“Florida’s Insurance Market: The Decade Ahead” | Florida Insurance Commissioner Michael Yaworsky | April 20, 2023

Hurricane Ian’s landfall near Ft. Myers in September of 2022 was the costliest in Florida history, causing an estimated $109.5 billion in damage, including insured and uninsured losses, as well as claiming 156 lives.  For the state’s property insurance market, it’s just the latest in a series of challenges.  In the past 15 months, seven Florida domestic insurance companies have become insolvent and others aren’t writing any new policies.  Insurance carriers collectively have taken huge underwriting losses, despite multiple double-digit rate increases on homeowners insurance policies. 

Commissioner Yaworsky said a combination of three factors are involved: the cost of reinsurance (which is insurance for insurance companies), natural catastrophic events over the past seven years, and social inflation.  “The social inflation includes everything from abusive practices within a litigation environment to vendors that aren’t acting in the best interests of the consumers overall,” he said.  “We’ve seen those three events combine together and accelerate each other causing an unprecedented level of adverse loss reserve development, meaning the cost to insure homes has exceeded all expectations that were represented before it in rate making.”

As a result, Commissioner Yaworsky said the multiple years of billion dollar-plus losses by property insurance companies are “extreme and unsustainable…there is simply not enough capital in this state to accommodate the losses that we’ve experienced.”

He outlined the series of reforms that the Florida Legislature enacted in two special sessions in 2022 and the supplemental reforms passed in the 2023 regular session.  These include measures to increase insurance claim transparency, crack down on frivolous lawsuits, eliminate one-way attorney fees, strengthen regulatory authority, require carriers to more promptly respond to and pay valid claims, and establish a new optional state reinsurance program.   

“I’m optimistic that eliminating the one-way attorney fee provision over time will increase some rationality in the litigation space to make sure that there are no perverse incentives operating in it to incentivize undo litigation,” Commissioner Yaworsky said, while still preserving access by consumers to litigation in genuine disputes with their insurance companies. 

The most immediate challenge as hurricane season approaches is for insurance companies to find affordable reinsurance.  “It’s become easier for insurance companies to purchase reinsurance above the Florida Hurricane Catastrophe Fund level, but more difficult to find reinsurance below the Cat Fund level,” the Commissioner said.

As for when property insurance rates might level off, Commissioner Yaworsky said it will probably be 16 months before insurance companies begin to experience relief from the reforms that they can then reflect in their rate filings to his office.  Given that most policies are issued on an annual-basis, consumers won’t likely see the relief reflected in lower homeowners premiums for months beyond that, he said.  “It’s going to be a very difficult time for a little bit longer before we come to a place hopefully, where we’re past a lot of the past seven years.”

Calling it “the most complicated property insurance market in the country and possibly the world,” Commissioner Yaworsky also shared with the Club that Florida’s insurance marketplace is the ninth-largest in the world, with a direct written premium of $209 billion.  It employs 213,100 Floridians and represents 3.5% of the state’s Gross Domestic Product.  “Insurance accounts for a tremendous amount of Florida’s economic stability but is also the underpinning of any future growth in Florida,” he said.

Florida also has the largest federal Affordable Care Act (ACA) market in the country with more than three million consumers and is growing rapidly.  All but one county now have multiple carriers offering ACA policies.  Meanwhile, the small group market has been slowly declining, with less than 500,000 members this year.

 (You can also view the entire Club meeting on YouTube.)