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

In order for progress to be made in reforming and fixing Florida’s property insurance crisis, analysts at Assured Research have said that the only way to move forwards may be for reinsurance underwriters to pull capacity from the state.

In a thought-piece on the state of the Florida property insurance market, analysts at Assured Research say that the Florida homeowners insurance market is becoming uninsurable and also un-reinsurable as well.

With a special legislative session now expected in late May, as we recently reported, Assured Research confirm our view that this will be too late for reinsurance underwriters this year.

While securing adequate reinsurance was always going to be a challenge for Florida focused property insurers, Assured Research proposes something more radical to stimulate, or even force, a more meaningful reform through that currently dysfunctional insurance marketplace.

Florida’s property insurance crisis has been caused by many factors, not least the states exposure to tropical storms and hurricanes. But the most significant driver has been litigation and the fact so many property claims are inflated, or created, purely due to the litigious nature of the market in Florida.

Many people have said this is a litigation crisis, not a property insurance crisis, which is accurate. But to solve it, meaningful change is required and that may not come without a shock to the system.

Assured Research warns that the special legislative session will likely prove to late “to assuage the valid concerns of reinsurers who might be wondering if FL HO risks are insurable – at any price.”

After explaining some of the drivers of Florida’s homeowners insurance crisis, Assured Research states that, “The depth of this market disarray is among the worst we’ve seen covering this industry for many decades.”

Because of the challenges faced and absent meaningful change, “We suspect a real estate and political crisis in the state of FL commensurate with the aftermath of Hurricanes Andrew in 1992 and the active 2004/2005 hurricane seasons is at the doorstep of all FL HO stakeholders,” the analysts continue.

The landfall of a substantial hurricane in Florida this season could worsen the situation, although the state may step in at that stage, the analysts believe.

While participants at a recent conference attended by Assured Research said that the most important fix that could be pushed through during the special session would be either an amendment or cessation of Florida’s one-way attorney fee statute.

How likely that would be to pass remains to be seen, as bills have sought to address that issue before.

Leading Assured Research to state that, “The only sure way to ensure progress, as we see it, is for reinsurers to exercise their rights to pull capacity from the state.”

A shortfall in reinsurance capacity would have dire effects for the Florida property insurance market, leading to a slew of rating downgrades and a flood of policies into Citizens Property Insurance Corporation.

Which would lead to a situation that “could not be ignored or papered over with tweaks to the current property insurance statues fueling the runaway litigation,” the analysts wrote.

“We’re often asked what will stop social inflation. Our answer: Look to developments unfolding in Florida
where citizens can increasingly and tangibly feel the adverse consequences of decisions to engage the services of contractors and lawyers promising to force their insurer to pay for a new roof; irrespective of whether the old one was legitimately damaged in a ‘sudden and accidental’ way,” Assured Research concluded.

It’s a radical suggestion, but one that would force the kind of response that may be needed to tilt the fortunes of Florida’s property insurance market.

While the reinsurance market is clearly being far more selective in Florida at the ongoing renewals, while catastrophe bond pricing and spreads have been rising and deals restructured, it is not yet to the degree of wholesale capacity pulling back from Florida.

Which suggests we aren’t going to reach that stage this year, as of this writing (it could all escalate prior to June 1st), meaning any enacted changes from the special session need to be meaningful enough to move the needle on Florida’s property insurance crisis before the 2023 reinsurance renewals, or a capacity pull-back may still be on the table.

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

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.

FedNat downgraded, posing another threat to Florida’s insurance ecosystem.

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.

Policy growth means more cat bonds & reinsurance for Florida Citizens.

Florida Citizens seeks higher rate increases at upcoming hearing.

Lighthouse the first to lose Demotech rating, as Ida losses weigh.

AIG’s Lexington pulls-back in Florida, raising questions on E&S market.

AM Best cites Florida market challenges as it downgrades Florida Farm Bureau.

Demotech calls for Florida market reform with rating downgrades likely.

Florida Citizens targets “the best deal we can get” on risk transfer: Montero.

Florida insurers’ litigation exposure still of concern: CaseGlide CEO Todd.

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

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

Florida P&C claims litigation concerning, as cases soar: CaseGlide CEO Todd.

Florida P&C rate filings show reinsurance firming needs to continue.

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