This is just a first step.”

FEMA is facing an urgent but unpopular task. The program was created in 1968, when there were fewer major storms and fewer people living by the sea. But the U.S. coastal population grew by over 15.3 percent between 2000 and 2017, to over 94 million. Moreover, many inland places that have seen huge surges in flooding lack accurate maps. A 2017 report from the Department of Homeland Security inspector general found that 58% of FEMA flood maps were wrong or outdated.

The insurance program was originally meant as a backstop for homes that private insurers found too risky. Now, however, it covers 95 percent of residential flood policies. In all, the program sweeps in about 5 million properties, including primary and vacation homes and businesses. Deeply subsidized premiums, averaging under $800 annually, mean that the agency routinely pays out nearly four times what it takes in.

David Maurstad, the program’s senior executive and architect of the overhaul, said that nearly 90% of members would see premiums fall or rise only slightly, rather than the blanket increases of past years.

“The new rating methodology is correcting longstanding inequities,” he said Thursday. “We can no longer continue to ignore the fact that some of our policyholders had been unjustly subsidizing other policyholders. They should no longer bear the cost for the policyholders with higher-value homes, who’ve been paying less than they should.”

Until now, FEMA used a fairly simple methodology developed in the 1970s that based risk ratings on two factors: whether homes were inside a severe flood zone and their elevation within those zones. FEMA says its new model, known as Risk Rating 2.0, is based on huge advances in technology. The leaps include sophisticated catastrophe models that are standard for the private insurance industry, which will allow officials to evaluate individual properties and assess risk fairly.

Hiking premiums may encourage homeowners to think more deeply about the wisdom of living in endangered areas.

“People need to have very difficult conversations about adaptation, about relocating, ” said Laura Lightbody, project director of the Flood-Prepared Communities initiative of the Pew Charitable Trusts. “Price is one of the most clear ways to communicate risks.”

But even large premium increases may not nudge people away from the water. Residents of wealthy vacation spots like Miami Beach, Florida, and New York’s Hamptons can afford them. Kevin McAllister, founder of Defend H20, a Hamptons nonprofit, said that $12,000 is “the cost of a Belgian block driveway or less for these homes.”

Gene Stilwell, executive sales manager at Town & Country Real Estate in East Hampton, said many residents will take the revamped program in stride.

“It’s worth it,” he said. “If something happens, they have the means to reconstruct and rebuild and fix whatever flood damage has occurred.”

Meanwhile, many other places with scant resources will be feeling painful increases for the first time. An $800 policy that increases 18 percent over 10 years would be $4,188, a significant increase for someone on a budget.

Last week, senators including Democrats Chuck Schumer of New York and Robert Menendez of New Jersey, and Republican Marco Rubio of Florida wrote FEMA to ask that the roll-out be delayed, arguing that too many people would see increases too abruptly. “This is a sharp departure,” they wrote.

Maurstad replied that the plan had been delayed once, and that the increases would proceed Friday.

On Monday, Menendez will introduce legislation that could cut maximum annual increases to 9%, institute means-testing and add vouchers for those who cannot afford the increases.

Citizens Property Insurance Corp. president Barry Gilway said at a Wednesday board of governors meeting that the organization is considering “all ideas to reduce exposure” as policies mount by the thousands.

Gilway said Citizens is accepting policies at a rate of 5,000-6,000 per week as private market insurers withdraw coverage amid significant losses.

Citizen’s policy count is on pace exceed 760,000 by the end of the year, which could push the company’s exposure growth to more than $230 billion.

“I think it would be optimistic to consider that we are going to get any significant depopulation activity until probably the second or third quarter of next year,” Gilway said.

Created by the Florida legislature as the insurer of last resort, Citizens provides insurance to property owners unable to find coverage in the private market.

Gilway said the increase in policies has already had an impact on staffing, particularly at Citizens’ call center where calls have increased to more than 86,000 per month, up 59% from 2020.

At a Tuesday Exposure Reduction Committee meeting, Citizens officials offered proposals that would refer potential policyholders to the private market.

Any such proposals would likely have to go through the Florida legislature, which reconvenes in January 2022.

“At this point, everything is on the table as we try hard to support the development of a stronger private insurance market and stabilize the role of Citizens as the market of last resort,” said Nelson Telemaco, chairman of Citizens’ Exposure Reduction Committee.

Many homeowners, especially rookies who are new to the game, have no clue what their homeowner’s insurance policies cover. Buyers know they must have insurance, or their lender won’t provide the financing. And they should know they must keep coverage in place, or the lender could call their loans due and payable in full. (As an alternative, the lender could put a policy in place at a much higher premium, tacking the extra cost onto the owner’s monthly house payment.)

But as for knowing what’s covered? Most people don’t even read their policies. That’s understandable, considering most policies are written in legal gobbledygook that few of us can understand. But when you don’t know what’s covered and what’s not, you could be in for a big surprise when the time comes to make a claim.

