Florida reinsurance rules of engagement redefined by reforms: Demotech

For reinsurance capital, the rules of engagement in Florida’s property insurance marketplace have been redefined thanks to the wave of significant legislative reforms that have been enacted, according to rating agency Demotech.

Citing the “financial impact of the disparate, disproportionate levels of litigation” Demotech explained that 2022 may prove to be a year to remember for policyholders that have previously had to “bear the availability and affordability burdens” caused by the costs of litigation and fraudulent claims in Florida’s property insurance marketplace.

With Florida’s catastrophe reinsurance renewals at June 1st 2023 set to be more challenging due to the global hard reinsurance market and its higher pricing, Demotech believes that the legislative reforms enacted can “redefine the Florida residential property insurance marketplace.”

Saying that, “Catastrophe reinsurance coverage associated with policies covered by the June 1 and July 1, 2023, renewals will reflect the cumulative reforms enacted to date as well as some component of any additional reforms enacted in the upcoming session.

“As such, the rules of engagement in Florida’s residential property insurance marketplace have been revised.”

For those providing reinsurance capital to insurers operating in the state of Florida, those offering coverage at the June 1 or July 1 renewals “will benefit from these major reforms passed by the legislature,” Demotech said.

Adding that, “It is estimated that by September, when the height of hurricane season hits, approximately two-thirds of the residential property insurance policies in Florida will have been issued after January 1, 2023; i.e., be subject to all recent reforms.”

Joseph Petrelli, President and Co-founder, Demotech concluded, “The legislative reforms of the dual special sessions of 2022 are in place, as is the cumulative impact of previous legislative reforms. The Family Security decision stabilizes claims procedures, practices, and protocols. Governor DeSantis, Senate President Kathleen Passidomo, and House Speaker Paul Renner have accumulated an impressive series of meaningful reforms.

“Florida’s residential property insurance marketplace has been redefined.”

Attendees at our recent insurance-linked securities (ILS) conference in New York, ILS NYC 2023, heard from a panel of expert speakers on the topic of the Florida marketplace, with those experts concluding that there is now much to be optimistic about, but that capital will continue to be cautious until it sees some evidence of the legislative reforms having solved many of the issues previously seen in the state’s property insurance marketplace.

Previously, we covered the news that catastrophe bonds covering risks in Florida may now be considered more attractive, as the reforms bed in.

While it has also been said that the reforms in Florida can alleviate some of the concerns of the insurance-linked securities (ILS) industry over prolonged trapping of capital.

The key message from the reinsurance and ILS industry is that confidence is returning, but the beneficial effects of the reforms need to be evidenced before any significant, market-wide increase in appetite for risk in the state of Florida is seen.

As a result, given the hardening of reinsurance rates globally, it’s expected this year’s renewals for Florida focused insurers will still prove challenging and likely costly.

Read all of our news and analysis on the Florida insurance and reinsurance market.