Florida Market Needs Lasting Reform
The residential insurance market in Florida has experienced years of deterioration resulting in decreased availability of private market options, reductions in coverage and rising insurance premiums. As has been well established by the Florida Office of Insurance Regulation and others, Florida never really had a sinkhole problem, a mold problem, or a water damage problem…. and viewing Florida’s current problem as a roof claim problem is too narrow. Florida has a problem with misaligned incentives. Although section 627.428 establishing a one-way right of attorneys’ fees against insurers was intended decades ago to establish a balance between insurers and consumers, it has been clear for years that the statute has created an insurance system that is not balanced but is misaligned. Florida has only 8% of the countrywide property insurance claims– a predictable percentage given this state’s population and the number of primary and secondary homes in Florida. However, Florida experiences nearly 80% of the countrywide property insurance litigation– a staggering percentage that obviously far outpaces any other state in the nation.
Prior legislative reforms have not addressed the underlying cause of Florida’s property insurance problems. Therefore, those problems continue to exist and worsen. Sometimes they migrate from one peril to another when laws or policy forms are tightened, such as we’ve seen with the rise and decline of sinkhole-related claims…. but the true problem is never fixed. Legislators sometimes ask, after having attempted to address problems with AOB’s or sinkholes, whether the insurance industry will be back in future years complaining of some other problem. Unless and until the root cause of Florida’s problems is addressed, the answer has to be unequivocally “yes.” As long as Florida’s insurance laws establish a system that results in substantially more litigation than anywhere else in the country, how can we not expect for patterns of the last 20 years to repeat themselves?
Governor Ron DeSantis has called a special session on property insurance. The session reportedly will take place in late May. This is welcome news and hopefully will create momentum for meaningful solutions to the market’s problems after the regular session did not produce any changes. A significant challenge, however, is that the longer Florida’s problems persist, the more entrenched they become and the longer they take to address. It is difficult if not impossible to implement law changes that will have immediate and lasting effect. Even some of the most immediate changes being discussed for the special session—revisions to the Florida Hurricane Catastrophe Fund, will create logistical challenges given the lateness of the special session. Many property insurers’ reinsurance programs renew June 1. Due to the scope and complexity of placing reinsurance in a global market—especially a hard market, this means insurers have been working on modeling, structuring, negotiating and ultimately placing their programs for months. In typical circumstances, many insurers would be pinning down significant portions of their programs, if not the entirety of their programs, in the coming days and certainly over the next few weeks. The possibility of law changes and the uncertainty regarding what those law changes might be creates additional challenges in an already-difficult environment.
The Florida market clearly has reached the point at which immediate or interim relief can be helpful. However, if this is not coupled with recognizing and effectively addressing the underlying nature of the problem, there’s no doubt the market will continue on its current path toward reaching equilibrium through reduced availability, more limited coverages and higher prices.