Here, then, with a nod to the Insurance Information Institute and other sources, is a basic primer on insurance coverage.

A standard homeowner’s policy has four types of coverage: the structure itself, your personal belongings, liability and additional living expenses.

Structural coverage pays for repairing or rebuilding the house if it is damaged by fire, lightning, wind, hurricane or other disaster listed in the policy. The most popular policy, known as HO-3, offers the broadest coverage, protecting against 16 enumerated perils.

The personal belongings section covers your furniture, clothing and other personal items if they are stolen, or if they are destroyed by an insured disaster.

Liability coverage protects you from lawsuits for injury or damage caused to other people by you, your family members or even your pets. It also pays for the cost of defending you, as well as any court awards, up to the policy’s limit. And it covers not just your house, but you — anywhere in the world. If your house is uninhabitable because of damage from a listed peril, the insurer typically will pay for your hotel, restaurant meals and other living expenses while the place is being rebuilt. If your house is a rental, and your tenants are unable to live there during repairs, the policy may even cover “loss of use” — meaning it will pay you the rent you couldn’t receive during your tenants’ absence.

While an HO-3 policy is the most popular, others are available. An HO-1 policy sets bare-bones coverage, while an HO-2 offers slightly more (but less than an HO-3). An HO-4 policy is for people who rent single-family houses, and covers their personal belongings against all 16 perils. And an HO-6 policy is for those who own condominiums, covering their belongings and the parts of the structure they own.

As important as what’s covered by your policy is what’s not covered. Floods are not, for example, so you’ll need a separate policy for that. Sometimes, flood coverage is required to obtain and maintain financing, but even if it’s not, it’s a good idea to give it a long, hard look. Floods can occur anytime, anywhere — and not just from gigantic storms. Other typical exclusions include damage from earthquakes, war, pollution, nuclear accidents, intentional damage, normal wear and tear, construction defects, vehicles parked on the property, frozen pipes and vandalism.

Once you settle on the specific policy, you need to choose one of three levels of coverage:

-- Actual cash value: Pays to replace or repair the home and replace your possessions, less a deduction for depreciation.

-- Replacement cost: Pays the same as above but without deducting for depreciation. Note: Whereas replacement-cost policies cover the structure, they do not cover anything above the actual cash value of your possessions.

-- Guaranteed or extended replacement cost: As the highest level of protection, guaranteed coverage pays whatever it costs to rebuild the house as it was, even if it exceeds the policy’s limits. An extended policy pays for a certain percentage — usually 20% to 25% — over the limit. While this protects against sudden increases in construction costs when there’s a shortage of materials after a major, widespread disaster, it won’t pay to bring your place up to current building codes. For that, you’ll need an “ordinance or law endorsement,” which will help pay the extra freight.

Obviously, the more coverage you purchase, the higher your premium. The amount you pay also is governed by your deductible: The larger the deductible, the lower the rate. But you shouldn’t stop there. Beyond flood coverage, you’ll want to add riders, aka endorsements, to your coverage to cover any items you may have that are excluded from your standard policy. The list of excluded items is a long one: jewelry, business equipment, wine collections, luxury rugs, antiques, furs, silverware, watercrafts and fine art, to name a few.

Once you put coverage in place, it’s a good idea to perform an annual insurance checkup to make sure your property is still protected at its current value — up or down — as opposed to what it was worth when you put the policy in place. To protect against that, consider an inflation guard endorsement so that coverage is automatically increased every year.

Your annual review should also cover your riders. Maybe you no longer own that beautiful mink coat, for example, or perhaps you bought a van Gogh to hang on your living room wall.

Plagued by worsening financial issues and under pressure from credit rating agencies, Gulfstream Property and Casualty Insurance Co. entered the first months of 2021 determined to increase its capital contributions.

The Sarasota-based personal residential insurer had just come off a bleak 2020 calendar year and was struggling to maintain the minimum $10 million surplus.

Gulfstream believed it had finally found an adequate investor by early 2021. The suitor had approximately $3 billion in assets and was deep in due diligence with the Sarasota-based residential insurer when disaster struck. Severe winter storms hit the south-central region, where the company has thousands of policies in Texas and Louisiana. Gulfstream, which also operates in Florida, Alabama, Mississippi and South Carolina, was forced to demand higher required contributions. The suitor pulled out.

Insurer rating experts at Demotech advised Gulfstream executives in March that they must improve operating results if the carrier was to keep it sfinancial stability rating. By then, money had dried up.

Gulfstream was one of several Florida-based private carriers to suffer significant losses in 2020. Gulfstream reported a decrease in surplus of more than $5.2 million as of Dec. 31, 2020 compared with the same date in 2019. The surplus included a net loss of $22.6 million and a net underwriting loss of $34.9 million.

Without capital contributions of $17.1 million, the company would have been below the minimum $10 million at year’s end.

