Florida’s insurance carriers face one problem above all others, the fact that they are over-litigated and being badly affected by a litigious property insurance claims environment where fraud has been de rigueur.
This is according to Joseph Petrelli, President and Co-Founder of rating agency and consultant Demotech, Inc., who believes it is not the potential hurricanes they may face after June that Florida’s insurance carriers have to fear, rather it is a lack of meaningful reform to the litigious claims environment being enacted.
“One of the opinions shared from time to time is that the Florida focused carriers are “under-capitalized” or otherwise financially unstable. This is a myth,” Petrelli explained.
He shared data showing that Florida has faced significant impacts from named storms, tropical storms and hurricanes over the last fifteen years, but added that, in his view as President of the main rating agency for Florida property insurance carriers, “Carriers have been responding as expected.”
Another myth Petrelli highlights, that the Florida insurance market has a habit of denying policyholder claims.
“Another opinion that I hear from time to time is that Florida focused carriers have a business model based upon “deny, deny, deny” claims. This is also a myth,” he told Artemis.
Florida fares well in data showing the number of claims closed without any payments and in fact outperforms a number of other states that have similar levels of catastrophe exposure inherent to their insurance marketplaces.
Which leads Petrelli to conclude that, “Florida’s insurance carriers survive hurricanes and tropical storms. They are not under-capitalized, they are over litigated.”
Assisting Florida’s insurance carriers in surviving the significant storm activity seen over the last fifteen years have been global reinsurance and capital markets, including catastrophe bond coverage.
These instruments make up a significant financial buffer for Florida’s property insurance market, which is why it’s so important to the state to continue to have broad access to reinsurance capital.
“The proximate case of problems and dysfunction is that Florida residential property insurance has a litigation problem,” Petrelli explained “Documented by the Insurance Commissioner in his letter, 9% of the country’s outstanding reported claims are in Florida YET 76% of the litigation on that countrywide study of open claims is in FL!”
It is solving the litigation crisis in Florida’s property insurance market that will have the biggest long-term effects of any reform the ongoing special session can deliver and it’s critical for the reinsurance market’s appetite in the state of Florida as well.
As Petrelli previously explained to us, reform to the catastrophe fund, or the additional of new state-backed Florida reinsurance as has now been proposed, is “crumbs” whereas Floridians deserve a “feast” of reforms.
He also told us recently that if the special session fails to enact meaningful reform that immediately stops litigation in its tracks, it will be an “opportunity lost”.
As Petrelli said, Florida’s carriers can get through challenging storm seasons, have adequate capital in the main and reinsurance should be abundantly available, if it wasn’t for the litigation crisis and the pressure this has placed on loss costs and created loss creep.
Absent the fraud, litigation and assignment of benefits (AOB) related issues, and with the ability to set risk commensurate prices (after accounting for the removal of all this social inflation), Florida’s property insurance market would still be one characterised as high-risk, from a catastrophe exposure point of view, but it would be significantly more stable, with ample capital and reinsurance available to it, so would continue to function through most hurricane seasons without any major issues.
Read our coverage of Florida’s property insurance crisis below: