Could Things Get Worse in Florida? The Answer is Yes.

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As legislators fail, insolvencies mount, capacity grows tighter, and agents’ jobs get increasingly tougher in the Sunshine State.

By Oscar Miniet

Hopes for any relief in Florida’s property insurance market this year have been dashed by legislators as capacity continues to tighten and the situation grows more dire for insureds and insurers alike.

State lawmakers concluded their annual legislative session without enacting any reforms that would have helped the Personal Lines coverage situation that’s reaching critical mass in Florida. By the close of its annual session, House and Senate leaders couldn’t reach a solution to soften the impact of double-digit rate increases on Florida homeowners.

One of the pieces of legislation up for consideration, Senate Bill 1728, would have ended the requirement that most homeowners policies provide full replacement on some wind-damaged roofs and would have allowed a 2% deductible on roofs. The measure passed the Senate, but failed in the House.

One amendment to insurance bill SB 468 would have forced more policyholders to switch from the state-backed insurer of last resort Citizens Property Insurance Corp. to other carriers, in part to counter the surge of policies to Citizens. The original bill passed the Senate in February and the amended version actually did pass the House, but the Senate ran out of time to review the changes made to it – and as the session ended, it was indefinitely postponed and withdrawn from consideration.

There’s still talk of calling lawmakers back to Tallahassee for a special legislative session to try and address this critical issue, but that seems unlikely. Florida’s independent agents will continue to have to explain to customers why their homeowners rates are skyrocketing, and those producers will continue to be challenged in Personal and even some Commercial Lines when it comes to securing coverage.

Insolvencies Mount

This inaction by House and Senate representatives comes just after the demise of Tampa-based Avatar Property & Casualty Insurance Co., the second carrier this year go insolvent and the sixth to fail in Florida since 2019.

Avatar’s financial problems became clear in mid-February, when the insurer revealed it would stop writing new business in Florida. Not long after, the Demotech rating firm withdrew the carrier’s financial stability rating.

Avatar, which began operations in 2008, was one of Florida’s smaller insurers, with about 42,000 homeowner policies; it remains to be seen whether those will be assumed by Citizens. That policy count is about a quarter of the size of St. John’s Insurance Co., one of the bigger Florida-based property & casualty insurers and the latest large carrier to bite the dust – just two weeks before Avatar was declared insolvent.

St. Johns, the eighth-largest P&C insurer in Florida, likewise announced it would stop writing business in Florida just before it shut down. Interestingly, 147,000 of its 160,000 policies were assumed by Tampa-based InsurTech Slide – a decision by the Florida Office of Insurance Regulation that rubbed the rhubarb of several other carrier executives, as no other insurers had a chance to bid on those policies. (Make of that what you will.)

It’s likely that Avatar’s insolvency will require the Florida Insurance Guaranty Association to cover the carrier’s outstanding claims. After St. Johns was liquidated, FIGA approved a 1.3% assessment on premium for carriers – which, of course, will be passed on to Florida policyholders. It’s unclear if Avatar’s fate will force another FIGA assessment on its member insurance companies.

However, St. John’s and Avatar weren’t the only carriers to announce they were no longer going to write business in Florida. Universal Property & Casualty (the state’s largest private carrier), Florida Farm Bureau, Lighthouse Insurance, and TypTap have revealed similar plans. Progressive will likewise not be renewing thousands of policies.

In Q4 2021, Universal Insurance Holdings, Universal Property & Casualty’s parent company, announced a $64.5 million loss before taxes. Its combined ratio had ballooned to 131% – and although its combined ratio for the year had improved over 2020, it remained above 100%.

Universal Property & Casualty currently serves more than 900,000 policyholders.

Impact After the Fall

Incredibly, during their session, Florida lawmakers also failed to approve SB 1702, which would have required more frequent inspections of high-rise condominium structures statewide. Proposed directly in response to the 2021 collapse of the 12-story Champlain Towers South condo in Surfside, Fla. that killed 98 people, the bill also would have required condo associations to better maintain their properties and regularly assess the reserve funding available for upgrades.

As agents in Florida will tell you, carriers’ capacity for commercial property has retracted significantly since the Champlain Towers South tragedy – and now, surplus lines insurers are asking for more information than ever in submissions pertaining to commercial buildings.

The Champlain Towers South disaster also serves as a cautionary tale of what can happen when a structure isn’t insured to its proper valuation. The condo association was carrying a $31.4 million property policy for a building in which 136 condo unit values ranged from about $400,000 to nearly $3 million. Talk about underinsured.

Additionally, the lawsuits associated with the Champlain Towers South condo collapse will continue to have a ripple effect on the Florida insurance market. Older condo buildings may find it impossible to obtain property coverage for full insurable limits – and buildings in Southern Florida that fail to meet the requirements of a county-mandated, 40-year recertification process may find it cost-prohibitive to get property cover.

Assistance in an Uncertain Future

The reasons for why carriers have been struggling in Florida have been well documented: While natural disasters have certainly taken their toll, a tsunami of fraudulent claims and lawsuits against insurers have had a devastating impact. According to a 2019 Florida Office of Insurance Regulation study, the state represented 76.45% of the nation’s lawsuits.

It’s also worth noting that since 2013, $15 billion has been paid out in claims in Florida – 71% of which went to attorney fees, 21% of which paid for insurers’ defense costs, and only 8% of which actually went to property owners for their losses.

With more insurers growing insolvent and others pulling out, the Florida insurance market bears close watching in the months to come. In 2021, during a debate over a Citizens depopulation plan presented by St. Petersburg Sen. Jeff Brandes, experts warned that the demise of any two of the state’s larger property insurers could cause Citizens’ policy count to swell to 1.5 million. Were that to happen, a major hurricane would have the potential to wipe out the state’s finances.

The last time Citizens’ policy count reached a peak of nearly 1.5 million was in 2011, when it risked nearly $520 billion in exposure. Had the state been hit by a 1-in-a-100-year storm at that time, Florida’s insurance consumers would have been looking at $24 billion in assessments tacked onto monthly premiums for years.

The way things are going, it’s not impossible to see Citizens reach a record number of policies again. Since October 2019, Citizens has seen its policy count leap from 420,000 to more than 777,000. At its current pace, officials expect that policy count to reach 1.1 million to 1.3 million – or higher – by the end of this year.

That’s a risk I’d bet no one is willing to take.

From a personal standpoint, members of Renaissance Alliance have access to a wider spectrum of carriers than their competitors – and still get 100% of their commissions, profit sharing and overrides through admitted markets. Wholesalers will still desire their share, but independent agents who secure coverage through non-E&S insurers will still get more in commission through Renaissance than they would on their own. I’ve also seen many of Renaissance’s member agencies refer each other business if they don’t have the right carrier partner for it themselves.

Oscar Miniet is Regional Executive Vice President at Renaissance Alliance. He can be reached at Oscar.Miniet@Renaissanceins.com.

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