TALLAHASSEE, Florida. – Florida lawmakers made changes last week that will bring “much-needed relief” to the ailing property insurance system, but the effects of the legislation won’t be immediate, said financial rating agency AM Best in a new report.
The report pointed to parts of the new law designed to limit litigation, which insurers have long accused of driving up costs. But he also cited underlying problems in the system, such as national insurance companies that are wary of doing business in the state and Florida carriers that rely heavily on reinsurance.
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Reinsurance, which is essential backup coverage, has become more expensive and difficult to purchase for Florida insurers, with costs being passed on to homeowners. The law approved at a special session last week included measures such as providing $1 billion for a temporary program to help insurers obtain reinsurance coverage.
“The five largest national homeowners insurers represent over 50% of the US market outside of Florida, but only 15% of the market in Florida, which shows how dire the situation is,” said Sridhar Manyem, director principal, industry research and analysis for AM Best, said Tuesday in a prepared statement accompanying the report. “The legal environment and the reinsurance market are two important issues addressed by the extraordinary session which could ultimately make the market more attractive, but the effectiveness of the reform will take time.”
The law, which Governor Ron DeSantis quickly signed into law, made a series of changes to try to reduce court costs. These changes included the elimination of so-called “one-way attorney fees,” which required insurers to pay attorney fees for policyholders who successfully sued.
In addition, the law eliminated the long-controversial practice of assignment of benefits for property insurance claims. Assignment of benefits involves policyholders assigning claims to contractors, who then seek payment from insurers. Insurers argue that this practice has led to an increase in lawsuits.
AM Best’s report states that if “these measures prove effective, they could significantly reduce insurers’ defense and cost containment expenditures”. He also said the changes “will provide much-needed relief, but such relief is unlikely to be immediate.”
Among other things, the report says the law will likely lead to legal challenges.
“Until the courts rule, domestic writers may still be wary of the environment in Florida,” the report said.
Last week’s special session – the second such session in seven months on property insurance – came after two years of major problems in the insurance system.
Insurers have dropped hundreds of thousands of policies and demanded large rate increases due to financial losses. Meanwhile, the state-backed Citizens Property Insurance Corp., which was set up as an insurer of last resort, saw its number of policies more than double to 1.14 million.
During last week’s session, lawmakers passed a 105-page bill that addresses a host of issues, including trying to push citizen policies into the private market. This will prevent Citizens policyholders from being able to renew their cover if they receive policy offers from private insurers that are less than 20% of the cost of Citizens premiums.
But the measure drew opposition from Democrats and groups such as plaintiffs’ attorneys. They said it would not, at least immediately, result in lower rates for landlords and would hamper landlords’ ability to fight insurers in claims disputes.
Republican supporters, however, said it was aimed at stabilizing rates and attracting more insurers to Florida.
AM Best’s report is titled “Insurance Reforms in Florida: Long-Term Relief on the Horizon; Short-term headwinds remain. He highlighted remaining questions about how the changes will affect reinsurance and said “weather losses from hurricanes remain an important factor to consider when conducting business in the state.”
“Legislators have targeted the elements influencing the rise in reinsurance costs, but the extent of the potential savings for insurers under the new legislation will depend on whether the private reinsurance market interprets the actions most as viable mitigation measures, as the risk of catastrophe-related losses remains,” Chris Draghi, associate director of AM Best, said in a prepared statement.
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