Are the Winds Shifting for Florida Property Insurance? An Exercise in Cautious Optimism

During the past few years, the Florida legislature has enacted significant insurance reforms. Their focus? Fixing an unsustainable insurance marketplace that had raised concerns not only in Florida and the C-suites of many legacy carriers, but even in Washington, DC. The US Senate’s budget committee, having put this issue in its sights, had begun to wonder if Florida and its insurers could handle several catastrophic storms in a single season. Senator Sheldon Whitehouse (Democratic Party, Rhode Island) had described it as “an insurance market that is swirling in the drain”.

But are those reforms working or is Florida merely rearranging the deck chairs on the Titanic? The arrival of hurricanes in the 2024 season – Debby, Helene and Milton – may tell the story. As discussed in this article, however, many signs are beginning to point towards positive changes for consumers and the industry.

How did Florida get here?

Florida’s climate – both geographically and litigation-wise – has long been considered risky for insurers, if not downright inhospitable. Following Hurricane Andrew in 1992, Florida saw many legacy insurers re-evaluate their exposure in the state. Then, after a period of relative calm, the 2004 and 2005 hurricane seasons wreaked havoc on the state. In 2004, Hurricanes Charley, Frances, Ivan and Jeanne caused more than USD45 billion in damages. Then, in 2005, Hurricane Wilma struck and caused more than USD20 billion in damages alone. Those losses paved the road to the crisis to come.

On the one hand, many in the insurance industry say excessive litigation began to bloom following those storms. For decades, Florida allowed homeowners to recover attorney’s fees if they prevailed in a lawsuit against their insurer. Although intended to assist a policyholder in fighting a wrongfully denied claim, some unscrupulous actors began to use Florida’s “fee statute” to benefit themselves.

As the saying goes, a few bad apples spoil the bunch. At its peak, Florida was home to 9% of the country’s homeowners’ property losses, but it had 79% of the country’s property insurance lawsuits. One particular law firm that represented policyholders was found to have filed 1,679 lawsuits in 2017 alone. After the Florida Bar began investigating, one young lawyer stated that he handled 700 cases at a time. Because the caseloads were unmanageable, that same lawyer said his firm was being sanctioned between USD5,000 and USD15,000 a week for violating court rules and orders. Ultimately, the firm dissolved and its principal was disbarred from the practice of law. Although not indicative of the majority of Florida’s attorneys representing policyholders, this became a poster child of the insurance crisis.

Adding to the litigation cost per claim were Assignment of Benefits (AOB) agreements, whereby a vendor agreed to perform repairs after a loss in exchange for a policyholder assigning the vendor its rights to insurance proceeds for the work. For a simple water loss from a pipe break, the claim could be divided between the insured, a water mitigation company, a mold remediation company, and another company who would repair the damaged property. Each stakeholder in the claim would file its own lawsuit, entitling each stakeholder to seek recovery of attorney’s fees separately. This created an exponential increase in the cost of the claim, the industry argued ‒ making it difficult for insurers and reinsurers to estimate the risk they were underwriting.

On the other hand, many of those who represent policyholders state other reasons for the insurance crisis. These include:

• increased risk of hurricanes and floods due to climate change;
• poor regulation of the industry;
• high-risk insurers without diversity of risk; and
• executive compensation packages as causes of Florida’s sky-rocketing premiums.

Indeed, throughout the past few years the National Hurricane Service has forecast unusually active hurricane seasons. This is figured in when underwriting and evaluating risk.

What has Florida’s legislature done?

To address the problem, Florida’s legislature began working on a series of reforms in 2022. Among those reforms were the following:

• requiring new insurance claims to be reported within a year of the loss;
• shortening the time in which a carrier has to acknowledge, investigate and pay a claim;
• requiring a policyholder to provide a carrier with ten days’ notice before filing suit, as well as requiring the carrier to respond in proscribed ways before suit;
• repealing Florida’s “fee statute” that previously allowed an insured to recover its attorney’s fees if it successfully prosecuted a claim for denied benefits;
• tightening prerequisites to a statutory claim for unfair claims practices (“bad faith”);
• prohibiting assignments of insurance benefits; and
• establishing stricter regulatory measures for insurers with regard to accepting risks, handling claims, and making financial disclosures.

As regards the litigation world, the elimination of the one-way fee statute and the implementation of the Notice of Intent to Initiate Litigation statute have arguably had the strongest impact.

Florida requires a policyholder to serve its carrier with a Notice of Intent to Initiate Litigation prior to filing a lawsuit. The notice must provide the carrier with certain information. That includes advising the carrier of the amount in dispute and, in certain circumstances, providing an estimate for the cost of repairs being claimed. Although seemingly rudimentary, often in the past suits would be filed without notice of a dispute and the parties would need to conduct exhaustive discovery to ascertain the scope of the dispute. The Notice of Intent to Initiate Litigation statute hopes to reduce any such uncertainty and assist in resolving claims prior to litigation.

The carrier has certain duties with which it must comply upon receipt of the Notice of Intent to Initiate Litigation. On a covered claim, the carrier must either make a settlement offer or invoke either appraisal or another form of ADR. If the latter is invoked, the ADR must be completed within 90 days. If coverage was denied, however, the carrier must either:

• accept coverage;
• advise it is maintaining its coverage denial; or
• assert the right to reinspect the property (which must be completed within 14 days).

If the claim is not resolved after the carrier completes its election, only then can suit be filed. Essentially, this creates a “safe harbour” allowing the carrier to take a second look at a claim before litigation commences.

Have there been any changes in Florida’s insurance market post-reforms?

