“Historic” Florida legislation should “improve the reinsurance picture”

The property insurance related legislation currently being debated by lawmakers during Florida’s Special Session is seen as “historic” by the CEO of the state’s insurer of last resort, Citizens Property Insurance Corporation.

Commenting on House and Senate bills HB 1A and SB 2A, which are being considered by the Florida Legislature this week during Special Session 2022A, Florida Citizens CEO Barry Gilway was in positive mood.

The bills are extensive, covering a wide range of issues related to Florida’s property insurance market, the issues that have been causing litigation and fuelling fraud, as well as provisions for improving the reinsurance situation in the state.

Gilway explained that, “This is historic legislation that addresses so many critical issues that have plagued the Florida market for many years.”

Here, he’s likely referring to the fact the bills would outlaw two of the main issues that have fuelled the litigation crisis in Florida’s property insurance market.

These are the proposals to completely eliminate one-way attorney fees, and to abolish assignment of benefits (AOB’s), two key reforms that could make a significant difference in preventing fraudulent and inflated claims that drive loss creep through to insurers and on to the global reinsurance market.

The bill is designed to not just reform Florida’s property insurance market, but also to give confidence back to providers of capital, including reinsurance.

Florida’s personal property carriers saw their policyholder surplus decline by 23.5% by the end of the third-quarter of 2022, while their average combined ratio was very high at 147.5%.

That erosion of capital comes as the global reinsurance market hardens considerably and the cost of capital markets backed reinsurance, such as through catastrophe bonds, has also skyrocketed.

All of which makes for a challenging situation for Florida’s insurers, including Florida Citizens, who rely on access to risk capital to maintain their capital adequacy and to operate their business models.

Making the Special Session all the more vital, as if the lawmakers do not pass sufficiently meaningful reform, then reinsurance capital is going to be even less available and more expensive at the next set of Florida renewals, while the cat bond market will likely have less appetite for certain layers of Florida risk as well and its pricing will be higher too.

But Citizens CEO Gilway believes there is hope, but it is based on the reforms being passed unopposed and without change.

“I’m highly optimistic that, should the bill pass in the proposed format, it will attract more capital to the market and eventually improve the reinsurance picture,” Gilway said.

For Florida Citizens, this is the critical outcome that is required.

Parts of the proposed legislation aim to depopulate Florida Citizens, but for that to happen the private market needs to have the capital, access to reinsurance and also appetite to support such a venture.

Getting the Florida property insurance reform bill through unchanged is going to be a tough task, as there are still some areas that could provoke partisan responses.

But, at this stage, most lawmakers are acutely aware of the need to enact meaningful reforms, so it is to be hoped Gilway gets his wish and the bills are sped through with little in the way of amendments.

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