Florida lawmakers today are addressing the state’s escalating property-insurance crisis, which is raising homeowner premiums, forcing some carriers into bankruptcy, and threatening to stifle the housing market.
According to a proposed bill released late Friday, the Republican-led legislature plans to address a highly litigious environment in Florida, the availability of reinsurance (backup coverage insurers buy), and the state’s insurer of last resort’s ballooning size.
It is the second special session called this year on the issue by Republican Gov. Ron DeSantis, who is considered a potential presidential candidate in 2024 and could face backlash if the crisis does not end soon. According to insurance executives and regulators, a collapse in the home-insurance market could spill over into the residential real-estate market.
“If we don’t do it right, Floridians will leave,” said Republican state Rep. Bob Rommel, chairman of the House commerce committee and a member of the legislative team. “Our entire economy depends on this.”
Many of the state’s smaller private-sector insurers have been losing money for years, plagued by rising reinsurance costs, litigation costs, and hurricanes such as Ian, which hit Florida’s southwest coast in September. Risk analysts estimate Ian will cost insurers between $40 billion and $70 billion.
Following the withdrawal of national carriers many years ago, the state is heavily reliant on relatively small, Florida-focused carriers. According to a Dec. 8 report by A.M. Best, which rates insurers, six of these have been declared insolvent since February, as has a Louisiana-based carrier that wrote policies in Florida.
Reinsurers have raised their prices in response to rising catastrophe losses worldwide and concerns about more severe natural disasters. They are also concerned about litigation costs in Florida. Some have scaled back their operations in the state.
According to ratings firm Demotech Inc., Florida-focused home insurers went through annual reinsurance renewals this summer, with prices increasing by 25% to 30% in many cases. Some carriers were unable to obtain the amount of reinsurance they desired.
According to Barry Gilway, CEO of Citizens Property Insurance Corp., the state-run insurer of last resort, reinsurance pricing for Florida insurers will rise by 30% to 70% in 2023, as capacity becomes scarcer.
“It could be extremely expensive,” he predicted.
According to projections from trade group Insurance Information Institute, Florida’s average annual home-insurance premium of $4,231 is the highest in the country, nearly tripling the national average.
Florida’s insurance commissioner, David Altmaier, stated at a recent state Chamber of Commerce insurance conference that his office continues to approve actuarially sound “30%-plus rate increases.” With insolvencies already occurring, he believes “we cannot have an underpriced insurance market.”
Lawmakers say one of the special session’s priorities will be to rein in litigation, which they say is being driven by attorneys aggressively suing carriers, even over minor policy disputes. According to the state’s Office of Insurance Regulation, Florida has just under 10% of all homeowners insurance claims in the country, but nearly 80% of all homeowners insurance lawsuits.
Amy Boggs, chair of the Florida Justice Association’s property-insurance section, which represents trial lawyers, criticized the call for more litigation reform. “Litigation isn’t the issue; it’s the scapegoat,” she explained. “What we don’t need is more legislation that erodes policyholder rights in order to bail out the industry on the backs of Floridians.”
Theodore Tate, a 42-year-old police officer who lives in Palmetto Bay, south of Miami, said his insurer tried to drop him earlier this year despite the fact that he had never filed a claim. After his broker intervened, the carrier agreed to continue insuring the home for more than $11,000, up from about $4,500.
Mr. Tate was already working extra hours at work to cover rising costs. His insurance broker eventually found two carriers who cover his home for around $5,500.
Mr. Tate explained, “You feel betrayed when they drop you out of nowhere.”
According to real estate agents, low- and middle-income homeowners are the hardest hit. Mortgage interest rates have nearly doubled this year, making it difficult for first-time buyers.
Susie Fernandes, a real-estate broker in Fort Lauderdale, said that after factoring in higher insurance premiums, some clients are no longer qualifying for homes they thought were within their budget. “Everyone is downsizing,” she explained. “It’s turned into an affordability crisis.”
Lawmakers are also concerned about Citizens, the last-resort insurer’s rapid growth. Citizens expects to have about 1.2 million policyholders by the end of 2022, and its projections show 1.7 million policyholders next year, up from about 440,000 in 2019, according to Mr. Gilway. Citizens’ risk exposure would increase to $650 billion in 2023 if this trend continues.
While Citizens is adequately funded now, the concern is that uncontrolled growth will outrun its resources in the coming years, leading to assessments on its policyholders and many private-sector policyholders across the state if a major hurricane hits. Officials refer to these assessment powers as the “hurricane tax” of the state.
Mr. Gilway stated that he is “extremely optimistic” that if the bill passes in its current form, it will “attract more capital to the market and eventually improve the reinsurance picture.” He described it as historic because it addressed long-standing issues head on.
The proposed state House legislation addresses excessive litigation by eliminating so-called one-way attorney fees—a Florida law provision that insurers claim encourages plaintiffs’ lawyers to sue in order to obtain large fee awards. The bill also forbids homeowners from granting third parties, such as roofing contractors, the right to seek payment directly from their insurer.
The proposal seeks to tighten state oversight of property insurers. In addition, it proposes an additional $1 billion in state reinsurance for the 2023 hurricane season to alleviate anticipated private-sector shortages.
“The governor expects the legislature to rein in the costs of excessive litigation and ensure that Florida’s property-insurance market is both attractive to insurers and competitive for consumers,” said Bryan