The legacy that arose from Hurricane Andrew’s landfall in Florida is under strain from the effects of man-made crises today, says a new report.
The report, It’s Not Just the Weather: The Man-Made Crises Roiling Property Insurance Markets, posits that there are new and growing crises in many US states arising from man-made events such as abuse of the legal system, government interference, and fraud.
This comes against a backdrop, say the authors, after Hurricane Andrew ultimately paved the way for positive community safety innovations through modern building codes and enhanced regional mitigation initiatives. The new report was produced by the American Property Casualty Insurance Association (APCIA), the Reinsurance Association of America (RAA), the Association of Bermuda Insurers and Reinsurers (ABIR), and Robert Hartwig, PhD, CPCU.
David A. Sampson, president and CEO of APCIA, says that there is a ‘man-made’ and ‘major catastrophe’ in states such as Florida, California, and Louisiana.
He added: “Unchecked plaintiff bar tactics, legal system abuse, fraud, and misguided government policies are having a significant impact on the availability and affordability of insurance for American families, individuals, and businesses. For example, collectively these factors have driven the average Florida homeowner’s insurance policy to nearly $3,000 in 2022, roughly twice the U.S. annual average.”
A statement from the report’s authors said that according to the Florida Office of Insurance Regulation, in the last 10 years, $51bn has been paid in insurance claims and of that, 71% went to attorneys’ fees and public adjusters while only 8% went to claimants.
Frank Nutter, president of the RAA, alluded to the troubled Florida insurance market. Recently, the Insurance Information Institute said that the market in that state was ‘on the verge of failure’. It noted that re/insurers are contending with an overabundance of unneeded new roofs on homes and massive settlements on claims, meaning the average Florida homeowners insurance policy is set to stand nearly three times higher than the national average at $4,231 this year.
That same body a week later went further and said that homeowner insurers in Florida were facing multiple crises. It said that net underwriting losses for Florida domestic property companies exceeded $1bn in both 2020 and 2020. Triple-I’s issues brief stated that this is leading to insurer insolvencies and rating downgrades.
Problems within the state’s insurance market have been ongoing for a long time, with legislative changes in May from state governor Ron DeSantis that sought to stabilise the troubled property re/insurance market. Those reforms included a $2bn reinsurance fund and new rules on coverage denials and attorney fees that were designed to enact pro-consumer measures that help to alleviate rising insurance costs, increase insurance claim transparency, and crack down on frivolous lawsuits that have driven up prices in recent years. Specific provisions included $2bn in reinsurance relief through the Reinsurance to Assist Policy (RAP) program to help policyholders over the next two years. Other measures within the measures were $150m for hurricane retrofitting, as well as rules that require insurers to provide a reasonable explanation for denying coverage, and that prohibit insurers from denying coverage based on factors such as the age of a home’s roof. Further rules limited the assignment of attorney’s fees in property insurance cases and enforce more stringent structural inspections of properties.
Despite all this, a note from ALIRT Insurance Research in July said that homeowner insurance markets were still in ‘a sort of free fall’. The note, an update on the domestic insurer market in the US state, said that several factors are buttressing the ongoing narrative that is the market’s decline in recent years. This came after AM Best said in June that property insurers in Florida will continue to face hardships in the near future, despite legislative reform.
Now Nutter has said: “Unfortunately, this has all occurred even though Florida has not experienced a direct hit from a hurricane since 2018, underscoring the impact of disruptions these man-made forces have on the marketplace. In Florida alone, seven insurers went insolvent in the last two years and 14 other companies have stopped writing new policies to avoid similar stability risks. According to a report from the state’s insurance regulator, Florida accounted for 79% of the nation’s homeowners’ insurance claim lawsuits, while making up only nine percent of the nation’s homeowners’ insurance claims. While Florida’s governor and legislature implemented positive reforms during a special session earlier this year that are a step in the right direction, it will take time and additional reforms to stabilize Florida’s volatile property insurance market.”
He added: “Fraud related to property insurance claims is another issue that costs policyholders and impacts the marketplace. According to data from the Federal Bureau of Investigation, the cost of non-health-related insurance fraud is estimated to be more than $40bn per year, which can translate to an additional $400 to $700 annually in insurance premiums for the average US family.”