“They had to get rate increases, they had to get additional capital, and I think the reality is they were doing both,” Demotech President Joseph Petrelli told Insurance Journal. “Management had put in money. The company had filed for rate increases and received rate increases and then filed for more. They just couldn’t get enough money in fast enough.”

By May, Gulfstream had received Florida Office of Insurance Regulation approval to cancel approximately 20,311 personal residential policies. The company said it would no longer have risk on any policies outside Florida past June 1.

Even with reduced risk and a shrinking number of policies, Gulfstream couldn’t righten its finances fast enough. Demotech withdrew its “A” designation and shortly after that the OIR placed Gulfstream under administration supervision for failing to maintain the minimum surplus to pay claims.

Though administration supervision is usually confidential, the OIR determined it was in the best interest of the public, Gulfstream and its policy holders to forego that confidentiality.

The OIR notified Gulfstream on June 25 that was under administration supervision, a 90-day period during which Petrelli expects the state to be a “little bit of a matchmaker” so policies might go to another company rather than going to state-run Citizens Property Insurance.

Citizens President and CEO Barry Gilway said during a Wednesday, July 14 Board of Governors meeting that supervision will 35,000 Gulfstream policies will likely be subject to a liquidation order in the next week or so.

“We do have companies that are interested in picking up that book,” Gilway said. “The bottom line is we do believe there may be opportunities for one and maybe two companies to pick up the 35,000 policies. If they do, there is very limited impact on Citizens.”

Known as the state’s insurer of last resort, Citizens has seen a significant increase in its policies since late 2019. Company officials said policies are growing by more than 5,000 per week.

“After holding stable for a number of years at about 430,000 policies, now we’re up over 650,000, or so,” said Citizens spokesman Michael Peltier. Peltier, who declined to speak specifically on Gulfstream, said Hurricanes Erma and Michael in 2017 and 2018 have led to a series of long litigations for Florida insurers, eating into their surpluses.

“Companies have had to adapt which means in many cases shedding risk and those policies are coming to us,” he said.

Petrelli expects that the worst is over as companies have trimmed the number of policies they write and issue and strengthened their balance sheets.

Absent a Black Swan event, such as a severe hurricane or series of potent storms, Florida insurers that Demotech works with are in good shape.

“The reality is most of the companies we’ve dealt with either had their capital infusions or they’re big enough that they were okay on their own,” said Petrelli.

After Surfside disaster, some foresee ‘huge problems’ for associations 

Owners of older condominiums in Florida can expect to pay more for insurance coverage as a result of the Surfside collapse — if they can find insurance at all. The tragedy is already sparking discussions among insurance experts across the state about how they might be able to get out of paying for future collapses. Experts say that condo owners should brace for higher costs and possible changes to commercial policies that condo associations buy to cover their buildings, as well as to policies that unit owners buy to cover what happens inside their four walls.

With two-thirds of condo buildings in South Florida at least 30 years old, thousands of condo owners will likely be forced to reach deeper into their pockets, experts say — not only for higher insurance costs, but also for engineering reports and repairs that insurers are expected to start requiring. “Before this tragedy happened, condos had problems finding private insurers,” said Jan Bergemann, who heads a statewide advocacy group for condominium owners called Cyber Citizens for Justice. “Believe me, [the collapse] will just increase the problem and if insurance companies demand engineering reports, we will see huge problems for these condo associations.”

Barry Gilway, CEO and president of state-owned Citizens Property Insurance Corp., told his company’s governing board that private-market insurers will use the collapse to justify dropping coverage of older condo buildings. Condo associations will be left with no choice but to seek coverage from Citizens, the so-called “insurer of last resort,” he said. “We can expect companies to be far more stringent in their underwriting requirements,” he told the board on Wednesday. “And that will send more business our way.”

Citizens doesn’t want older condos. If Gilway has his way, those buildings won’t be insured by Citizens unless owners can prove that they aren’t at risk of collapsing. He said the company should prepare to tighten its own eligibility criteria, including requiring associations to submit structural engineering reports. What the company will need to figure out, he said, is “how aggressive do we get” in establishing criteria meant to reject buildings most likely to generate costly claims. “Can we put in underwriting criteria that are very explicit, for example, that we will not write a [building] without a full structural integrity engineering report? Will we need to require a 40-year certification in order to [cover] a residential condominium? By doing that, we can stop that business from coming in.”

Citizens will likely require approval from the Office of Insurance Regulation for any changes to eligibility criteria. In addition, the state Legislature is expected to look into possible revisions to condominium laws when committee meetings begin this fall in preparation for the 2022 session. Private-market insurers, however, have the flexibility to change provisions of commercial policies — and even cancel policies in the middle of policy terms — without prior approval from state regulators, said Charles Nyce, associate professor of risk management and insurance at Florida State University’s College of Business. Some companies might decide to exclude or limit coverage for building collapses, Nyce said.

