Florida OIR Says Insurers Spent $3B on Legal Defense, 21 Insurers on Watch List

In 2021, Florida’s domestic property insurers spent more than $3 billion on legal defense costs and containment – double the figure reported in 2016.

That’s one jaw-dropping but not surprising takeaway from the Florida Office of Insurance Regulation’s recently posted Property Insurance Stability Report. The report also shows that Florida’s share of homeowners claims litigation in the United States dropped slightly in 2021, from about 79% in 2020 to about 76% last year. And more than two dozen insurers have been placed under extra scrutiny due to financial issues, the report said.

The study also put a spotlight on what insurers have said publicly and privately: The cost of reinsurance increased by 54% from 2019 to 2020, and 28% from 2020 to 2021. The analysis did not include 2022 reinsurance numbers – they’re due out Aug. 1. But carriers have reported that costs spiked again this year, meaning the cost of reinsurance has more than doubled for many insurers in the last three years.

The OIR report was mandated by Senate Bill 2D, passed during the special session of the Florida Legislature in May. The studies are due out each July and January to give a barometer reading on the state’s distressed property market. Industry experts said the 27-page report gives a good snapshot of the current crisis, but also leaves some questions unanswered.

As four insurers have been deemed insolvent this year and 12 have stopped writing new business, insurance agents have had to work overtime to replace policies.

“We get asked all the time, ‘Where is the business going?'” said B.G. Murphy, director of government affairs for the Florida Association of Insurance Agents. “And other than Citizens, we still can’t answer that.”

Some carriers continue to decline to reveal policy and premium totals for OIR’s reports, calling it trade secrets. But industry advocates said the data is important, and regulators should find a way to publish some type of breakdown of the numbers.

The OIR market report also notes that Citizens Property Insurance Corp., the state-created insurer of last resort, in the first quarter of this year held more than 11% of the market, with some 541,000 policies, including those for homeowners and condominiums. But Citizens itself reported as many as 800,000 policies in force early this year and is on track to top 1.5 million policies in 2023

OIR officials were asked about the difference in the numbers but did not have time to respond by Thursday morning.

The report also underscored what many insurance executives have said for months – that profits have taken a beating. The industry in Florida as a whole showed almost $700 million in negative net income in 2021, significantly greater than the losses reported for the year before.

Net underwriting losses, however, improved somewhat, to just under $1.2 billion.

On loss reserve development, the report showed that, with a two-year look-back, 2020 claims for the industry were $676 million more than were originally estimated.

“These numbers reflect the high degree of uncertainty which exists in the property insurance market, which in turn impacts reinsurance capacity and reinsurance rates for insurers,” the report noted. “In the simplest of terms, the greater the uncertainty that exists on future claims, the more reinsurers will tend to hedge their willingness to offer capacity, and the capacity that is available will cost more as a result. This loss reserve development trend has continued since 2018.”

The 2022 legislation requires OIR to keep a better eye on shaky insurers, to give warning before insolvencies are imminent. The reports shows that the office has recently referred 27 insurers to its newly formed financial stability unit for “enhanced monitoring.” Those carriers, which were not named in the report, were flagged for several reasons, including failure to file financial reports, non-renewal of 10,000 or more policies, requests for large rate increases and other indicators of unsound financial condition.

The analysis reported homeowner premiums by county for the first quarter of this year, but did not compare to previous years. It shows that Monroe County, home of vulnerable Key West, had the highest average annual premiums, at $6,729, followed by Miami-Dade, at $5,093. Palm Beach County and Broward County reported average premiums of $4,800.

The OIR offered no new recommendations on fixing the problems in the Florida market. The report noted that OIR had made a number of suggestions in early 2021, some of which were implemented by 2021’s Senate Bill 76 and 2022’s Senate Bill 2D.

“In consideration of the recent 2022 Special Session on property insurance, OIR will continue to monitor trends and impacts from SB 76 and SB 2D and propose additional recommendations for the next Property Insurance Stability Unit report due January 1, 2023,” the report concluded.

“The report also leaves one pressing question: Will Florida’s legislators use this information and act on behalf of consumers and the health of the insurance marketplace?” Murphy wrote in an FAIA blog Thursday.