Householders insurance coverage premium progress in Florida has slowed because the state carried out authorized system abuse reforms in 2022, in line with a Triple-I evaluation.
As proven within the chart beneath, common annual premiums climbed sharply after 2020. This was due partially to inflation spurred by the COVID-19 pandemic and the warfare in Ukraine in addition to longtime challenges within the state with declare fraud and authorized system abuse. In keeping with the state’s Workplace of Insurance coverage Regulation (OIR), Florida accounted for almost 71% of the nation’s owners claim-related litigation, regardless of representing solely 15% of house owners claims in 2022, the yr Class 4 Hurricane Ian struck the state. In that very same yr, and previous to Ian making landfall within the state as a primary main hurricane since 2018’s Hurricane Michael, six insurers declared insolvency. Hurricane Ian grew to become the second largest on report by insured losses, largely due to the extraordinary litigation prices estimated to end in Florida within the aftermath.
Supply: Triple-I evaluation of NAIC and OIR knowledge
The Florida Legislature responded to the rising disaster by passing a number of items of insurance coverage reform, primarily tackling issues with task of advantages (AOB), bad-faith claims, and extreme charges. For instance, the brand new legal guidelines eradicated one-way lawyer charges in property insurance coverage litigation, forbid utilizing appraisal awards to file a bad-faith lawsuit, and prohibited third events from taking AOBs for any property claims. The laws additionally ensures transparency and effectivity within the claims course of and encourages extra environment friendly, less expensive alternate options to litigation.
A surge in litigation
Litigation spiked when backlogged courts reopened following the pandemic, then once more when the reforms had been handed in 2022 and 2023, as plaintiffs’ attorneys raced to file fits forward of implementation of the laws.
This improve in litigation, mixed with persistently robust inflation, contributed to elevated loss prices and premium will increase. In 2022, common owners premium charges rose greater than 17 p.c, to $3,040. Premiums continued to rise in 2023, though at a lowering charge, as inflation has moderated and authorized reforms have kicked in.
There are early indicators that the reforms are starting to bear fruit. In 2023, Florida’s protection and cost-containment expense (DCCE) ratio – a key measure of the affect of litigation – fell to three.1, from 8.4 in 2022, in line with S&P World. In greenback phrases, 2023 noticed $739 million in direct incurred authorized protection bills – a significant decline from 2022’s $1.6 billion. For perspective, incurred protection prices within the two largest U.S. insurance coverage markets in 2023 had been $401.6 million in California, adopted by $284.7 million in Texas. Because the chart beneath exhibits, Florida’s DCCE ratio – even throughout its greatest years – recurrently exceeds the nation’s.
As insurers have failed or left the state, Residents Property Insurance coverage Corp. – the state-run insurer of final resort and at present Florida’s largest residential insurance coverage author – has swelled with new enterprise and lawsuits. Residents’ depopulation efforts to maneuver policyholders to personal insurers contributed to coverage counts falling to 1.23 million by the tip of 2023.
It’s essential to keep in mind that all premium estimates are primarily based on one of the best data accessible on the time and precise outcomes could differ on account of adjustments in market situations. For instance, earlier Triple-I projections that common annual owners premiums in Florida would exceed $4,300 in 2022 and $6,000 in 2023 assumed important charge will increase can be wanted to revive profitability to the state’s owners market. These projections didn’t assume legislative reform or that Residents would develop into the state’s largest owners insurance coverage firm, with many dangers priced beneath the admitted and extra and surplus markets. Our projections additionally assumed inflation would proceed to develop at charges much like these prevailing on the time.
In mild of the reforms and moderating inflation, we at the moment are reporting decrease common annual premiums of $3,040 (2022) and $3,340 (2023). The Florida OIR has reported common premium charge filings are working beneath 2.0 p.c in 2024 year-to-date within the non-public market. Additional, OIR indicated eight home carriers have filed for charge decreases and 10 have filed for no improve this yr. Moreover, eight property insurers have been accepted to enter the Florida market, with extra anticipated this yr.
Triple-I’ll proceed to watch and report on the enhancing property insurance coverage market in Florida.