After five years of tweaks to Florida’s insurance and tort laws, all designed to reduce the vast amount of claims litigation and – eventually – bring down property rates, many in the industry argue that there’s still one big piece of the puzzle that’s missing: an affordable, effective, state-run layer of reinsurance that could have an immediate impact on costs.
But with just two weeks left in the 2023 regular session of the Florida Legislature and no bills in the hopper, hopes are fading that lawmakers will warm to the idea.
“It’s dead as far as I know,” said John Rollins, a former chief financial officer for a Florida insurance carrier.
“It’s unfortunate, but we never heard there was much appetite for it this year,” said Melissa Burt DeVriese, president of Security First Insurance Co., based in Ormond Beach.
Others in the industry agree that legislators, hit with criticism that recent tort-reform and insurance rescue laws may be seen as too “insurer friendly,” may now have little interest in another insurance-assistance package, no matter how much it may be needed. The deadline for new bills has long passed, but there is a glimmer of hope that a reinsurance bridge-type measure could be added as an amendment to another bill before a May 1 deadline.
A white paper being circulated by former Deputy Insurance Commissioner Lisa Miller and others explained that reinsurance for several Florida-based carriers increased by as much as 60 percent in January. With the June 1 renewals right around the corner, costs are expected to rise again, while reinsurers’ coverage has continued to shrink.
A proposed, temporary, lower-level state program, dubbed the Florida Insurance Rate Reduction Mechanism, would have an attachment point of $500 million to $1 billion, with a limit of $3 billion, the white paper and Miller said. That optional program could stave off more insurer insolvencies and could save Florida homeowners as much as $2 billion a year, altogether, or about 15 percent for the average policyholder, she suggested.
Critics may point out that Florida lawmakers have, in fact, offered two state-backed reinsurance programs in the last 12 months: RAP, the Reinsurance to Assist Policyholders fund, approved at a special session last summer; and FORA, the Florida Optional Reinsurance Assistance Program, passed in December.
But some insurers have said that neither program hit the mark. RAP did not provide enough coverage, and FORA was too expensive and didn’t offer the level of coverage at the bottom of the reinsurance tower, where carriers need it the most. FORA was priced at 50-65 percent of reinsurance market rates. But with market rates soaring by that much or more in the the last year, the plan provided little help, insurers have said.
Just three insurers have signed up for the FORA program, according to a preliminary list provided Tuesday by the Florida State Board of Administration. The deadline for agreeing to participate in layers 1 through 3 of the plan was Monday, April 18. First Protective Insurance Co., Cypress Property & Casualty Insurance and American Coastal Insurance are the only carriers to participate in the program, so far. American Coastal had just 5,400 policies in force as of late last year, but First Protective is the eighth-largest insurer in Florida, with some 230,000 homeowner policies and $633 million in direct premium written.
The deadline for FORA’s layer 4 sign up is May 30, two days before the private market reinsurance renewals for many carriers.
Florida lawmakers have approved six significant insurance measures since 2019 — to limit assignments of benefits, curb roofer solicitations, ban one-way attorney fees, limit roof replacements and curtail bad-faith and claims lawsuits. Insurers have generally welcomed all of those. But insurance executives and legislators have repeatedly said it could be another 18 months before the latest and most extensive reforms start to translate into lower rates for consumers.
The one idea that could have a faster impact, perhaps as soon as 60 days, some advocates have said, now seems out of reach.
“Year over year, consumers have been getting hit with rate increases, and if there’s not some additional public reinsurance capacity offered, the insurers have no choice but to pass another reinsurance rate increase on to consumers,” said Paul Handerhan, president of the Florida-based Federal Association for Insurance Reform. “So after June 1, when they get their policy renewals in the mail, those higher reinsurance costs will be reflected.”
Premiums, which have climbed sharply in recent years for most property owners, are expected to spike again this year. The average cost for homeowners will rise modestly, nationwide, in 2023. But in Florida, property insurance rates could jump by more than 40 percent, according to the Insurance Information Institute and other rate-tracking reports. Florida homeowners will continue to pay some of the highest premiums in the country, Insurify, a quote-comparison and insurance provider, predicted recently.
“It’s unfortunate that Florida legislators could not come to agreement on providing an affordable reinsurance program for the 2023 Atlantic hurricane season,” said Mark Friedlander, director of communications for the Institute. “This will have a detrimental effect on many Florida domestic insurers as upcoming renewals may run as high as 70 percent year-over-year.”
Inadequate levels of reinsurance coverage could lead to financial ratings downgrades, potential insolvencies and even higher premiums for policyholders, he warned.
At a recent gathering of the Pensacola, Fla., Association of Realtors, Miller blamed realtors for not lobbying harder for a new state reinsurance offering. Despite recent cries from real estate interests that higher insurance premiums are hammering home sales in some parts of the state, few have pushed for reinsurance legislation this year, she said.
The Florida Association of Realtors’ public policy communications director, Tom Butler, responded obliquely to the criticism.
“Florida Realtors applauds the Florida Legislature for taking unprecedented steps during the 2021 session and two special sessions last year to stabilize Florida’s deteriorating property insurance market,” Butler said in an email. “We understand that comprehensive property insurance reform takes time to provide relief for policyholders and are confident that these reforms will ultimately attract insurance and reinsurance capital back to the state.”
Rollins, formerly with Olympus Insurance Co., argued that another reinsurance program may have done little to help some struggling insurers, and would have only postponed some inevitable insolvencies after poor financial decisions by executives in recent years.
DeVriese noted that part of the December reform package, Senate Bill 2A, is already having a significant impact on claims litigation in Florida, and most carriers are grateful. For the first three months of this year, Security First has seen half the number of lawsuits it has faced in years past for the same period.
“Unfortunately, the benefit of that reduction in litigation is probably going to be canceled out by the expected increase in the cost of reinsurance,” she said.