Florida Senate Committee on Banking and Insurance Hears Presentations on the Florida Residential Property Market

On January 12, 2021, the Florida Senate Committee on Banking and Insurance heard presentations from Florida Insurance Commissioner David Altmaier and Citizens Property Insurance Corporation CEO Barry Gilway on the state of the Florida property insurance market. 

Commissioner Altmaier told the committee that are trends showing a deteriorating Florida insurance market. Florida domestic insurers had net underwriting losses over $1 billion in 2020. In contrast, the domestic market had net underwriting gains of over $500 million as recently as 2015. The Commissioner said that insurers have had to seek larger rate increases in recent years. In 2016, 6 of 64 rate filings were for a 10% or greater increase. In 2020, 55 of 105 filings were for more an increase of more than 10%. He believes that 5-10 carriers are seeking additional capital to prevent financial impairment in the future. 

Commissioner Altmaier said cited two major reasons for increasing insurance rates: increased reinsurance costs and increased litigation. Litigation is a major cost driver that leads to increased rates. He believes roof claims are major cause of increased litigation. He showed the committee an internet search for “roof insurance claims” showing that attorneys and roofing companies are encouraging consumers to file claims to obtain benefits. He said that claim severity has reduced in cases with an AOB has been reduced since the 2019 AOB reforms became effective. However, claims without an AOB are continuing to increase so some benefits of AOB reform have been offset by increases in first party litigation.

Commissioner Altmaier said there was no reason to believe the negative trends – increased underwriting losses and increased litigation – would reverse unless there is legislative action. If the trends do not change, he predicted the number of policies in Citizens would increase and insurers may leave Florida. He said he has not yet seen carriers leave the state but believes that some company exits were prevented by acquisitions by other companies.

Citizens CEO Barry Gilway expressed similar concern about the state of the Florida insurance market. He discussed losses that have occurred in recent years at Florida insurers and said that if he were an investor, he “wouldn’t put a dime in the Florida marketplace.” He explained that prior to 2007, Citizens’ rates were required to be non-competitive with the private market. Citizens’ rates were frozen from 2007-2009. Now, Citizens is the less expensive option 91% of the time. Citizens’ rates are required to be actuarily sound but Gilway noted that rates cannot increase more than 10% per policy each year. Gilway said that Citizens is not required to purchase reinsurance at the same level as the private market. Accordingly, Citizens’ provision for reinsurance is much lower than in the private market. This leads to lower rate need for Citizens. If Citizens was required to purchase the same level of reinsurance as a typical private insurer, its homeowners multiperil and wind-only indication would nearly triple and its rates would increase 15%. It was suggested that an adjustment factor could be created to “level the playing field” between Citizens and private insurers. Gilway noted that the “vast majority” of residual market plans in other states require that the residual market carrier rates be non-competitive with the private market.

Gilway agreed with Commissioner Altmaier that increased litigation is a major problem in the Florida market. He said that Citizens uses appraisal when possible to reduce litigation. Gilway said that AOB reform has “absolutely” been a success but that first-party litigation is increasing. He suggested that reforms like those enacted in 2017 in Texas could help in Florida. The Texas reforms require claimants to itemize losses, require presuit notice, require claimants and insureds to make demands and offers to settle, and link attorney fees to the amount recovered in any litigation. Gilway believes that Florida’s “one-way” attorney fee statute creates incentives to file lawsuits.

The slides that Altmaier and Gilway used in their presentations can be found here.