Florida’s Property Insurance Market Is ‘Spiraling Towards Collapse’ Due to Litigation

A recent analysis found that Florida’s property insurance market is “spiraling towards collapse” and needs immediate attention if there is any chance of protecting consumers and the property insurance market in the Sunshine state.

The analysis was done by Guy Fraker of Cre8tfutures Innovation System & Consultancy. Fraker has worked with the insurance industry for 30 years.

The report blames the “litigation economy” that has spread across the state as the biggest issue with the insurance market in Florida, with lawsuits being the main driver of premium increases, even more so than even the severe weather that Florida has experienced in the last few years. 

Here are a few of the key findings from the report according to a recent Insurance Journal article:

• Litigation frequency and severity represents an additional expense load of 17% on all earned premiums for insurers in Florida compared with other catastrophe-prone states.
• The fees paid to attorneys by Florida carriers far exceed the damages paid to the insureds.
• In 2019 alone, Florida insurers paid almost $3 billion in lawsuit costs that translated into higher premiums for insureds.
• Although the volume of claims after storms is a factor in costs, claims unrelated to catastrophes account for approximately 60% of all litigation.
• Florida consumers are paying a “hidden tax” to fund the litigation that averaged about $680 per family in 2020.

The report highlights four laws passed in Florida between 2011 and 2019 that have given rise to the lawsuit crisis. These laws deal with 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.

According to the report, all of the litigation taking place in the Florida insurance market has led to insurance companies hemorrhaging capital and surplus. The report also states that by litigating roughly 6% of homeowners insurance claims every year is equal to the cost of a “good solid Cat 3 hurricane” every 12 months for insurers. 

“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,” warns the report. “The time for hoping some theoretical break point doesn’t materialize is over.”

In addition, the report warns that unless action is taken, the insurance market may fail.  “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.”

Litigation a bigger issue than weather

Despite the fact that Florida has been hit by major hurricanes in 2017, 2018 and  2019, most insurance companies blame increased litigation as the main driver of premium increases. 

According to Florida Insurance Commissioner David Altmaier, insurers are on track to nearly double their losses in 2020 compared with 2019. In response to these losses, insurers are pulling out of certain areas, particularly in south Florida but more recently in central Florida. In addition, they are filing for rate increases in areas where lawsuits are piling up. According to Altmaier, 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.

Another impact of all of this litigation is that Florida’s insurer of last resort, Citizens Property Insurance Corp. is being flooded with new policyholders as consumers can no longer find coverage in the private market and are forced to move to Citizens. 

In addition, Florida insurance companies are struggling to find reinsurance or are forced to pay higher premiums for reinsurance, costs that will eventually be passed on to consumers. Reinsurance is the insurance that insurers buy to help cover their losses. 

“These losses are having a direct impact on the surplus position of our industry,” Altmaier said in the recent Insurance Journal article “As capital and surplus deteriorates, companies lose the flexibility to be able to write additional business … that has consequences for the consumer.”

Recommendations from the report

The following are the report’s recommendations to get Florida’s property insurance market back to a healthy state. 

Unfortunately, there is not one single action Florida can take to put the market right. “For those seeking a single reform to turn this market around, such an answer does not exist,” says the report. Instead, Florida legislators in the 2021 and 2022 sessions must take multiple actions to get this crisis under control says the report.

The following reforms are recommended by the report:

• Reversing the statutes that currently applies to all claim disputes which places responsibility on insurers to pay 100% of litigation costs when a plaintiff prevails by $1. The report recommends replacing this with language which says that fee multipliers only be used on a “rare and exceptional” basis and never used for punitive measures.

• Changes need to be made in regard to attorney fee arrangements. They should be awarded based on policy limits and damages awarded to claimants. The state should establish a range of limits to one-way property fee awards.
• The First Notice of Loss deadline should be changed from three years to one year. This means that homeowners would have one year to file a claim, not three years after the incident
• •Enact pre-suit mediation or alternative dispute resolution modeled after Citizens
• Allow excluded or non-covered damages to remain non-covered
• •Consolidate litigated cases so that multiple suits are not filed for the same property
• •Eliminate contractors ability to speak on behalf of an insured without the insured’s involvement. This is in reference to the assignment of benefits clause in some insurance policies. 
• The report states that it will take a number of legislative reforms to bring these issues under control.  “Multiple legislative reforms are the only lock capable of closing Pandora’s box,”