Private-market insurers, which currently cover all but about 330 commercial condo policies that are in Citizens, could impose requirements similar to those sought by Gilway, experts said. “Gilway is correct. A lot of insurers are going to be taking a harder look at what that risk looks like,” said Kyle Ulrich, president and CEO of the Florida Association of Insurance Agents. Insurers will likely require older buildings to submit documentation showing that they passed local inspections, Ulrich said. They’ll also insist that condo associations order structural engineering reports and send copies to them for review, he said. Biggest cost hikes likely won’t be premiums 7/18/2021 S

More frequent inspections and engineering reports will cost associations money that will be recovered from owners. Insurers will be forced to increase premiums to cover the costs of reviewing those reports. But the biggest cost increases for owners probably won’t be in the form of higher insurance premiums, said state Sen. Jeff Brandes, a Tampa-area Republican who in recent years has been heavily involved in the Florida Legislature’s insurance reform efforts. Brandes says the steepest price hikes will result from insurers’ requirements that condo associations make “substantial investments” to fix any structural defects identified in those required structural engineering reports. And “they’re not going to write [policies] unless they have a signed agreement that the work is going to be done,” he said.

Condo associations will have little choice but to make the improvements and pass the costs to owners if they want to remain insured, he said. A potential way to fund repairs While commercial condo policies that cover building structures are written by just a few state-regulated insurance companies and unregulated surplus lines carriers, the most common policies are those purchased by condo owners themselves that cover what’s inside, and not outside, a unit, including personal property, bathroom and kitchen fixtures, cabinets, countertops, plumbing, floors, carpeting and interior walls. Those condo policies, which are typically sold by many of the same state-regulated insurers that cover single-family homes, are required by law to provide at least $2,000 in coverage for special assessments levied by condo associations for losses.

The way it typically works is if a condo association’s building policy cannot fully cover the cost of a repair, the association will bill owners for the remainder of the repair cost as a special assessment. Condo owners can recoup that special assessment, up to the limit of their coverage, from their own insurers. Coverage for special assessments is meant to pay for unexpected but minor damage, such as replacing fascia after a hurricane, as well as liability claims, like a drowning in a community pool. Coverage is triggered not when the event occurs but on the date the owner gets the bill for the assessment. “Routine maintenance is not covered,” said an executive of a Florida-based insurer, whose president would not authorize him to speak for attribution. Some insurance industry insiders, the executive said, are concerned that if increased scrutiny of structural integrity triggers a tidal wave of required repairs, lawmakers could decide to require loss assessment coverage to help foot the bills.

“The industry has to look out for a stroke-of-the-pen decree that the insurer is on the hook for all loss assessments, even problems that started 30 years ago,” he said. If that happens, he expects many insurers to stop offering condo unit coverage. Chip Merlin, president of Merlin Law Group, a Tampa-based law firm specializing in property insurance litigation, said he’s concerned that insurers will try to water down or eliminate loss assessment provisions in all of their policies to prevent it from being applied to structural repairs. Waiting to learn cause of collapse Some experts interviewed for this story say it’s premature to predict how the insurance industry will react to the collapse.

Investigations into what caused it are still in the early stages, and the insurance industry is waiting for results before making major changes to coverage criteria or prices, Nyce said. “Hopefully most companies will want to find out the cause first,” he said. “This was not a normal event.” Questions yet to be answered include: Were inspectors not doing their jobs and certifying buildings as safe? If insurance companies feel Miami-Dade County was not doing its job, rates in that county may go up.

“There are lots of theories. If it’s determined there were common construction practices in the 1970s and 1980s that caused it, then yeah, we’ll probably see rates rise for older buildings.” Merlin sees the possibility of a different outcome. With property managers and association boards now prioritizing maintenance and repairs, one could argue that condo buildings are safer today than before the tragedy happened, he said. “If you are in a building and you see cracks in concrete and rebar that’s deteriorating, you’re going to be asking your board or property manager, ‘What are we doing about this?’ ” Hopefully all of the repairs will make insurers want to cover more condo buildings “and we’ll see that reflected in lower rates,” he said.

Florida Governor Ron DeSantis has vetoed a measure intended to replace auto insurance personal injury protection (PIP) coverage with bodily injury coverage limits and a requirement that insurers offer medical payments coverage.

In a letter time-stamped at 9:12 pm last night, DeSantis wrote that he was vetoing the bill (SB54) because it may have “unintended consequences.”

The bill received widespread support from Florida lawmakers but faced scrutiny from critics including insurers arguing that the repeal would raise rates and lead to a higher number of uninsured drivers.

DeSantis seemed to have listened to the critics.

“While the PIP system has flaws and Florida law regarding bad faith is deficient, CS/CS/SB 54 does not adequately address the current issues facing Florida drivers and may have unintended consequences that would negatively impact both the market and consumers,” DeSantis wrote in his veto letter.

SB 54 would have repealed the state’s no-fault PIP system and instead required mandatory bodily injury coverage of at least $25,000 for all Florida drivers. The passed version of the bill also provides the option of a $5,000 medical payment coverage (MedPay) death benefit.

Bill sponsor Danny Burgess, a Republican, pointed to a 2016 Office of Insurance Regulation study that showed rates would decrease if PIP was repealed.

Opponents of the repeal said it would have the opposite effect.

Insurer trade group American Property Casualty Insurance Association argued the cost of an average auto insurance policy could increase by as much as 23%, or $344. Drivers with low coverage levels could see an increase as high as $805 annually.

“Moving forward, we hope any proposals to reform or eliminate Florida’s no-fault auto insurance system will reduce consumer costs, combat rampant lawsuit abuse by implementing meaningful bad faith reforms, and prevent or minimize fraud,” APCIA said in a statement applauding the veto.

Florida Gov. Ron DeSantis on Friday officially signed into law reform legislation on property insurance and roofing contractor practices, a measure some say is having a positive impact even before it goes into effect.

DeSantis signed the measure during a morning roundtable with sponsors and business groups in Sarasota. The measure – known as SB 76— will officially go into effect July 1.

But, according to several participants at the roundtable, including Insurance Commissioner David Altmaier, some effects are already being realized.

“Already there is a lot of positive as a result of this bill,” Altmaier said. He said insurers and reinsurers have both reacted positively and that he has seen that private carriers are beginning to pick up more homeowners policies across the state.

Rep. Bob Rommel, who worked on the House version of the bill, also said insurance carriers are already showing a willingness to again invest and come into the state since the bill passed.

DeSantis said Florida is “uniquely susceptible to having to respond to natural disasters and that naturally” has an impact on insurance.

He said the bill is a response to many problems that he and the sponsors of the bill saw in the system.

“Many of you know over the last decades, there’s been a lot of ups and downs in this property insurance market in Florida,” he said. “We saw a lot of problems. You’ve seen major premium increases and you even see some homeowners, their policies get canceled. They get dumped onto Citizens. So, we wanted to do something to stabilize that.”

DeSantis said the state wants to encourage more private sector involvement and give homeowners policies that are more affordable and that will “protect them from whatever mother nature throws our way.”

“I think we were able to do that,” the Republican governor added.

Supporters hope SB 76 will begin to reduce litigation and control home insurance premiums.

Sen. Jim Boyd, also owner of Boyd Insurance & Investments in Bradenton, said his insureds have been seeing rate increases of 20, 30 and 50%. “So we needed to do something,” he said.

Boyd said it may take a year to 18 months for rates to come down but he is confident it will happen.

DeSantis revealed his intentions to sign the measure during a meeting of the Enterprise Florida board of directors Wednesday. He said then that he thinks the legislature did a “pretty good job” addressing the insurance market but that the state is probably going to have to do more, according to the Orlando Sentinel.

Some stakeholders agree with DeSantis that more needs to be done to lower costs and reduce litigation, citing the omission of two provisions the insurance industry said were essential.

The legislation, which passed on the last day of the legislative session, includes changes to the state’s one-way attorney fee statute, the eligibility and glidepath of Citizens, and the deadline to file claims. It also places new requirements and restrictions on roofing contractors.

But two provisions the industry and experts identified as critical to addressing cost drivers and stabilizing the market were left out of the final bill — the elimination of the state’s attorney fee multiplier and a provision allowing insurers to implement policy language to mitigate roof replacement costs. The provisions were sticking points in both legislative chambers.

Industry groups in Florida applauded the signing of SB 76.

“When Florida accounts for only 8 percent of the nation’s property insurance claims but 76 percent of national property insurance litigation, you know there is a problem,” said Mark Wilson, president and CEO, Florida Chamber of Commerce. Wilson said the measure “addresses some of the root causes that are rapidly increasing homeowner’s insurance rates.. He cited specifically attorney fee reform and roofing solicitation practices that he said have been were driving lawsuits.

“As Governor DeSantis has said before, Florida’s legal system should resolve real disputes and not be used as a game,” said William Large, president of the Florida Justice Reform Institute (FJRI), a legal reform lobbying group. Large also cited the reform of the attorney fee formula. FJRI believes the new attorney fee formula will encourage more reasonable settlement offers by all parties and discourage non-meritorious claims, and we look forward to seeing the positive impact of this new approach in practice,” said Large

In its key provisions, the legislation signed by DeSantis:

• Changes the eligibility, rate glidepath and actuarily sound rate indication for Citizens Property Insurance Corp.
• Replaces the one-way attorney fee-statute to make the recovery of attorney fees and costs contingent on obtaining a judgment for indemnity that exceeds the pre-suit offer made by the insurance company.
• Reduces the claims deadline on all claims to two years from the date of loss, except for on supplemental claims which will have an additional year.
• Requires plaintiffs to file a pre-suit demand at least 10 days before filing a lawsuit against an insurer that includes an estimate of the demand, the attorney fees and costs demanded and the amount in dispute; disallows pre-suit notices to be filed before the insurance company can make a determination of coverage; and allows an insurer to require mediation or other form of alternative dispute resolution after receiving notice.

