FL lawmakers unveil property-insurance fixes but market has ‘further devolved’

Tens of thousands of homeowners struggle to find insurance

By: - May 22, 2022 7:00 am

The Atlantic hurricane season begins June 1 in the midst of a property-insurance crisis in Florida. Here, Hurricane Irma makes landfall in 2017. Credit: Warren Faidley/Getty Images

Creating a $2 billion reinsurance fund to help insurance companies pay catastrophic claims is a good idea but it is unclear whether it can significantly ease Florida’s property-insurance crisis.

Establishment of that fund to, in essence, provide hard-to-come-by stability for Florida insurance companies, is the hallmark of proposed legislation unveiled late Friday by Republican leaders in the Florida Senate and House of Representatives, which convene Monday in this year’s second special session.

The first public hearing on the proposals will begin Monday morning in the Senate Appropriations Committee, which scheduled more than five hours for it.

The Legislature failed to pass any changes in property-insurance law during its regular session, which adjourned March 14, following reforms adopted in 2021 and 2019.

Meanwhile, insurance experts say the crisis has worsened.

Paul Handerhan, president of the Federal Association for Insurance Reform, a national nonprofit advocacy organization based in Fort Lauderdale, told the Phoenix Saturday that his organization is hearing that even an infusion of $2 billion in reinsurance capacity will not be enough at this point to stabilize the battered marketplace by June 1, much less generate property-insurance rate decreases referenced in the legislation.

“We were talking about needing $4 billion in reinsurance capacity, due to the hard reinsurance market. This prior week, it got even harder,” he said. “The reinsurance market has further devolved. We’re hearing from insurance brokers that the reinsurers are at the point of saying, ‘We’re just going to take a break from Florida.’”

Likewise, AM Best, considered a benchmark credit ratings agency, reported in its May 2 commentary that the crisis in Florida has led “many [reinsurers] to rethink risk appetites.”

“Florida property insurers may find full placement of their catastrophe reinsurance programs ahead of the upcoming renewal season a challenge,” wrote Chris Draghi, the agency’s associate director.

Citizens Property Insurance Corp., Florida’s insurer of last resort, is shopping for $4.25 billion in reinsurance coverage, twice as much as last year, and it is only one of many trying to secure reinsurance from private companies increasingly backing out of Florida.

Even Citizens, which has doubled is policy volume as private insurers have gone out of business, does not expect to find as much reinsurance coverage as it needs, according to its president, CEO, and executive director, Barry Gilway.

The source of the $2 billion fund, titled, “Reinsurance to Assist Policyholders,” is general revenue, meaning taxpayer dollars may be used to pay claims in the event of a catastrophe such as a major hurricane.

The money would not provide reinsurance for the increasingly expensive category of non-catastrophic damages from “localized” events such as tropical storms, lightning strikes, and hail.

Handerhan stands by his forecast, reported Thursday in the Phoenix, that the special session will not result in lower policy premiums, which have been skyrocketing while tens of thousands of policies have been outright cancelled.

“I’m not sure it’s going to have the rate impact they expect. I hope I’m wrong,” he said.

Come June 1, the official start of the Atlantic hurricane season, insurance companies with insufficient reinsurance will be downgraded by financial-rating agencies and lose their ability to provide coverage.

“Rating agencies will have no discretion; they will have to pull their ratings,” Handerhan said.

Homeowners whose policies have been cancelled and who have not secured replacements will go into hurricane season without insurance.

The proposed legislation also:

  • Aims to keep insurers from refusing to cover homes with roofs less than 15 years old solely because of the roof’s age
  • Sets new limits on attorney fees in litigation between insurers and policyholders and aims to limit alleged insurance fraud leading to inflated payouts
  • Mandates that state regulators promptly carry out their duties to officially analyze and report why insurance companies fail, and to hold the companies accountable
  • Earmarks $150 million for matching grants of up to $10,000 to “harden” homes with improvements making them less vulnerable to damage.

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Laura Cassels
Laura Cassels

Laura Cassels is a reporter, former statehouse bureau chief, and former city editor. She is a classical pianist, a Florida State University graduate and proud alum of the Florida Flambeau, an independent college newspaper.