Florida Tort Reform: Happy Second Birthday

March 24 will mark two years since Republican Florida Governor Ron DeSantis signed tort reform measures into law. HB 837 took direct aim at an epidemic of litigation, the factor most responsible for steep increases in homeowners’ insurance rates and the failure of some Florida insurers. One statistic is enough to tell the story: although Florida is home to only eight percent of the country’s homeowners’ insurance claims, prior to the reforms it was home to 76 percent of the entire nation’s homeowners’ insurance lawsuits, according to Mark Wilson, president and CEO of the Florida Chamber of Commerce.

The impact of HB 837 and other tort reform measures passed by the Florida legislature is already being felt. Frivolous litigation is down double-digits, insurance rates are declining, and ten new companies have entered the Florida market, encouraged by the improved climate for insurance buyers and providers. The facts and data are compelling – out-of-control litigation is down by more than 40 percent, homeowners’ insurance rates are down an average 5.6 percent statewide, and more than ten new insurers were approved to enter the market. There is even a planned IPO of a Florida insurer, Slide. These developments represent a sea change from more than 2 years ago, when the Florida insurance market was on life support.

There has been a kerfuffle in the past week in the Florida legislature surrounding recent newspaper articles on the state’s insurance market. The articles and their source are so misleading that we felt compelled to set the story straight.

The article that has fanned flames from the dying embers of homeowners’ insurance lawsuits is Miami Herald’s ‘Secret study found Florida insurers sent billions to affiliates while crying poor,’ and the related Tampa Bay Times‘ ‘Florida Insurance Companies Steered Money to Investors While Claiming Losses, study says.’ The main thrust of the articles is that managing general agents (MGAs) wholly owned by insurance companies are making “billions of dollars” as a result of the relationship between affiliated MGAs and the insurance companies they serve.

In the insurance context, MGAs are agents that carry out agreed functions on behalf of insurance companies. These may include the sourcing of business through relationships with retail agents, underwriting, policy issuance, collections, and claims adjusting. In short, MGAs perform multiple tasks for insurers, in accordance with an MGA agreement, and are paid for their services by the insurer as a percentage of premium, just as independent agents are. Some insurers, and most Florida insurers, operate with 100 percent-owned MGAs. A recent white paper goes into greater detail on how MGAs operate and their value in the Florida market.

Fifteen years ago there were some Florida insurance company failures where there was alleged overfeeding of affiliated MGAs. The Florida Office of Insurance Regulation, then headed by Commissioner Kevin McCarty, took action against Florida insurers that diverted excessive capital to their affiliated MGAs. Today’s Florida insurance market is much stronger than the market of 2010, as is insurance regulation and risk management, a marked improvement from an earlier era when the bevy of Florida-focused companies was more thinly capitalized and more highly leveraged.

The articles imply that there is something insidious or secretive about MGA relationships and the true financial performance of Florida insurers. The articles’ source report comments on the 2017 – 2019 period, during which there were strong hurricanes striking Florida. To be sure, statutory insurance filings show that the [direct incurred] loss ratio for Florida homeowners’ insurance was 93.0 percent in 2017 and 103.3 percent in 2018. This means that the combined ratio was approximately 123 percent – 133 percent, figuring in 30 percentage points for expenses. This was a highly unprofitable, unsustainable result. =

The Miami Herald notes, “Regulators this year are asking lawmakers to define “fair and reasonable” to include the actual cost of the service provided, the overall health of the insurer and how much in dividends were paid out. Regulators asked for that in 2023 but lawmakers rejected it, claiming it would “upset the apple cart” of Florida’s insurance industry.”

We will continue watching, and welcome discussions and debate, about the Florida insurance market.

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Florida