The bill also makes several changes to tackle what insurers claim has been an explosion of roofing claims and litigation, including making it illegal for roofing contractors or any person acting on their behalf to make a “prohibited advertisement,” including an electronic communication, phone call or document that solicits a claim. Offering anything of value for performing a roof inspection, an offer to interpret an insurance policy or file a claim or adjust the claim on the insured’s behalf will also be prohibited. Additionally, contractors are prohibited from providing repairs for an insured without a contract that includes a detailed cost estimate of the labor and materials required to complete the repairs. Violations could result in fines of $10,000.

AM Best’s composite of Florida property insurance companies hit five-year performance and surplus lows in 2020, and given persisting and significant market hurdles, companies will find sustaining current surplus levels a challenge, according to a new commentary from the ratings firm.

In its Best’s Commentary, “Florida’s Difficult Market Continues to Challenge Insurers,” AM Best states that despite no hurricanes making landfall in 2019-2020, Florida property insurance writers still posted a combined ratio of 131.5 in 2020, an 18.2 percentage-point deterioration from 2019. Both years reported greater volatility compared to 2017-2018 due to social inflation pressures, which has increased the severity of claims and litigation costs; more-frequent severe convective storms; and an increase in roof replacements, Best said.

Insurers have requested material rate increases, often in the double digits, to offset elevated pressure on profitability, and have revised their risk appetite for select pockets of Florida business.

“However, rate increases have not kept pace, leading to declines in underwriting profitability,” the commentary states.

Over the last five years, the mounting pressures also have led to a 9.7% decline in surplus, with aggregate losses reported each year. These actions have led to an increase of in-force policies at Florida’s residual insurer, Citizens Property Insurance Corp. Beginning in 2019 through the first quarter of 2021, Citizen’s personal residential policies in force increased by 29.3%.

In addition, the reinsurance market has hardened, resulting in higher costs for reinsurance protection. Expectations for a more-active storm season also may influence reinsurance purchase decisions. Hurricanes over the last five years have largely been considered earnings events, given that reinsurance programs acted as intended, limiting the impact to the balance sheet.

However, given the added challenges, pressure has started reaching past operating performance and eroding balance sheet strength. Primary insurers are nearing the close of the midyear reinsurance renewal season, which will provide insights to specific shifts in price and its impact.

Florida Gov. Ron DeSantis said that he will sign recently-passed legislation addressing property insurance costs and roofing contractor practices while adding that he believes that the state needs to do more to curb excess litigation and improve the insurance market.

The measure he said he will sign attempts to solve some of the issues plaguing the state’s homeowners insurance market in which insurers lost more than $1.5 billion last year. Consumers are facing double-digit rate increases, restricted coverage, or having to turn to the state’s insurer of last resort, Citizens Property Insurance.

DeSantis revealed his intentions to sign the measure during a meeting of the Enterprise Florida board of directors. He said that he wants to see “manageable premiums” and a “stronger private insurance market,” according to the Orlando Sentinel.

He said he thinks the legislature did a “pretty good job” addressing the insurance market but that the state is probably going to have to do more.

The governor’s office told Insurance Journal DeSantis had not yet signed the bill as of late morning.

Some stakeholders agree with DeSantis that more needs to be done to lower costs and reduce litigation, citing the omission of two provisions the insurance industry said were essential. Other policymakers are optimistic that the measure as passed will still have a positive effect.

The legislation, Senate Bill 76, which passed on the last day of the legislative session session, includes changes to the state’s one-way attorney fee statute, the eligibility and glidepath of Citizens, and the deadline to file claims. It also places new requirements and restrictions on roofing contractors.

But two provisions the industry and experts identified as critical to addressing cost drivers and stabilizing the market were left out of the final bill — the elimination of the state’s attorney fee multiplier and a provision allowing insurers to implement policy language to mitigate roof replacement costs. The provisions were sticking points in both legislative chambers.

Sen. Jim Boyd, also an insurance broker and owner of Boyd Insurance & Investments in Bradenton, Fla., acknowledged that what passed didn’t have everything he or the industry wanted, but he is confident what did pass will make a difference.

“Rates aren’t going to go down tomorrow, of course,” Boyd said. “But I firmly believe this will have a definite downward impact on what has been continually rising homeowners rates in Florida … I really, truly believe we have done a lot of good toward getting at the root causes of the problem.”

Sen. Jeff Brandes, who co-sponsored the legislation, voted to pass the bill but said it was only a “40% solution for what is needed in Florida to bend the cost curve. Hopefully, it stabilizes rates, but really will ultimately do nothing to actually lower them,” he told his Senate colleagues.

