Sunny Skies Ahead?

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Can a tort reform bill stop Florida’s much-needed insurance market from sinking?


And still they come. Despite the existential threat of living in a place considered the peak risk for hurricanes globally, people are magnetically pulled to Florida.

Since 2020, more than 700,000 people have relocated to what is now the country’s fastest-growing and third most populous state, comprising 22.2 million residents. Over the next five years, another 800 people a day are expected to relocate to the Sunshine State.

The incessant influx of millions of people over the past decade has driven rising demand for homeowners insurance and commercial property insurance. But the boom in population is on a collision course with a changing climate and hard-to-secure capacity for property risk. Along Florida’s southwestern coastline, sea levels have risen about eight inches since 1950, doubling the risk of storm surge by 2030. Florida saw just four hurricanes touch land in the state in the 16 years before Ian struck in September 2022. Ian, however, a Category 4 hurricane that cut a wide swath across the state, caused $50 billion to $65 billion in insured losses and more than 157 deaths. Compounding problems, multiple insurers have been declared insolvent in recent years, and reinsurers are increasing rates and tightening terms.

It is amid these headwinds that the Florida legislature has stepped in and helped ease a sore spot in the market that has been exacerbating the existing turbulent forces.

In December 2022, the legislature passed SB 2-A, a bipartisan tort reform bill developed to increase insurer competition and bolster consumer protections. The bill targeted litigation practices involving questionable claims that increased insurance costs and policyholder premiums.

As Mark Friedlander, a spokesperson for the Insurance Information Institute (I.I.I.), explains, “Florida accounts for only 9% of all homeowners insurance claims nationally, but 79% of all homeowners insurance lawsuits nationwide were filed in the state.” The six property insurers that went insolvent last year, Friedlander says, “were driven out of business by litigation, not by storm losses.”

Andrew’s Aftermath

Only four Category 5 hurricanes have ever made landfall in the state, among them Hurricane Andrew in 1992, a natural disaster that paralyzed the property insurance industry.

Prior to Andrew, the worst hurricane to have made landfall in Florida was the Great Labor Day Hurricane in 1935, another Category 5 storm, with winds whipping up to 185 mph, enough speed to send a standing person aloft. Nearly 500 people perished, and property damage was estimated at $100 million, the equivalent today of $2.1 billion. Although Florida would experience many other hurricanes between 1935 and 1992, time had a way of erasing memories of just how bad things could get.

Hurricane Andrew’s 17-foot storm surge and 165-mile-per-hour winds were a stark reminder. More than 730,000 homes and buildings were destroyed or damaged, causing $27.3 billion in property damage, of which insurers absorbed about $15.5 billion, the equivalent today of $33 billion. Approximately 650,000 claims were filed in the storm’s aftermath, forcing as many as 16 insurance companies into insolvency according to some reports.. Nearly one million coastal homeowners could not find an insurer to insure their homes.

To restore a semblance of insurance market stability, the state authorized the formation of the Florida Hurricane Catastrophe Fund to reimburse insurers for a percentage of catastrophic hurricane losses. Two “insurers of last resort” also were created: Florida Residential Property and Casualty Joint Underwriting Authority and Florida Windstorm Underwriting Association. In 2002, the insurers merged to create Citizens Property Insurance Corporation.

Market Instability

In the ensuing 21 years, market stability has remained elusive. More than 80 tropical or subtropical storms have battered the state, nine of them causing substantial damage and loss of life, with two of them, Hurricane Michael in 2018 and Hurricane Ian in 2022, considered particularly destructive.

Throughout 2022, six property insurers were declared insolvent, though as noted earlier there are questions as to whether that was caused by storm losses or litigation battles. Another dozen property insurers entered the receivership process, and 27 face the possibility of financial downgrades. State-owned Citizens, the insurer of last resort, is now the largest property insurer in the state.

“In 2022, there was roughly $50 billion less in both reinsurance capacity and overall capacity than the previous year,” Josh Becksmith, retail vice president at Brown & Brown, says.

