TALLAHASSEE, Florida. – Financial ratings agency AM Best said Monday that “further action is essential” to stabilize the property insurance market in Florida, as lawmakers prepare to tackle the issue in a special legislative session this month.
The agency released a four-page commentary outlining a range of issues for insurers, such as high reinsurance and litigation costs, and pointed to companies seeking big rate increases and reducing the number of policies that they subscribe.
“Insurance industry leaders in Florida have warned that the current environment for those offering personal property coverage is on shaky ground, given state risk and litigation,” the report said. remark. “The escalating losses have prompted advocacy groups to call for legislative reform to stabilize the insurance market. Growing support has led to legislation introduced in 2019 and again in 2021 aimed at reducing the runaway costs of litigation, a key driver of business interruption, but the reform has not had the desired effect Other measures are essential to stabilize the market.
The document arrived three weeks before the scheduled May 23 start of the special legislative session, which Gov. Ron DeSantis called after the House and Senate could not reach an agreement during that regular session. year on a bill on insurance.
It also came after three property insurers – Lighthouse Property Insurance Corp., Avatar Property & Casualty Insurance Co. and St. Johns Insurance Co. – have been declared insolvent since February.
Meanwhile, in an April 25 filing with the federal Securities and Exchange Commission, FedNat Holding Co., which owns three property insurance subsidiaries that do business in Florida, cited “substantial doubt as to its ability to continue its activity”.
FedNat said it has agreed to file a plan with the Florida Office of Insurance Regulation to demonstrate its “ability to obtain and maintain a financial strength rating acceptable to the secondary mortgage market, acquire sufficient reinsurance commencing its renewal on July 1, 2022, to support its existing business by obtaining additional capital and settling its losses and policies outside of Florida.”
Alexis Bakofsky, chief of staff for the Office of Insurance Regulation, said in an email Monday that FedNat had filed the plan, which was not subject to publication because it had been marked as a trade secret under U.S. law. ‘State.
“OIR works closely with FedNat to protect policyholders,” Bakofsky said in the email.
It remains unclear what action lawmakers will take during the special session as many homeowners across the state are hit by rate increases or lose coverage.
AM Best’s commentary was titled “Participants in Struggling Florida Real Estate Market Under Immense Pressure.” He said hurricanes weren’t the “main culprit” for insurance problems, but cited other issues, such as reinsurance and litigation costs and the large number of roof damage claims.
“Insurers have responded with rate increases, underwriting adjustments and targeted non-renewals while avoiding the most problematic areas of the state,” the document says. “Despite these initiatives, fare adequacy continues to be a challenge for some carriers as they seek fare increases, compounding pricing actions taken in previous periods.”
Reinsurance, which is essentially relief coverage purchased by insurers, plays a vital role in the Florida market. Rising reinsurance costs and availability concerns are causing concern in the industry as reinsurance coverage needs to be renewed.
“Florida property insurers may find it difficult to fully place their catastrophe reinsurance programs before the next renewal season,” Chris Draghi, managing partner at AM Best, said in a prepared statement.
Insurers have also blamed dubious, even fraudulent, claims for roof damage for causing losses. It has also led insurers to refuse to provide coverage for houses with old roofs.
During a pre-hurricane season briefing with reporters Monday, Charles Nyce, an associate professor of risk management and insurance at Florida State University, said insurers don’t want to sell insurance on homes whose the roofs were over 10 years old.
“I don’t want to sound the alarm too much, but I don’t think you can look at the current state of the private insurance market in the state of Florida and say it’s good,” said Nyce. “It’s a very fragile market that we have, extremely fragile.”
– News Service Assignment Manager Tom Urban contributed to this report.