Already reeling from skyrocketing rate increases, nonrenewals, and insurer withdrawals from high-risk markets such as South Florida, homeowners can expect to pay even more in premiums over the next decade if losses are not significantly reduced, according to several speakers at the Florida Chamber's annual insurance summit in Tampa on Thursday.
The Florida Chamber of Commerce represents private business interests in the state and has historically supported legislative changes aimed at reducing incentives for repair contractors and plaintiffs' attorneys to sue insurance companies.
According to participants, Florida-based insurance companies have been hemorrhaging red ink over the last five years as a result of aggressive advertising by plaintiffs' attorneys convincing homeowners to sue their insurance companies.
“Florida has more billboards encouraging people to sue you than any country on the planet,” said Mark Wilson, Florida Chamber’s president and CEO.
According to an analysis by the Florida Office of Insurance Regulation cited by Wilson, Florida generated 8% of all property insurance claims and 76% of all lawsuits in the United States in 2019. According to a study released last year by analyst Guy Fraker, 35 percent of the $12 billion in insurance premiums paid by Florida property owners each year — or about $645 per policy — goes to attorneys.
Plaintiffs' counsel did not attend the summit. The Florida Justice Association, a trade group that represents plaintiffs' attorneys in issues before the state Legislature, typically claims that if insurance companies didn't routinely deny, underpay, and delay timely payment of legitimate claims, litigation would be unnecessary.
Consumers in the state will have to pay more for insurance or accept lower coverage unless costs from high rates of claims-related litigation are reduced, according to Suzanne Williams-Charles, director of policy and regulation for the Association of Bermuda Insurers and Reinsurers. Reinsurance is insurance that insurance companies purchase each year to ensure that they will be able to pay claims following natural disasters such as hurricanes.
The state Legislature's reforms enacted last spring will not be known for about two years, according to Christine Ashburn, chief of communications, legislative, and external affairs for the state-owned Citizens Property Insurance Corp.
Another reason insurance costs continue to rise is that Florida is home to half of the world's most vulnerable properties, according to John Seo, co-founder and managing director of Fermat Capital Management, which sells insurance-linked securities to global investors.
According to him, the insurance industry currently expects to pay out $250 billion if a major Category 4 or Category 5 hurricane strikes a major urban area of the state. If the state adds four million more residents and two million more jobs by 2030, as predicted by the Florida Chamber, the total would rise to $1 trillion.
He claims that insuring against increased risk will necessitate higher premiums.
Climate change will raise insurance rates by causing more storms and losses, according to Williams-Charles. She claims that if rates do not increase to cover increased risks, properties will be left without necessary coverage.
According to her, the Bermuda association is collaborating with insurance regulators across the country to develop pricing models that reflect increased risks from climate change.
The availability of capital to cover increased risks isn't an issue, according to Seo. According to him, approximately $20 trillion in investment capital is floating around the world in search of useful opportunities. However, the overall lack of profitability in the Florida-based insurance industry is viewed by investors as a bad bet that offers "a negative return," he said.
The interests of insurers and plaintiffs' attorneys will always conflict, according to Paul Schriefer, director of risk management education and research at Florida State University College of Business. "I think the majority of people on both sides want the same thing — what's better for consumers," he said.
He believes that increased efforts to prosecute criminals who commit outright insurance fraud could help reduce costs by convincing would-be lawbreakers not to take the risk.
Florida's Chief Financial Officer, Jimmy Patronis, announced that his office has formed two teams of insurance fraud investigators using funds approved by the Legislature last spring. He said the teams, each with five detectives, are based in the Orlando and Tampa areas. Patronis stated that if the new teams prove to be effective, he may request funding for other areas.
According to Dennis Burke, senior vice president of the Reinsurance Association of America, one way to bring insurance costs down to risk-adjusted levels is to reduce risk. This can be accomplished by improving building codes to make homes more resistant to destructive hurricane winds, he says.
Due to mounting financial losses, two Florida-based insurers went out of business this year, and many others have dropped customers or stopped selling coverage in southern and central Florida, which have the highest rates of contractor fraud. As a result, thousands of homeowners had no choice but to turn to the state-owned Citizens Property Insurance Corp., the so-called insurer of last resort.
Citizens' policy counts have risen from around 420,000 in 2019 to 724,000 at the end of October, with a million expected by early 2021. Citizens are wary of assuming too much risk, according to lawmakers. Two major storms could quickly deplete the company's $6.4 million surplus, requiring all Florida insurance customers to pay surcharges to cover unpaid claims.
Christine Ashburn stated that the company supports changing state law to make it more difficult for Citizens customers to decline "takeout" offers from private companies. Currently, state law allows customers who have been selected for takeout to reject offers for any reason and continue to do business with Citizens.
According to Ashburn, only 20% of targeted customers agree to takeout offers. According to her, this discourages investors from forming new insurance companies seeded with Citizens takeout customers.
Customers would be able to reject takeout offers only if the new company's premium exceeded Citizens' by more than 20%.