Florida Governor Ron DeSantis
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Amy Beth Bennett/Zuma Press
Ron DeSantis and the Florida Republicans have pulled off a rare political feat: constructive insurance reform. This month, Florida’s governor signed legislation to prevent the state’s property insurance market from collapsing under a tidal wave of lawsuits that could blow the state’s budget. State.
Democrats are calling the reform a bailout for insurers that will raise premiums for homeowners. The truth is, it fixes a legal racket that has allowed bargain bargain litigators that have caused homeowners insurance premiums to skyrocket and rendered many insurers insolvent and out of business.
Florida insurers faced more than 100,000 lawsuits last year seeking $7.8 billion in damages, while the other 49 states faced a total of 24,700 seeking $2.4 billion. of dollars. Between 2016 and 2021, litigation costs for property insurers doubled to more than $3 billion. The hurricane risk is partly responsible. But the same goes for plaintiffs’ attorneys’ fees, which account for 71% of the insurer’s legal costs, while only 8% went to policyholders.
The reason? Florida law has allowed policyholders who wish to avoid dealing directly with their insurance companies to assign their claim benefits to contractors who work with litigators. Contractors often inflated fees, often rejected by insurers. Lawyers then sue insurers for what they say are legitimate charges. Insurers have been required to pay attorneys’ fees if they lose a case. As a result, insurers have been inundated with frivolous lawsuits.
Many insurers have settled and increased premiums to cover legal costs and risks. Florida property insurance premiums are the highest in the United States ($4,231 on average per year) and nearly triple the US average. While the Sunshine State’s low taxes have attracted newcomers, high real estate premiums make it less affordable to buy and own a home.
Insurers are also struggling to price legal risk and have seen underwriting losses exceeding $1 billion each of the past two years. More than a dozen insurers have gone bankrupt since the beginning of 2020 while a growing number are withdrawing from the market due to a lack of reinsurance.
Homeowners have increasingly turned to state-backed Citizens Property Insurance Corp., which offers below-market premiums. The number of property insured by citizens has doubled since September 2020 and it has become the leading state property insurer. A bad hurricane season could wipe out its reserves, requiring bailouts from taxpayers or other insurers to cover its debts.
The GOP reform eliminates assignment of benefits and the requirement for insurers to pay plaintiff’s attorney fees if they lose. It is also setting up a $1 billion state reinsurance fund to support insurers. Owners with Citizens policies will be required to accept private cover from an insurer that offers premiums at less than 20% of its rates.
Ideally, citizens would be required to charge rates closer to market rates, and the policy goal over time should be to eliminate any state insurance backstop. But this reform marks progress which aims to attract more private insurers by creating a stable legal environment which should lead to more competition in the insurance sector.
Insurance reform is politically difficult, as Congress repeatedly proves by failing to fix federal flood insurance. Florida’s reform shows that Tallahassee can tackle a stalled insurance market in a way that should help consumers and taxpayers.
Newspaper editorial report: An election deadlock means fighting will resume. Images: Reuters/AP Composite: Mark Kelly
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Appeared in the December 30, 2022 print edition as “Ron DeSantis Heads Off a Bailout”.