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Fate of Fla. property insurance market at stake as special session looms


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Fate of Fla. property insurance market at stake as special session looms

Reinsurance coverage for insurers and out-of-control claims litigation look to be the top concerns for Florida lawmakers when they meet in a special legislative session to address the state's property insurance crisis.

Gov. Ron DeSantis in a proclamation calling for the special session, which begins May 23 and ends May 27, said four homeowners insurers either became insolvent or required midterm policy cancellations in 2021. Another three insurers this year have been placed in rehabilitation or liquidation as of April 30.

While legislators have not released a list of bills they will debate during the session, Paul Handerhan, president of the Federal Association for Insurance Reform, said one short-term solution would be to address the ability of carriers to acquire reinsurance for the upcoming Atlantic hurricane season.

"You still have companies that have to complete their reinsurance programs by the end of June," Handerhan said in an interview. "That is very challenging, to say the least, since the reinsurance appetite to operate in Florida has waned over the years."

Citizens' surge continues

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Major reinsurers such as Munich Re Capital Markets GmbH and Swiss Re AG have reduced capacity in Florida by 50% to 80%, which has had a major impact on the local market, according to Barry Gilway, chairman and CEO of Citizens Property Insurance Corp.

Florida's homeowners insurance market has experienced a "total collapse," Gilway said during Citizens' May 18 Board of Governors meeting. How the market is able to move forward will depend heavily on what the special session produces, he said.

Primary carriers that have canceled homeowners policies this year include The Progressive Corp., which dropped 56,000 policies held by homeowners with roofs over 15 years old, and troubled FedNat Holding Co., which recently canceled 68,200 homeowners policies.

Insurance company failures and policy cancellations have increased the burden on Citizens and fueled massive growth for the insurer of last resort. As of April 30, the company had 851,006 policies in force, its highest level since 2014.

Citizens has more than doubled its size over the last 18 months, and the exposure from that growth over the same period has risen to $275 billion from $108 billion, Gilway said. As the insurer of last resort gets bigger, so does the risk that property insurance policyholders across the state are hit by emergency assessments if a major hurricane leads to a deficit in its accounts.

"We're struggling, frankly, to get reinsurers interested and respond, not knowing when [the level of growth] is going to stop and how far is going to go," Gilway said.

RenaissanceRe Holdings Ltd. CEO Kevin O'Donnell in a conference call earlier this year conceded that the company is "not keen" on participating in the Sunshine State's property insurance market because of social inflation and other factors.

Litigation spiral

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Despite past efforts by the state legislature, the frequency of litigation against insurers, and the costs to defend against them, continue to escalate. That surge is reflected in Florida carriers' Defense and Cost Containment Expense, or DCCE, ratios, which is the cost of legal expenses, such as lawyers fees, court costs, and paying for experts and investigators, compared with premiums.

Florida's direct incurred DCCE ratio in 2021 was 6.2%, while the national median average was 1.2%.

The litigation rate is one of the core causes of the insurance market's troubles, said Guy Fraker, a risk consultant for Cre8tFutures. Florida insurers in 2021 were served with 100,595 lawsuits seeking a total of $7.8 billion in damages. Those numbers dwarf what the entire rest of the country has seen. The other 49 states combined were served with 24,700 lawsuits seeking total damages of $2.4 billion.

Fraker remains optimistic that the special session will produce meaningful reform because of the "strong and aggressive" language in DeSantis' proclamation concerning changes in building codes and addressing the litigation issues.

"He's actually going after the core causes, the core motivators, not the symptoms," Fraker said.