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Economy / Business

A key rating agency says pressures continue for Florida's property insurers

Florida's property insurance market won't see a quick fix as hurricane season opens.
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Florida's property insurance market won't see a quick fix as hurricane season opens.

Gov. Ron DeSantis called the special session after widespread problems that have included homeowners losing coverage and seeing skyrocketing rates.

The financial-rating agency AM Best said Friday that changes passed during a special legislative session last month “are unlikely to alleviate immediate financial pressures” on Florida property insurers.

A three-page commentary pointed, in part, to insurers facing difficulties purchasing reinsurance, which is crucial backup coverage for such things as hurricane claims.

“With an active hurricane season on the horizon, AM Best believes that the current legislation — although a step in the right direction — does not provide significant immediate relief,” the commentary said. “Pressures remain for market participants, particularly for those struggling to fully place their reinsurance programs ahead of what is predicted to be another active hurricane season.”

A key part of the legislation set aside $2 billion in tax dollars to provide additional reinsurance to insurers that otherwise might not be able to buy it in the private market. Also, lawmakers called for insurers to pass along to policyholders the resulting savings from the reinsurance assistance.

The AM Best commentary said the $2 billion program “indicates a meaningful commitment of financial support from the Legislature” but added it “does not fully address reinsurance capacity pressures.”

It also indicated that passing along the reinsurance savings to policyholders might not help insurers grappling with financial losses.

“The rate reduction requirement may provide some rate relief for consumers, but it does not address rate inadequacy issues driven by loss costs aside from reinsurance pricing,” the AM Best commentary said.

Gov. Ron DeSantis called the special session after widespread problems that have included homeowners losing coverage and seeing skyrocketing rates. Lawmakers passed two bills (SB 2-D and SB 4-D), which were quickly signed by DeSantis.

Along with the $2 billion reinsurance program, the legislation addresses roof-damage claims and litigation — both of which insurers have long blamed for driving up costs.

For example, one of the bills will allow insurance policies to include new deductibles for roof damage. The deductible amounts would be 2 percent of the overall insured value of homes or 50 percent of the costs to replace roofs. For example, the 2 percent deductible on a $300,000 home would be $6,000.

Also, the bill put new restrictions on what are known as “bad faith” lawsuits against insurers and made it harder for plaintiffs’ attorneys to receive “contingency fee multipliers,” which can significantly increase amounts paid to lawyers.

The AM Best commentary said that “if changes are applied as intended, potential long-term positives are possible for roof claims, litigation and attorneys’ fees.” But it also stopped short of concluding that the changes will solve the problems.

“The ultimate effectiveness of these reforms will be contingent on the response from those who have previously taken advantage of the system,” it said in a section of the commentary about the litigation-related changes.

The AM Best evaluation was somewhat similar to comments made this week by Citizens Property Insurance Corp. President and CEO Barry Gilway, who said it will take time for many of the changes to work their way through the insurance system.

Gilway said he hopes the changes will “stabilize the market” and primarily pointed to the $2 billion in reinsurance money. But Gilway added that most insurance-based legislation doesn’t have “a real impact” until it goes through the entire insurance policy cycle, “which as you know, is a minimum of 16 to 18 months.”

“So, nothing immediate,” said Gilway, whose state-backed insurer has seen its number of customers soar as they struggle to find coverage in the private market.

It is unclear how many property insurers are having trouble buying adequate reinsurance. But Kin Interinsurance Network has finalized its reinsurance for the period through May 31, 2023,

“Despite a homeowners insurance market that has continued to harden, we’ve successfully completed our reinsurance program,” Angel Conlin, chief insurance officer at Kin, said in a prepared statement Friday. “This is a testament to our strong relationships with our reinsurance partners who have helped us bring our unique underwriting approach and emphatic commitment to policyholder protection to the capital markets.”

Meanwhile, Universal Insurance Holdings, Inc. announced this week that its subsidiaries, Universal Property & Casualty Insurance Co. and American Platinum Property and Casualty Insurance Co., had completed their reinsurance.

“Against a backdrop of wide ranging macro-economic pressures globally and an extremely challenging property insurance and reinsurance marketplace, particularly in the markets that we serve, we were able to secure the extensive reinsurance program we desired for the 2022 hurricane season,” Matthew J. Palmieri, president of United Property & Casualty, said in a statement.

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