The Florida House of Representatives passed Senate Bill 2-D on Wednesday in an attempt to stabilise the state’s insurance sector.
Among the bill’s provisions are a program that provides $2bn of reinsurance capacity, attaching below the Florida Hurricane Catastrophe Fund’s (FHCF) $8.5bn attachment point, but covering only hurricane losses; the limiting of Florida insurers’ ability to deny homeowners coverage based on certain roof conditions; restrictions on ‘contingency fee multipliers’ to only being used in ‘rare and exceptional’ circumstances; and the authorisation of $150m in state grants to homeowners for repairs and upgrades to their homes.
In a note, Keefe, Bruyette, & Woods said: “We see some provisions as positive first steps toward addressing elevated social inflation and providing domestic property insurers some lower-layer catastrophe reinsurance protection, but we expect reinsurers to remain sceptical of these changes’ adequacy, implying sustained reinsurance capacity pressure.”
On the $2bn of reinsurance capacity, KBW said that they thought it would help Florida carriers access lower levels of reinsurance for which private capacity was in short supply. However, KBW said the associated rate cuts – which must be filed by June 30 – and the hurricane-only coverage will probably limit primary insurer participation to those in significant need, and shouldn’t meaningfully impact the demand for, or materially-rising pricing of, private reinsurance.
Limiting the ability to deny coverage, said KBW, would have a modest impact.
It said: “We expect the additional pricing flexibility to modestly improve accuracy and profitability, although the inspections part seems susceptible to fraud, and we don’t expect this to meaningfully impact reinsurance demand.”
Reinsurers, the firm said, would probably remain sceptical about the restriction of fees until there was evidence of ‘significantly reduced’ social inflation.
Lastly, the $150m in state grants for upgrades and inspections, with each homeowner dollar being matched with $2 up to $10,000, would also have a modesty impact, said KBW.
It added: “The grants should modestly lower potential losses, but probably don’t represent a big enough investment to reduce the losses stemming from a major storm.”
The Florida bill was passed 95-14 and is expected to be signed in the coming days by governor Ron DeSantis.
The state’s insurance market has been in disarray for the last couple of years.
As the AP reported: “The insurance industry has had two years of underwriting losses exceeding $1 billion each year and several insurance companies have either gone insolvent, required midterm cancellations, are in liquidation or have stopped writing new business since 2021, the governor said in his proclamation calling lawmakers back to the Capitol. The loss of private insurers has driven property owners to Citizens Property Insurance, a state-run public insurer meant to be a last resort.”
The passing of this bill has been in the works for some time. In May, Florida senator Jim Boyd said that the proposed reforms would bring stability to the market.
Senator Boyd had presented proposed legislation that aimed to balance pro-consumer measures, increase the transparency in insurance claims, and provide anti-fraud and legal reforms to stabilize the market.
“All of us want a competitive and vibrant insurance market in our state,” Boyd remarked alongside the session.
It was around this time that the National Association of Mutual Insurance Companies (NAMIC) said it was an opportunity for the Legislature to pass critical reforms to address some of the most pressing issues that have led to the current crisis in the state’s insurance market.