“In my view, the most important provisions are the ones that didn’t get in it,” said Joseph Petrelli, president and founder of ratings analysis firm Demotech, which rates more than 40 Florida domestic insurers

“It’s a watered-down bill that won’t restore market stability. It will not curb rate increases,” agreed American Integrity CEO Robert Ritchie. “Everybody is set up for these expectations and everybody’s going to be mad at each other.”

The insurance measure was one of 13 bills sent to DeSantis yesterday for signing. After signing by the governor, the legislation would take effect July 1.

In its key provisions, the legislation:

• Changes the eligibility, rate glidepath and actuarily sound rate indication for Citizens Property Insurance Corp.
• Replaces the one-way attorney fee-statute to make the recovery of attorney fees and costs contingent on obtaining a judgment for indemnity that exceeds the pre-suit offer made by the insurance company.
• Reduces the claims deadline on all claims to two years from the date of loss, except for on supplemental claims which will have an additional year.
• Requires plaintiffs to file a pre-suit demand at least 10 days before filing a lawsuit against an insurer that includes an estimate of the demand, the attorney fees and costs demanded and the amount in dispute; disallows pre-suit notices to be filed before the insurance company can to make a determination of coverage; and allows an insurer to require mediation or other form of alternative dispute resolution after receiving notice.

The bill also makes several changes to tackle what insurers claim has been an explosion of roofing claims and litigation, including making it illegal for roofing contractors or any person acting on their behalf to make a “prohibited advertisement,” including an electronic communication, phone call or document that solicits a claim. Offering anything of value for performing a roof inspection, an offer to interpret an insurance policy or file a claim or adjust the claim on the insured’s behalf will also be prohibited. Additionally, contractors are prohibited from providing repairs for an insured without a contract that includes a detailed cost estimate of the labor and materials required to complete the repairs. Violations could result in fines of $10,000.

More than 50,000 Florida policyholders will soon be looking for a new carrier for their homeowners insurance after three Florida-based companies were approved by the state regulator to drop the policies. The moves come just a few weeks before the official start of hurricane season and as legislation designed to target the state’s insurance market issues awaits the governor’s signature.

In consent orders signed by Florida Insurance Commissioner David Altmaier, Universal Insurance Co. of North America (UICNA) was approved to drop 13,294 personal residential policies and Gulfstream Property & Casualty was approved to cancel about 20,311 personal residential policies. Both insurers will remove the policies over the next 45 days.

Southern Fidelity Insurance Co. was approved to nonrenew approximately 19,600 personal residential policies over the next 14 months, with approximately 2,300 receiving less than the required statutory written notice of nonrenewal.

The early cancellation and nonrenewals of policies is “an extraordinary statutory remedy reserved to address insurers which are or may be in hazardous financial condition,” the Florida Office of Insurance Regulation stated in the orders, which also require the insurers to take other steps to stay solvent.

The regulator’s actions are the most recent indicators of Florida’s stressed insurance marketplace that has been described as “spiraling towards collapse.” Altmaier and others have previously warned of problems for Florida’s domestic companies thanks to spiking litigation, dishonest contracting practices, catastrophe events and high reinsurance costs. Florida insurers were reported to have lost a combined $1.7 billion in 2020.

“OIR remains focused on the protection of consumers and fostering stability in Florida’s insurance marketplace,” OIR said in a statement to Insurance Journal. “Allowing for the early cancellation or nonrenewal of policies is not a decision made lightly, and requires a finding that such action is necessary to protect the best interests of the public or policyholders.”

The respective orders outline what “hazardous” financial conditions led to the approval of the policy cancellations and nonrenewals:

Universal Insurance Co. of North America (UICNA)

UICNA’s cancellation of 13,294 of its 57,000 Florida policies will occur as part of a financial restructuring plan that includes a merger with and into Universal North America Insurance Co., a Texas domestic company.

UICNA reported net losses of $4.1 million in 2019 and $22.5 million in 2020, and had decreased its surplus by more than $9 million as of Dec. 31, 2020, OIR stated in the order approving the policy cancellations. UICNA’s surplus deterioration came despite the company receiving capital contributions of $13.5 million, without which it would have been considered an impaired insurer as it would have fallen below Florida’s minimum required surplus of $10 million.

OIR said UICNA provided financial projections that show without the cancellation of the approximately 9,341 homeowners policies and 3,953 dwelling policies, the company’s financial condition would further deteriorate to an unsustainable level by the end of 2021.

Given UICNA’s catastrophe loss experience, higher reinsurance costs, and significantly increased litigation, the identified policies for cancellation would “provide an immediate impact to the company’s financial position and facilitate the completion of a financial restructuring plan to protect its policyholders and the public,” the order says.

The policy cancellations are also a condition of the company’s merger plan, OIR said, which is still subject to approval by the Texas regulator. If the merger plan is not approved, or if Universal North America Insurance Co. is unsuccessful in becoming licensed in Florida, “UICNA agrees it will consent to immediate administrative supervision, for the purpose of conserving assets while UICNA develops a fully funded plan,” the OIR order states.

