Florida’s insurance market on the verge of failure: Triple-I

Florida’s insurance marketplace has been plagued by extreme levels of fraud and litigation, which is driving the homeowner’s insurance market’s demise in the state, according to the Insurance Information Institute (Triple-I).

Florida’s insurance market is on the verge of failure, the Triple-I believes, citing an “overabundance of unneeded new roofs on homes, and flashy lawyer billboards at every turn claiming massive settlements on claims.”

Calling the litigation crisis a “man-made catastrophe”, the Triple-I has analysed the market and concluded that this catastrophe is creating a financial strain on property owners, with the annual cost of an average Florida homeowners insurance policy set to skyrocket to $4,231 in 2022.

Driving home the size of this problem, the Triple-I believes this is almost three times more than the U.S. annual average of $1,544 for homeowner’s insurance costs per-year.

“Floridians pay the highest homeowners insurance premiums in the nation for reasons having little to do with their exposure to hurricanes,” explained Sean Kevelighan, CEO, Triple-I.

Adding that, “Floridians are seeing homeowners insurance become costlier and scarcer because for years the state has been the home of too much litigation and too many fraudulent roof replacement schemes.

“These two factors contributed enormously to the net underwriting losses Florida’s homeowners insurers cumulatively incurred between 2016 and 2021.”

While there haven’t been any major hurricanes making landfall in Florida since 2018, the state has seen litigation proliferate and it’s estimated by the Florida Office of Insurance Regulation (OIR) that of $51 billion paid out in claims by Florida insurers over a 10-year period, 71 percent of the $51 billion went to pay attorneys’ fees and public adjusters.

At the same time, 2020 and 2021 cumulative net underwriting losses for Florida’s homeowners insurers reached over $1 billion each year.

Reinsurance capital pays a significant proportion of these costs that are flowing to attorney fees and adjusting firms, while fraud related to roof replacement claims and other construction related matters are also adding to the reinsurance bill in the state of Florida.

Making it no surprise we’ve seen such a hardening of reinsurance rates at the recent renewals there.

“The state’s homeowners insurers have been forced to respond to these unfortunate market trends this year by restricting new business, non-renewing existing policies and even canceling policies mid-term.

“What’s more, four homeowners insurance companies have been declared insolvent since February – all while more Americans are moving to Florida than any other state” Kevelighan commented.

As recently as 2020, the average Florida homeowners insurance policy cost $2,505 per-year, but that figure rose to $3,181 in 2021 and is expected to rise again to $4,231 in 2022, the Triple-I believes.

Meanwhile, the failure of property insurers operating in Florida has seen state-backed property insurer of last resort Citizens ballooning, in terms of policy count, again, with 900,000 likely to be surpassed this month, up from around 760,000 at the end of 2021.

That significant growth is expected to continue and Citizens itself believes it will hit 1 million policies by the end of 2022.

These additional data points provide further evidence on just how challenged Florida’s property insurance market is.

A major hurricane will be a significant test, especially as some carriers will have less reinsurance in-force.

Florida Citizens is going into the hurricane season with far less reinsurance in place, suggesting a greater chance of assessments on policyholders or insurers in the state.

Even a number of smaller storms this hurricane season, would be a particular challenge for Florida’s insurance market in 2022, especially as aggregate reinsurance and drop-down layers of reinsurance are far less prevalent in reinsurance towers after this latest renewal round, meaning protection for multiple smaller events is lower and more of the losses are likely to be retained by primary carriers in Florida this year.

Florida’s insurance market is without doubt on the verge of failure.

Whether it will actually fail, will come down to this hurricane season, as well as how effective the reforms enacted in the special session can be for next year, plus whether more reforms are brought in, as many in the industry believe is necessary in order to stem the litigation tide.

Read our coverage of Florida’s property insurance crisis below:

Florida market in midst of inevitable hard-landing: Elementum’s Rettino.

“Several quarters” before benefits of Florida reforms show: CaseGlide CEO.

“Several years” for reinsurance to regain confidence in Florida: KBW.

Florida Citizens struggles to fill reinsurance towers, only ~36% secured so far.

Heritage says Florida needs “meaningful & necessary legislative changes”.

Southern Fidelity may wind-down after failing to secure reinsurance, losing rating.

Florida carriers reliant on reinsurance face “existential challenge” – AM Best.

ILS market no longer a “safety valve” for Florida’s reinsurance needs: Stonybrook.

Florida reinsurance renewals to see at least 20-30% rate rise: Analysts.

Florida property insurance legislation “inadequate”, says Demotech’s Petrelli.

Florida insurance reforms signed into law, uncertainty to persist.

Reforms won’t have immediate positive impact on reinsurance in Florida: Survey.

Florida property reforms pass House, but reinsurers to remain sceptical.

Florida insurance reforms pass Senate, but may not save all carriers.

Florida’s insurance carriers over-litigated, not under-capitalized: Demotech’s Petrelli.

Florida insurance bills pass first hurdle. But details to matter.

Florida: Some carriers are on life support, others about to pull the plug.

Florida’s special session property insurance reforms: Opportunity lost?

Florida Citizens CFO says risk transfer markets in “disarray”.

“Really significant” property insurance reforms for Florida: DeSantis.

Florida “flash point” as reinsurance market begins to throw in the towel: ALIRT.

FedNat details Florida downsizing plan, says Monarch to be acquired.

Florida Special Session to focus on fraud, AOB abuse & affordability: CFO Patronis.

More insurers seeking rate hikes of 23% to 49% in Florida.

Cat Fund reform is crumbs, Floridians need a feast: Demotech’s Petrelli.

Florida litigated claims rise again, but “hope” in Special Session: CaseGlide.

Florida – “The theatre is on fire,” FHCF change won’t solve it: RenRe CEO.

Swiss Re not optimistic on Florida reinsurance pricing: CFO Dacey.

To ensure progress in Florida reinsurers could pull capacity: Assured Research.

Full placement of Florida reinsurance programs to be challenging: AM Best.

Florida Governor sets property insurance special session for end of May.

“Cause for concern” as AOB & litigated claims rise in Florida: CaseGlide CEO.

Ida insolvencies continue, as Florida runs out of road: ALIRT.

Florida property insurance market “in collapse”, special session uncertain.

Florida renewal “one of the toughest in recent memory” – JMP Securities.

Demotech calls for Florida market reform with rating downgrades likely.

No quick fix as Florida property insurance reforms fail to pass.

Another one bites the dust – Florida’s insurance failures continue.

Assignment of benefit (AOB) claims rising for Florida P&C insurers.