Progress on property insurance reform continues in the state of Florida, with the first bill from the special session now passing through the legislature having been approved on the House floor, to now make its way to the Governor for signing.
But the reinsurance market is likely to remain sceptical of the reforms, with no guarantees they will significantly change the litigation landscape, nor the profitability of Florida property reinsurance business in the short term.
The Florida House voted 95 to 14 in favour of bill SB 2D and now Governor DeSantis is expected to sign it into law.
There are concerns among some legislators that provisions related to contingency multipliers may now make it much harder for a homeowner to rightfully sue its insurer during a dispute, but they goal of stemming fraudulent litigation should be achieved with this.
The $2 billion taxpayer-backed Reinsurance to Assist Policyholders fund, which would act as a kind of lower-layer to the Florida Hurricane Catastrophe Fund (FHCF), is also controversial, but more so in the industry, where there appears confidence it will help some insurers get their reinsurance needs secured, but reinsurers feel it does nothing for their views of risk in Florida.
In addition, the RAP fund is seen by some lawmakers as shifting risk back onto taxpayers, but this time at a lower-layer of the state tower that is more likely to attach.
Politicians, while largely in favour, also cited concerns that the bill won’t provide the quick fixes on the rates consumers are paying, while also not stabilising the availability of reinsurance capital.
It will take some time for the market to evidence a clear reduction in litigation and more functional state, before the reinsurance and capital markets would significantly increase their appetites for writing business in Florida.
The bill also tackles roof replacements, to try and stem the practice of full replacements being claimed via assignment of benefit (AOB) contractors, as well as additional consumer protection, plans to retrofit and storm-harden homes and insurance market oversight.
There is concern in some quarters that these bills have passed through the legislature without any real expert oversight, or industry input.
In the main, many of these measures have been raised in past sessions, as each year of late there have been property insurance focused reform bills that failed to get passed.
Ultimately, the hope among lawmakers is that this could stabilise the market and save as many carriers as possible from failure.
Although, as we reported yesterday, our sources suggest lawmakers accept there will likely be more failures before any stabilisation manifests.
Analysts at KBW have some interesting commentary on the passage of the bill, that aligns with our recent coverage.
“We see some provisions as positive first steps toward addressing elevated social inflation and providing domestic property insurers some lower-layer catastrophe reinsurance protection, but we expect reinsurers to remain skeptical of these changes’ adequacy, implying sustained reinsurance capacity pressure,” the analysts explained.
Specifically on the $2 billion RAP fund the analysts said, “We think this reinsurance layer will help Florida carriers access lower levels of reinsurance for which private (i.e., non-governmental) reinsurance capacity is in very short supply, but the associated rate cuts – which must be filed by June 30 – and the hurricane- only coverage will probably limit primary insurer participation to those in significant need, and shouldn’t meaningfully impact the demand for, or materially-rising pricing of, private reinsurance.”
On roof deductibles, the analysts noted some potential improvement in profitability for insurers, but again no impact on reinsurance capital in Florida.
“We expect the additional pricing flexibility to modestly improve accuracy and profitability, although the inspections part seems susceptible to fraud, and we don’t expect this to meaningfully impact reinsurance demand,” they explained.
On attorney fees, “We expect reinsurers to remain skeptical of this change’s effectiveness until there is clear evidence of significantly reduced social inflation, which this change seems unlikely (in our view) to produce without more meaningful legal reform.”
Finally, on retrofitting homes, “The grants should modestly lower potential losses, but probably don’t represent a big enough investment to reduce the losses stemming from a major storm.”
Which sums up what we’ve been saying in our coverage, that the reforms are positive but not going far enough to encourage the appetites of reinsurance and capital market players to increase significantly for risk in Florida.
At the same time, it could take months or years for the reforms to have any more meaningful effect, suggesting primary insurer profits may not get the chance to recover in the manner that would allow rate reductions to flow very quickly to consumers, the people lawmakers have been trying to help.
Read our coverage of Florida’s property insurance crisis below: