Fla. P&C insurers still raising rates after market reform laws take effect

Florida's residential property insurers are taking a cautious approach when estimating how industry reforms passed in late 2022 will impact their premium rates.

The state legislature held a special session in December 2022 to try to restore stability to the property and casualty market. It eventually passed a bill, which was signed by Gov. Ron DeSantis, that made sweeping changes to the claims process, reinsurance and regulations on insurance companies. Several of the law's provisions eliminated assignment of benefits (AOB) and one-way attorney fees, which have contributed to the excessive litigation costs in the state.

"While those changes may impact future claims costs, we do not believe the impacts would be immediate," State Farm Florida Insurance Co. said in a rate filing, responding to questions raised by the state regulator about how the new reforms would affect its business. State Farm said in its filing that it will closely monitor loss trends and future costs and will make appropriate changes based on its experience.

The regulator approved State Farm's homeowners rate filing on June 9, contingent upon its agreement to reflect the law's impact in future filings. The overall rate increase of 9.7% is expected to apply to renewal business starting on Sept 15.

A filing approved on June 28 for several units of United Services Automobile Association shows that the insurer did not adjust its indicated or filed rates in light of the reforms. USAA does plan to "determine if it can adequately estimate what direct impacts the elimination" of AOB and one-way attorney fees will have on its future claims and expenses. It may also consider approved competitor filings when assessing the new law's impact.

USAA is set to increase its homeowners rates in Florida by 14.9%. The new rates will become effective on Aug. 14 for new business and Oct. 30 for renewals.

Insurers thinking alike on attorney fee reform impact

Monarch National Insurance Co. in a recent rate filing stated there is no data available to help estimate what the effect of eliminating one-way attorney fees will be on the number of litigated claims or awarded attorney fees. The insurer estimated that the absence of those fees would have reduced the number of ligated claims and incurred allocated loss adjustment expenses from those claims by 15%, though it plans to revisit its initial estimates as experience emerges.

The indicated or actuarially estimated adjustment factor for the fee removal on its homeowners policies is 0.975 on all other perils and 0.976 for non-hurricane wind. The adjustment factor compares the estimated loss expenses with the fee removal to the estimated loss expenses prior to the changes. An adjustment factor lower than 1.000 signifies a decrease in the insurer's projected future claim loss expenses. A factor of 0.975 means that the insurer sees future loss expenses with the fee removal coming in at 97.5% of the projection prior to the reform laws going into effect.

However, to temper its actuarial estimated impact to reflect uncertainty on future development, Monarch will use an adjustment factor that is 50% of the indicated change. It plans to use selected adjustment factors of 0.988 on both perils.

The initial estimates reflect that the prohibition of assigning benefits to a third party will have a greater impact than the repeal of one-way attorney fees to the premium adjustment factors. The selected adjustment factors on homeowners policies for AOB are 0.969 for all other perils and 0.963 for non-hurricane wind, which are also a 50% reduction from the indicated change.

Considering other factors such as claims experience and reinsurance costs, the setting of adjustment factors due to changes in the law was not enough to offset Monarch's estimated future costs in other areas. The insurer is seeking to boost its rates by 14.1% on its HO-3 policy form with an effective renewal business date of Aug. 28.

A People's Trust Insurance Co. filing shows that it is taking a similar approach in estimating the law's effects as it also reduced its historical number of litigated claims and allocated loss adjustment expenses by 15% because of the elimination of one-way attorney fees.

The insurer is also lessening its indicated adjustment factors by 50% for both of the law's provisions. The AOB selected adjustment factor for all other peril factors is 0.943, with one-way attorney fees of 0.986; the hurricane peril is capped at 1.000, with one-way attorney fees of 0.995.

The insurer proposed a rate reduction, but only by 0.1%. The new rate is expected to take effect Aug. 30 for renewal business.

A Safepoint Insurance Co. filing shows that the insurer set its adjustment factors based on the People's Trust filing, saying that "any provision calculated based on company data would be similar." Safepoint is proposing to increase its statewide homeowners rates by 14.9% with an effective date of Sept. 1 for both new and renewal business.

Racing against the clock

Recent legislative actions have laid the groundwork for property market improvement. Those changes should benefit Florida insurers over the long term but may provide some short-term pain in the process.

The number of lawsuits filed against Florida's property insurers has trended lower since the passage of Senate Bill 76 in 2021, but the number of suits has risen sharply since the start of 2023, according to a July 2023 Florida Office of Insurance Regulation report. The recent rise can be attributed to plaintiff firms hurrying to file lawsuits before House Bill 837, a sweeping tort-reform measure that overhauled Florida's litigation landscape, took effect.