The current average cost of Florida homeowners’ insurance for a USD300,000 home is USD5,531 per year. Florida’s citizens are hoping for drastic rate decreases. Meanwhile, carriers are hoping both for a decrease in litigated claims and for a stabilisation of the market.

Have the reforms worked for both sides? While it may be too early to say for certain, and the 2024 hurricanes may provide the first real test, there are many positive indicators.

Premium rates

According to reports from the Florida Office of Insurance Regulation (OIR), nine homeowners’ insurance carriers filed for rate reductions and ten have filed for zero-rate increases in 2024. Even though ‒ according to the OIR website ‒ those filings are still pending approval, this is a positive sign for Florida consumers.

The OIR also reported that the average rate filing in 2024 was less than 2%. According to the OIR’s May 2024 market update, the average homeowner’s premium in the admitted market in Florida is USD3,600. Even though premium rates are still some of the highest in the country, this is a positive sign.

Nonetheless, Hurricanes Helene and Milton have just come through the state. As such, it remains unclear whether these trends will continue into 2025.

New carriers entering the market

In 2021, six insurance companies writing in Florida became insolvent – many claiming a mix of unprecedented claims and high litigation losses. When an admitted Florida carrier becomes insolvent, the claim is usually then turned over to the Florida Insurance Guarantee Association (FIGA). FIGA is a non-profit corporation created by the Florida legislature in 1970. It services pending claims by or against Florida policyholders of member insurance companies that become insolvent and are ordered liquidated. When that happens and FIGA takes over a claim, the Florida taxpayer ultimately funds any payment on the claim.

Since the reforms, the OIR reports that eight new carriers have entered Florida’s market. Additionally, carriers already in the market have expressed cautious optimism about their future in Florida ‒ and with good reason.

Data from the OIR shows that, at the end of 2023, Florida domestic property insurance companies reported a combined net underwriting that almost broke even. Even though that may not sound impressive at first blush, it is a significant improvement from losing more than USD1 billion in the three preceding years. Further, the domestic carriers showed positive income for 2023 when profits from investments were considered – for the first time since 2016, according to the OIR.

Litigation

Some signs post-reform indicate a major change in the litigation of property insurance disputes. The OIR year-end statistics for 2023 show expenditure on legal defence costs, expressed as a percentage of premium, fell from 8.4% in 2022 to 3.1% in 2023. Although not at the 1.2% industry average, it shows a significant decrease.

The above-mentioned figures are likely correlated to a decrease in overall litigation. Whereas Florida had 79% of the nationwide homeowners’ insurance lawsuits in 2020, that figure has fallen to about 70% recently. Further, it appears the number of Notices of Intent to Initiate Litigation have been falling. Significantly, lawsuits involving AOBs have declined from a peak of more than 3,500 in June 2019 to fewer than 500 filed in December 2023, according to statistics from the OIR. The OIR also reports that there has been a double-digit decrease in non-catastrophe claims from 2022 to 2023.

Anecdotally, in conversations with attorneys representing policyholders and carriers alike, it appears that a significant number of claims that would have gone to suit previously are now resolving in pre-suit mediations invoked in response to a Notice of Intent to Initiate Litigation. Whether this is the result of the “safe harbour” provided to the carrier to re-examine its claims decision or is down to the repeal of the one-way fee statute for policyholders’ counsel ‒ or a combination of the two ‒ is less clear. Still, a claim resolved earlier and more efficiently than it might otherwise have been is a net benefit to the policyholder and the carrier alike.

Citizens Property Insurance Corporation

Citizens Property Insurance Corporation (“Citizens”) is a quasi-governmental entity created by statute to be an insurer of last resort for Florida homeowners who are unable to obtain insurance in the marketplace. Prior to the reforms, however, Citizens was becoming an insurer of first resort for many Floridians unable to find affordable insurance. This was seen as a serious problem by the Florida legislature and the OIR. Citizens was meant to provide stopgap coverage; it was not meant to become another domestic carrier.

The reforms, together with the added market capacity from the infusion of new carriers, have been making inroads in depopulating Citizens’ portfolio. The number of policies issued by Citizens reached an all-time high of 1.4 million in September 2023. At the end of February 2024, the number of policies had decreased to 1.17 million. Prior to Hurricane Milton, Citizens had predicted its 2024 loss ratio to be 37.7%, which is down from 42.8% in 2023.

Depopulating Citizens continues to be a priority. In 2024, the OIR approved 18 companies to assume more than a million policies from Citizens, which is an increase from the 646,617 policies approved for assumption in 2023 and the 80,201 polices approved in 2022. As of 4 September 2024, 132,455 polices have been removed from Citizens year to date. That is in addition to the 275,324 policies removed from Citizens in 2023.

With new insurers, capital, and capacity entering the market, Citizens is expected to continue its attempt to depopulate its policies.

What does it all mean?

While Hurricanes Debbie, Helene and Milton may affect the recent trends, it appears that Florida’s insurance market is starting to stabilise – if not grow. New insurers have entered the market, some existing insurers have filed for rate decreases or to keep rates at the status quo, Citizens is beginning to depopulate its portfolio, and litigated claims seem to be on a downwards trend.

However, there are still many unanswered questions and unknown variables looming on the horizon. Will an uptick in hurricane activity and floods affect the current trends and destabilise the market? Are the newly established carriers going to be resilient enough to face a year of multiple major hurricanes? Will Floridians demand some of the changes be rescinded if premiums do not fall fast enough? These are all questions that remain unanswered and unanswerable for the time being.

One thing is certain – many eyes are watching the impact of Florida’s insurance reforms.