Quote:
Originally Posted by wondermint2
Florida consumers 'flabbergasted' as property insurers push for double-digit rate hikes
From my insurance meeting for Community Associations last month:
https://www.google.com/amp/s/mobile..../idUSKBN2AC111
(Reuters) - Florida property insurers are jacking up rates by double-digit percentages, blaming the hikes on lingering damage from past hurricanes, a wave of litigation, and a law that encourages lawyers to sue by allowing courts to award them big fees.
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Florida’s Property Insurance Market Is ‘Spiraling Towards Collapse’ Due to Litigation: Report
Article Link:
https://www.insurancejournal.com/new.../20/598034.htm
Article Highlights:
- Florida’s property insurance market is “spiraling towards collapse” and requires immediate attention if there is any chance of protecting the market, consumers, and ultimately, the state’s economy, according to an analysis about to be presented to the Florida Legislature.
- Report Findings
§ Litigation frequency and severity represents an additional expense load of 17% and rising on all earned premiums for insurers in Florida, compared to other catastrophe-prone states.
§ The fees paid to attorneys by Florida carriers far exceed the damages paid to the insureds.
§ In 2019 alone, Florida insurers paid almost $3 billion in lawsuit costs that translated into higher premiums for consumers.
§ Although the volume of claims after storms is a factor in costs, claims unrelated to catastrophes account for approximately 60% of all litigation.
§ Florida consumers are paying a “hidden tax” to fund the litigation, which averaged about $680.00 per family in 2020.
- The report identifies four Florida laws passed between 2011 and 2019 as fostering the litigation crisis. They are laws governing assignment agreements, mandatory replacement cost coverage for residential roofs, multi-year statute of limitations to file a first notice of loss and one-way attorney fees.
- Additionally, two Florida Supreme Court decisions – Joyce vs. FedNat (2017) which found that a contingency fee multiplier does not need to be reserved for rare and exceptional circumstances; and Sebo vs. American Home Assurance (2016) where the court shifted using the Concurrent Causation Doctrine that permits a covered cause of loss (such as wind) to combine with damage caused by non-covered cause of loss – helped propel the market towards this crisis.
- The litigation environment has insurance companies steadily hemorrhaging capital and surplus. The Report states that roughly 6% of homeowner’s insurance claims being litigated are equal to the cost of a “good solid Cat. 3 hurricane” every 12 months.
- The best reforms would include terminating any attorney contingency fee statutes that create arrangements unique to the insurance industry, followed by eliminating fee enhancements, particularly from litigation reliant upon the Concurrent Causation in order to prevail, the report states.
- Report Recommendations / Solutions
§ A total reversal of the statute that currently applies to all claim disputes placing responsibility on insurers to pay 100% of litigation costs when a plaintiff prevails by $1.00. The language of the statute should be replaced with former U.S. Supreme Court Justice Antonin Scalia’s opinion that fee multipliers only be used on a “rare and exceptional” basis and never used for punitive measures.
§ Changes to attorney fee arrangements so they are awarded on policy limits and damages awarded to claimants; establish range of limits to one-way property fee awards.
§ Change the 3-year First Notice of Loss deadline, to one year.
§ Enact pre-suit mediation or alternative dispute resolution, modeled after Citizens.
§ Allow excluded or non-covered damages to remain non-covered.
§ Consolidate litigated cases so multiple suits are not filed for the same property.
§ Eliminate building tradesmen (i.e., roofing contractors) from speaking on behalf of an insured without the insured’s involvement.
- While Florida has faced three consecutive years of major hurricanes from 2017 to 2020, insurance companies have insisted that the insurance problems are tied to an exponential increase in litigation.
- Florida domestic insurance companies’ results have shown a continued drop in surplus over the last five years that culminated in a single year underwriting loss of more than $1 billion through the third quarter of 2020.
- Insurance Companies writing property risks in the state have been responding by pulling back capacity in certain areas, including south Florida and more recently central Florida, along with filing for rate increases. Insurance Companies have submitted 105 rate filings in 2020 for increases of 10% or more and 55 of those filing were approved; in 2016 only six rate increases were approved.
- Insurance Companies have racked up more than 200,000 lawsuits since 2013, many of them stemming from non-catastrophe water damage and roofing claims, and many of them with assignment of benefits agreements attached. After reforms were passed in 2019, there was a dip in Assignment of Benefits (AOB) lawsuits, particularly for Citizens. However, by the third quarter of 2020 plaintiff attorneys had established a work around to the AOB with a “Demand to Pay”, instead filing first party suits against insurance companies.
- Non-catastrophe claims have accounted for 60% of all litigation filed against Florida domestic companies, while 40% of the litigation is associated with catastrophic losses.
- The fees paid to attorneys by Florida insurance companies for litigation are on average more than 750% of the damages paid to the plaintiffs/consumer. In one case, the plaintiff attorney was awarded 21,041% of the damages in fees.
- Insurance Companies have paid out more than $12 billion in fees to attorneys since 2013 and were engaged in more than 221,000 suits from 2014 to 2020, according to the report. The costs of all this litigation equals approximately $3 billion in expenses being forced upon Florida property owners.
- In 2019 alone, Florida consumers (insureds) paid between $2 billion and $2.7 billion in costs allocated to suits in the form of increased premiums.
- According to the report, just 8% of the damages are paid to the consumers (insureds) while plaintiff attorneys receive about 71% of the insurance litigation cash flow “because they are allowed to, not because plaintiff attorneys are motived to do harm”.
- Insurance Companies defense costs range from 237% to 307% of damages, or 21% of total litigation.
- Florida Insurance Companies pay 30% to 35% more on reinsurance premiums than other hurricane prone states.
- Insurance companies have underestimated preliminary damages immediately following a hurricane by an average of 300% because of unforeseen litigation costs and that is also influencing reinsurance rates.
- Florida consumers are the ultimate victims of what is happening. Consumers are essentially paying a “hidden tax” to fund the litigation. This hidden tax averaged $487.00 per family in 2019, and is growing annually by 25.6%, totaling about $680.00 per family in 2020. The “tax” is being paid to less than 2,500 attorneys and contractors in the state.
- Regardless of whether it’s a catastrophe claim or not, 92.5% of all claims are closed within a year; 80% of the claims that require more than one year involve representation by a third party.
Florida Marketplace Statistics not listed in the attached article:
- Since August, four companies – Capitol Preferred Insurance Company, Southern Fidelity Insurance Company, First Community Insurance Company and Centauri Specialty Insurance Company have participated in hearings for rate increase requests ranging from 25% to just below 40%.
- Reinsurers have responded to the Florida market’s increasing losses and exposure with the highest spike in renewal rates since 2006. Reinsurance rate increases on average this year is 25% to 30%, with some companies seeing as much as a 50% increase.
- New policies to Citizens have increased from 7,770 policyholders to 17,691 per month over the past 12 months. 443,228 policies in January 2020 to 511,004 by September – an increase of $111.7 billion in exposure to $133.5 billion. As of December, Citizens total policy count is now 537,000.
- In 2019, Citizens wrote 4% of the policyholders while Florida-based domestics wrote 72% and national writers plus their affiliates wrote 24%.
- By the end of 2019, Citizens had a combined surplus of $6.3 billion, supporting approximately $102 billion in Total Insured Value, while the entire surplus of Florida-based domestic insurance companies was approximately $4.25 billion, supporting just under $1.67 trillion in Total Insured Value.
- Number of insurance companies operating in Florida has declined from 290 in 1995 to 165 in 2019.
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