Property insurers in Florida will continue to face hardships in the near future, despite legislative reform, says AM Best.
The firm said in a new commentary that the recent $2bn reinsurance program created for insurers to help insulate themselves from risk does not apply to secondary perils, or events less severe than hurricanes, which have been problematic in Florida.
AM Best wrote: “The Reinsurance to Assist Policyholders (RAP) program also mandates that participating insurers file correlating rate decreases. While this requirement may provide some slight relief for consumers, it does not address the considerable rate inadequacy issues driven by loss costs, aside from reinsurance pricing. Additionally, primary insurers with already high leverage ratios will find their positions in jeopardy if they are unable to place prudent reinsurance programs.”
It added: “The changes in the new law regarding litigation issues in Florida, as well as other measures to address roof-damage claims and the language on limiting contingency fee multipliers, may provide some benefit, but it will take time. Florida insurers’ defense and cost containment expenses, as a percentage of incurred losses, is the highest in the United States, and is more than double that of California, the second-highest state. The ultimate effectiveness of these reforms will be contingent on the response from those who have previously taken advantage of the system.”
These comments come days after Florida governor Ron DeSantis signed new legislation into law that seeks to stabilise the troubled property re/insurance market in the state, following a week of discussions by lawmakers at a special emergency session.
The reforms, which include a $2bn reinsurance fund and new rules on coverage denials and attorney fees, were signed by the Florida Governor after successfully passing the house.
They are 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 include $2bn in reinsurance relief through the Reinsurance to Assist Policy (RAP) program to help policyholders over the next two years.
Other measures $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.
Despite the reforms, a majority of respondents to a recent survey by Reinsurance News have said they believe that it could take years for the recent property reforms passed by Florida lawmakers to have a positive impact on reinsurance conditions in the state.
Out of the hundreds of responses from identifiable market participants, of which 70% make or provide input to reinsurance buying decisions, 37.3% expect Florida market reforms to take one to two years to positively impact reinsurance, while another 16.0% said it will likely take more than two years.
Together, then, a significant 53.3% of respondents expect the changes to take at least a year and possibly multiple years to effect beneficial change for the state’s troubled market.
With just 10.7% of respondents saying reforms could yeild positive impacts within six months, this option was the least popular of those offered to survey participants, but it’s worth noting that more than a third (36.0%) were optimistic that positive change could be observed from six months a year after the reforms are introduced.
Among other key takeaways from the Reinsurance News survey, market participants expressed confidence that reinsurance rate increases will accelerate further at the mid-year 2022 renewals, while buyers of protection will find it challenging to procure the desired level of coverage.
On a similar note, 77% of respondents to the survey believe that some carriers will fail to obtain sufficient reinsurance protection on June 1, in part due to the ongoing challenging conditions in the Florida market.