The lack of capacity is a major factor in the cost of homeowners insurance in the state, which is three times the national average. Florida homeowners pay $4,231 a year per policy, compared to the U.S. average of $1,544. Commercial property insurance rates are no bargain either, reaching what several insurance brokers say is a 20-year high.
Insurers who remain active in the states are also dealing with skyrocketing property reinsurance rates. Following the Jan. 1, 2023, property reinsurance renewals, reinsurance rates increased 30.1%, “taking rates to an all-time high,” reinsurance brokerage Guy Carpenter stated.

“It was one of the toughest Jan. 1 property catastrophe renewals I’ve ever seen,” says John Meder, head of risk consulting and claims advocacy at specialty insurance brokerage Risk Strategies.

Other brokers echo the same distressing refrain. Becksmith says that reinsurance attachment points on a single catastrophic event “shot up from $25 million to $60 million and more, meaning insurers must bear more of the risk of a catastrophic event on their balance sheets.”

This is indeed the case, agrees Chris Dittman, executive managing director for reinsurance solutions at Aon. “The average property catastrophe retention for AM Best-rated carriers in Florida went up between 30 and 50%,” Dittman says. Property catastrophe reinsurers, he says, “were hit very hard last year and not just in Florida. Insured natural disaster losses overall exceeded $130 billion worldwide, although a sizable portion came from here.” Dittman runs Aon’s Florida practice group for reinsurance in Tampa.

As Jimmy Clark, executive director of the real estate and hospitality practice for the southeastern United States in the Tampa office of Gallagher, put it, “As bad as things were before, Hurricane Ian was the straw that broke the camel’s back.”

New capacity is also strained by current economic conditions. “After Hurricane Andrew, investors saw opportunities to come into the market and fund new [insurance] players,” Meder says. “Right now they’re looking at hurricane frequency trends and economic headwinds and holding tight.”

The “headwinds” include the impact of high inflation on home replacement costs borne by property insurers. “If you own a house worth about $500,000 and factor in 10 to 15% increases in construction costs over the past year, that puts you at up to a $575,000 risk,” Clark says. “Meanwhile, what took a month [to rebuild] now takes four months because of supply chain issues, resulting in an insurer also paying more in rent for homeowners to live elsewhere.”

Florida Takes Action

The state of Florida is taking multiple steps to try to ease some of the current conditions in the property insurance market. In 2022, legislators authorized the Reinsurance to Assist Policyholders program, designating a $2 billion reimbursement layer of reinsurance for hurricane losses directly below the mandatory layer of the Florida Hurricane Catastrophe Fund. The reduction in insurer loss costs would be passed on to policyholders in the form of decreased rates. The decision shaved about 2 percentage points off average double-digit premium increases.

The insurance industry is also buoyed by the passage of SB 2-A, maintaining that the new law will support increases in property insurance market capacity and competition, leading to reductions in policyholder premiums. But no one expects market stability in 2023. “We need to go another couple years without any major losses to shore up carriers’ liquidity issues before more capacity can enter the market,” Meder says. “The Florida legislature took a big step, but more needs to be done.”

That step appears to be at least a temporary victory for insurers, reinsurers and policyholders. Among the bipartisan bill’s key features are the removal of assignment of benefits contracts and the elimination of the provision for so-called one-way recovery of attorney fees.

Assignment of benefits (AOB) is a contract signed by a policyholder that allows a third-party contractor to seek payment directly from the insurance company. According to the I.I.I., assignment of benefits lawsuits skyrocketed in Florida from about 1,300 in 2000 to more than 100,000 now working their way through the state’s legal system. “Insurance carriers have been screaming for years about the unscrupulous practices arising from AOB claims,” Clark says.

Taylor Davis, equity partner at law firm Clyde & Co, whose practice is focused on first-party property coverage litigation, provided an example of such practices. “It’s not uncommon in Florida after a large loss event for a contractor like a roofer to go door to door to convince property owners to file a claim for a new roof, even if the roof isn’t damaged,” she says.

“In many cases, these are not legitimate storm-related losses; they’re normal wear and tear damage,” Friedlander says. “The contractor will say, ‘I’m putting a new roof on your neighbor’s house for free since the law allows me to bill the insurance company directly for the cost. I can do the same for you, too.’ Then, they charge the insurer double the normal rate. It’s a scam.”

The other key feature of SB 2-A jettisoned the one-way attorney fee provision, which entitled a policyholder to reasonable attorneys fees in an insurance-related lawsuit in which an amount of recovery was awarded. Insurers, who absorbed the cost of the fees, had long argued that amounts were unreasonable, too much of the awarded recovery going to attorneys and not enough to claimants. Friedlander cited a report by the Florida Office of Insurance Regulation indicating that 71% of the $51 billion paid out by Florida insurers over a 10-year period went to attorneys fees and public adjusters.

“There were awards where claimants received $10,000 while plaintiff attorneys received hundreds of thousands of dollars,” says Fred Karlinsky, shareholder and global co-chair of Greenberg Traurig’s Insurance Regulatory and Transactions Practice Group in Fort Lauderdale. “Florida was the only state that had this provision, explaining why 79% of all homeowners insurance lawsuits nationwide were filed in the state last year. The elimination of the one-way attorney fees provision was not only good but necessary, as these costs are eventually passed down to all policyholders.”

Now that the one-way attorney fees provision has been eliminated, Davis says, “I suspect there will be less incentive for policyholders and attorneys to bring lawsuits against insurers for claims that may be questionable.”
The good news may be short-lived. Friedlander says trial attorneys and contractors opposed to the reform legislation are poised to challenge the elimination of the two provisions in court. “We have no specific information…but [we] are aware that [they] may initiate legal action to block the new laws.”

A recent opinion piece on the reform legislation in The Wall Street Journal suggests this could be forthcoming. The writer, a trial attorney based in Parkland, Florida, sharply rebuked the removal of one-way attorneys fees. “Many insurers look for every excuse
to deny claims or offer settlements below the cost of legitimate repairs,” the person stated. “Without the ability to recover attorney fees, the insured won’t be able to hire a lawyer to handle their case, leaving the insured to the mercy of the insurance carrier. … Let the court system decide what are legitimate charges.”

In a written rebuttal to the opinion piece, Friedlander said, “Eliminating recovery of legal fees doesn’t limit access to contingency fee representation for under-resourced individuals. Even with these new reforms, individuals requiring litigation to settle claim disputes will have more than enough avenues to recover deserved damages and pay a fair wage to their lawyer. This is how property claim lawsuits are handled in most states.”

Asked what he thought of the potential for legal challenges to succeed against SB 2-A, Karlinsky says, “Actors out there that feed off the system always find a way to challenge the pieces of legislation that are consumer-friendly, for some reason. I don’t know the [legal] theory they would use to challenge the reforms, which do right by the policyholders.”

Davis agrees: “The likelihood of challenges to these statutory reforms succeeding is low, in my opinion, insofar as they should allow insurance availability to increase and rates to stabilize. I don’t think these changes are going anywhere.”

SB 2-A does have one drawback for the property insurance industry: the reforms are not retroactive, applying only to policies issued after the date of the law’s signing in December 2022. Claims going back two years involving damage caused by six hurricanes in 2021 and 2022 are still subject to the AOB and one-way attorney fee provisions. “There’s a fear that lawyers with less to do after SB 2-A will focus all their attention now on older claims, with lawsuits following,” says Dittman. “Already, there are billboards on the highways regarding past losses saying, ‘Call me.’”

Friedlander tallied up the litigation possibilities. “Tens of thousands of lawsuits” could be filed in the coming months, he says, while “unscrupulous contractors continue to scam homeowners.”

Self-Insure or Forego the Risk

If property insurance premiums fail to become more affordable, market pricing will reach a point where wealthier homeowners and property developers simply toss in the towel. Meder says the “severe crunch on capacity” has taken a toll on planned construction projects. “Some of the larger projects are being put on hold because the insurance is either too expensive or the limits aren’t high enough to meet bank requirements.”

Clark says the frustration has reached a boiling point. “With rates where they’ve been, some insureds are taking the position they can get a better return on their investments by foregoing insurance and self-insuring the risk,” he says, citing the example of one of his larger commercial clients, a CEO who owns an expensive beachfront house. “The carrier on the property just had its rating pulled and may be going into receivership,” says Clark, who specializes in commercial property insurance.

“He asked me what to do, and I advised we find another carrier. He was tired of the merry-go-round and said he planned to self-insure, buying just liability insurance. It’s something most other people can’t do, which is a sad story of just how bad things have gotten down here.”

The sad story is softened by miles of sandy beaches, blue skies and sunshine. “The weather is good, the beaches are great, the taxes are friendly, but you’re putting yourself in harm’s way, more so than places like Wisconsin, Iowa or Illinois,” says Dittman. “There’s a cost to putting yourself in harm’s way. Insurance is a part of that cost.”

Russ Banham is a Pulitzer-nominated business journalist and best-selling author

Sidebar: SB 2-A At a Glance

Florida’s landmark tort reform bill SB 2-A, aimed at increasing property insurance market capacity and protections for both homeowners and businesses, seeks to achieve these aims by reducing expensive litigation filed by property owners against insurance carriers and the related costs that have been passed on to policyholders as higher premiums.

The legislation, signed by Gov. Ron DeSantis on Dec. 16, 2022, includes the following key provisions:

  • Eliminating One-Way Recovery of Attorney Fees Florida’s original one-way attorney fee provision was designed with consumers in mind, entitling them to reimbursement from insurers for reasonable attorneys fees if they needed to sue a carrier in a residential or commercial insurance claim dispute. Critics of the statute argued that the amounts ended up being unreasonable and an incentive for lawsuits, with attorneys receiving too much of the payout. The state legislature agreed and dumped the provision.
  • Eliminating Assignment of Benefits Contracts An assignment of benefits (AOB) agreement permits insureds to transfer their insurance policy claim rights and benefits to a third party, typically a contractor like a roofer or water extraction company. Once the AOB is signed by the policyholder, the third party is given the right to deal directly with the insurer and receive payment from the claim. Critics of the law have long argued that AOB contracts with unscrupulous contractors drained insureds’ insurance coverage limits, often unbeknownst to the policyholder. The new law eliminates AOB contracts.
  • Civil Offers of Judgment Statute The state legislature has amended Florida law governing joint offers of judgment or settlement. The amendment permits property insurers to make such joint offers in a breach-of-contract action between policyholders and carriers, as long as they are conditioned on mutual acceptance by the policyholders. The word “joint” refers to the fact that many insurance policies include two named insureds, such as spouses owning a residential property. The amendment reduces the prospect of long, drawn-out litigation.
  • Claim Deadlines Several deadlines governing an insurer’s claim handling requirements were amended by the state legislature. The amount of time has been reduced for an insurer to acknowledge communication from an insured filing a claim (from 14 days to seven days); to begin an investigation after receiving a proof of loss (from 14 days to seven days); to conduct a physical inspection after receiving a proof of loss (from 45 days to 30 days); to provide an estimate of the loss (within seven days); and to pay or deny a claim (from 90 days to 60 days, in most cases). The goal is to speed up the claims evaluation and handling processes to provide prompt payouts to policyholders.
  • Notice of Claim The new law requires policyholders to file a claim or reopen a claim within one year, as opposed to the previous allowance of two years, and reduces the time an insured has to file a supplemental claim (from three years after the loss event to 18 months). Insurers had long argued that the former provision reduced their ability to determine the cause and the extent of damage reported in a claim, given that property owners in Florida experience numerous weather events over a period of time. Shortening the time frames is expected to reduce litigation.
  • Bad Faith The new law addresses bad-faith litigation involving the failure to settle a property insurance claim. The state’s prior bad-faith statute was revised to require that such litigation be filed only after the insured established, through an adverse adjudication by a court, that a judgment was rendered against the insurer in the dispute at hand. The provision is designed to reduce bad-faith lawsuits against insurers, which are more expensive to litigate than breach-of-contract actions.



Kick-Starting the Next Wave of Risk Mitigation

Could Ian be the next Andrew?

The devastation wrought by Hurricane Andrew in 1992 lifted the veil on the shoddy construction of many homes throughout the affected regions of Florida.

In the aftermath, the state adopted a universal building code requiring all new construction to endure hurricane-force winds and use impact-resistant doors and windows.

For the most part, the newer structures have held up well: a 2017 study by the University of Pennsylvania’s Wharton School found that homes built after the implementation of the statewide code experienced significantly lower property damage losses than homes constructed in the previous decade.

Florida counties like Miami-Dade and Broward in the southern part of the state, deemed a high-velocity hurricane zone, have gone further, implementing local codes mandating structural designs and building materials laboratory-tested to withstand 175 mph winds. Local building codes throughout the rest of the state vary by location. In Florida’s Panhandle region, for example, the design standard for wind resistance is 120 mph, yet all of Florida is exposed to hurricanes. Hurricane Michael, a Category 5 storm with wind speeds of 161 mph, proved this point, making landfall in the Panhandle in 2018.

Going forward, John Meder, head of risk consulting and claims advocacy at Risk Strategies, says, the lesson of Hurricane Ian is that “stronger building codes are not a once and done event. Although new construction has held up significantly better than older construction, so much more can be done from a mitigation standpoint, including higher seawalls, better roof design and renovation of older structures to wind-resistant codes.”

The emphasis on risk mitigation and loss prevention, in addition to wider use of technologies to model and predict weather events on a more granular level, is the battle cry of the insurance industry in Florida and other states like Louisiana, Texas and California also prone to natural disasters. “We need to create actionable outcomes to adapt to climate risk,” says Pete Miller, president and CEO of The Institutes, a risk and insurance educational organization.

Miller believes a shift toward a predict-and-prevent approach is needed in the insurance sector. “Insurance professionals can make a tremendous difference in educating people and businesses to minimize their risks, prevent losses and avoid financial costs,” he says. This model, he adds, also provides customers a way to “circumvent claim filing as well as the stress of recovering from a catastrophe.”

Assuming property owners accept this responsibility, investing in building modifications that reduce the extent of damage during a hurricane, insurance carriers can reflect the improvements in their underwriting. “There’s an opportunity for carriers to come in and do what they do, rate based on risk,” says Jimmy Clark, executive director of the real estate and hospitality practice for the southeastern United States at Gallagher. “But the legislature needs to do its part, too. It’s their job to create building codes and subsidies to homeowners that upgrade their homes.”

In other words, Hurricane Ian could be this generation’s Hurricane Andrew, kick-starting the next wave of risk mitigation. “Prior to Andrew,” says Chris Dittman, executive managing director for reinsurance solutions at Aon, “I don’t know if anybody, including the big carriers, appreciated the amount of risk in harm’s way. Afterwards, we saw the new construction building codes and the development of sophisticated catastrophe models, allowing the industry to better anticipate the size of these events and potential outcomes.”

While improvements in older housing and commercial building stock to withstand severe hurricanes are needed to reduce damage costs, the insurance industry also must do its part, investing in data-driven underwriting and real-time modeling to price property risks down on a single-structure basis. Armed with these robust forecasts, insurance carriers that have long buffered the cost of disaster can combine their knowledge and expertise with the will of Florida’s legislators to promote the building of more fortified older and new structures able to withstand the next “big one.”


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