UICNA must file its plan of merger with OIR and the Texas Department of Insurance no later than May 14, 2021, and must provide at least 45 days’ notice of cancellation to the affected policyholders. UICNA must also continue to file monthly financial statements with OIR until further notice and submit an updated business plan to the regulator by Aug. 1, 2021 for the period of July 1, 2021 through Dec. 31, 2024. The plan must include the company’s ability to generate “successful operation results by the implementation of underwriting changes, rate adjustments, operational savings, capital management, and other significant modifications to its current business model.”

No policies from the block of cancelled policies can be rewritten on a different UICNA policy form or an affiliated insurer for a period of three years from the date of cancellation.

Southern Fidelity Insurance Co.

Southern Fidelity’s order, signed April 28, is the latest in a series of moves by OIR designed to “remediate the financial condition” of the company and to facilitate a long-term financial restructuring plan. OIR said it previously approved a rate increase, a merger with its sister company Capitol Preferred Insurance Co., the cancellation of an identified block of policies, and a capital contribution plan developed by Southern Fidelity’s new indirect owners, HSCM Bermuda.

The 19,600 policies Southern Fidelity is seeking to nonrenew are generating significant losses, and OIR found after evaluation that dropping the policies is “necessary to protect the best interest of its policyholders and the public.”

“Information filed by the company in support of its request demonstrates that without the approval of this plan of nonrenewal, the company would not be able to satisfy the surplus requirements of [Florida law], nor complete its long-term restructuring plan,” the order states.

Southern Fidelity is required to actively facilitate the placement of the policies to be nonrenewed through “robust” communication with its agents and by providing data to other insurers expressing interest in offering replacement coverage under a confidentiality agreement.

Southern Fidelity must also provide OIR with an actuarial review of its homeowners programs to “properly position its rates so as to avoid adverse selection and improve future loss ratios,” as well as adhere to file and use rate filings on a prescribed schedule. The company wrote more than 133,000 policies in Florida as of Dec. 31, 2020, making it among the top five insurers in the state.

Gulfstream Property & Casualty Co.

The financial condition of personal residential insurer Gulfstream, which has 56,000 policies in Florida, will deteriorate to an unsustainable level by mid-2021 without action, the May 6 consent order from OIR states. As such, the company has been approved to early cancel approximately 20,311 personal residential policies. Gulfstream has also signed a letter of intent with a new investor that stipulates the policy cancellations as a condition of its investment.

The company also reported that it will no longer have risk on any policies outside of Florida, except for about 90 policies in Texas that will non-renew by June 20, 2021, as part of an ongoing renewal rights transaction and withdrawal from the state of Texas.

Gulfstream reported a decrease in surplus of more than $5.2 million as of Dec. 31, 2020 compared with the same date in 2019, the order states. Its surplus included a net loss of $22.6 million, a net underwriting loss of $34.9 million and capital contributions of $17.1 million, without which its surplus would have fallen below the required $10 million.

If Gulfstream is unable to complete its obligations in the investor letter of intent or the move is not approved by OIR, Gulfstream will consent to immediate administrative supervision for the purpose of conserving assets while it develops a fully funded plan, the OIR order states.

Gulfstream has voluntarily ceased writing new business, OIR said, and may only resume doing so if its revised business plan is filed and approved by the regulator. Gulfstream must submit an updated business plan to OIR by July 1, 2021.

Demotech President Joseph Petrelli said Florida companies are taking action to nonrenew and cancel policies to lower their exposure in particular geographic areas and their reinsurance costs. Demotech requires “rigorous” reinsurance programs from the Florida insurers it rates, and advised in March that several companies may need to remove certain policies from their books “whose underwriting characteristics generate a disproportionate cost of reinsurance,” to sustain their ratings.

“Between the geographical issues and the disproportionate reinsurance cost issues, we think that’s a smart move on behalf of companies,” Petrelli told Insurance Journal in response to the recent orders.

For consumers, the actions make a tough market even tougher. Florida Insurance Consumer Advocate Tasha Carter said she has been assisting homeowners daily who are facing challenging consequences because their policies have been cancelled or nonrenewed. As insurers offset sustained losses with rate increases and coverage restrictions, homeowners are left to pay higher rates with fewer options and less coverage, she said.

“In addition to raising rates, the cancellation of high-risk policies is another step insurers are taking to reduce their exposure and mitigate their risk in an effort to improve their overall financial stability to ensure financial protection for policyholders,” Carter said in a statement to Insurance Journal. “I am hopeful that the implementation of the [property insurance] legislation will lead to a reduction of rates and increased coverage and capacity.”

In the meantime, OIR encouraged consumers who receive a cancellation notice from their insurer to immediately contact their agent to obtain replacement coverage, and noted the companies will also contact their appointed agents to facilitate the placement of policies with other insurers.

“OIR’s priority is to ensure consumers have access to coverage and will make every effort to help consumers find replacement coverage,” the regulator said.