A new report from AM Best says that the recent insurance market reforms in Florida mean that long-term relief is drawing nearer, but the state remains buffeted by near-term headwinds.
Now, AM Best says that the elimination of assignment of benefits and one-way attorneys’ fees rule for property claims is considered credit-positive for insurers and that these measures could significantly lower insurers’ defense and cost containment expenses.
It also said that the reduction in the amount of the time to file a supplemental claim to 18 months also cuts the time to close claims, which could affect the ILS (insurance-linked securities) market, alleviating concerns about capital being trapped for long periods.
Overall, AM Best said that the effectiveness of the state-backed reinsurance plan—the Florida Optional Reinsurance Assistance (FORA) plan—may depend on how competitive private-sector pricing is at the mid-year renewal.
AM Best wrote: “Florida’s property insurance market has had to deal with a number of challenges, including expensive litigation costs to defend claims, raising the cost of reinsurance and diminishing the risk appetite for the Florida market from the reinsurance market.”
It added: “Assignment of benefits and one-way attorneys’ fees have gone hand in hand and led to a significant spike in homeowners’ litigation in Florida. The state accounts for about 10% of the entire US homeowners insurance market by premium but accounts for over 30% of all claims defense and cost containment (DCC) expenses.
“The difference in the number of claims has been even greater: Florida accounts for around 80% of all litigated homeowners insurance claims in the United States. According to the Insurance Information Institute, more than 116,000 homeowners’ claims were litigated in Florida in 2021. Compare that with California, whose population is nearly double that of Florida and where only 3,900 claims were litigated.”
According to AM Best, attorney involvement has led to many insurers steering clear of the Florida property market. The five largest national homeowners insurers account for over 50% of the market outside of Florida but just 15% of the market in Florida. The significantly smaller share of the major homeowners writers demonstrates just how dire the situation is.
Despite the changes just signed into law, AM Best said that relief for the state’s insurance market were unlikely to be immediate and rekindling reinsurance market appetite for the risks in Florida will take time.
It said that there will likely be judicial challenges, local writers are still heavily dependent on reinsurers and that any increase in their costs could lead to primary market premiums being charged to policyholders, and restrictions on insureds obtaining coverage from the state insurer could push more insureds into the general market.
The firm wrote: “As a result, capacity in the state may remain limited and individual policy premiums may remain high in the immediate future.”
