The reforms will limit the ability of third-party service vendors to take advantage of state laws originally intended to benefit policyholders in settling insurance claims.
The closing of loopholes afforded to third-party vendors is expected to lead to a reduction in the pace of loss cost inflation experienced across the state of Florida and get carriers closer to a level of actuarial rate adequacy, Fitch said.
If the bill works as intended, third-party vendors in Florida will have far less incentive to inflate loss estimates or bring unnecessary lawsuits, and carriers should be in a better position to estimate ultimate loss costs for future catastrophe events and pay valid claims to policyholders.
According to data from the Insurance Information Institute, the number of AOB-related lawsuits increased to 153,007 in 2018, up from 1,300 in 2000 as a result of the one-way attorney fees provisions under existing Florida law.
Recent loss cost escalation in Florida has thus far exceeded national averages, Fitch noted, and has led many Florida property insurers to push for significant rate increases in recent years.
For example, homeowners insurers in Florida largely experience material prior year adverse reserve development in 2018 related to Hurricane Irma, as loss costs far exceeded initial expectations following the event.
A number of carriers, including state run Citizens Property Insurance Corporation, specifically cited AOB as a contributing factor to the adverse reserve re-estimations experienced by primary writers along with their risk transfer partners in the traditional and alternative reinsurance markets.