Florida’s Legislature made progress on some of the property insurance reform bills that were heard by a committee yesterday, moving them on to the Senate, but the details underlying the reforms will matter for the reinsurance market and the prospects of meaningful change.
Positively though, the fact legislation is making progress so quickly, with these bills only drawn up a handful of days ago and now already moving through the Senate Committee on Appropriations, does show how motivated lawmakers are and does bode well for at least getting some changes through in the ongoing special session.
The bills that made progress yesterday were Senator Jim Boyd’s, who as we explained yesterday had acknowledged that they would not have an immediately significant effect on rates for insurance consumers.
But they are seen as a step on the path towards reforming the Florida property insurance market, but do leave questions as to whether they will help to instil more confidence in the states risks for global reinsurance markets.
Yesterday, Boyd said that, “Some carriers are on life support, some are about to pull the plug, others are in critical condition,” as he attempted to drive home the importance of doing something to reform property insurance market conditions.
The passed proposals include the $2 billion Reinsurance to Assist Policyholders fund, which would act as a kind of lower-layer to the Florida Hurricane Catastrophe Fund (FHCF), and could have some immediate effects in terms of lowering the costs of reinsurance for carriers struggling to fill those layers of their programs.
But, just because the state is taking some lower layer reinsurance risk, does not mean reinsurers and the capital markets will increase their appetite for the rest of the state’s reinsurance towers.
In fact, market sources suggest this measure does nothing for their view of risk and for some markets it actually stakes away risk they may have sought to write, subsidising it in the process.
Insurers will not pay into this new fund, instead they will have to pass on savings to consumers if they take advantage of it.
Another area of the bills progressed yesterday focuses on roof replacements and proposes that insurers could not automatically deny coverage because of a roof’s age, if the roof is less than 15 years old.
In other parts of the United States, insurers already do not have to cover roofs if older than 10 years, so while this is a tightening of coverage restrictions, it’s not a particularly significant change in many sources eyes.
In fact, there was an attempt to amend this part of the bill down to a 10 year age limit, but it failed to be adopted.
Additionally, if a roof is more than 25% damaged after a storm but meets the building code, then it would not need to be replaced in full any more.
This roof replacement percentage related rule is more meaningful, although only going to help the insurance market over time as new catastrophes occur and roof related claims quantum drop.
There are also measures to limit one-way attorney fees, although it is said these do not go as far as some proponents of more meaningful reform would like to have seen.
There are also measures on retrofitting properties to harden them to storms, and on oversight of the insurance industry in Florida.
Am amendment to one of the bills that sought to freeze insurance rates for consumers while the reforms took effect was voted down yesterday as well.
While progression of any reforms at all is a positive, it still will come down to the details as to what kind of effect it has on the insurance market in Florida, on consumers rates, and the appetite of reinsurance capital to assume more risk there and what rates reinsurers charge for that.
At the same time, the details will also matter as to how quickly any benefits flow through.
It’s thought the $2 billion state-backed reinsurance fund proposal could help some carriers this year, but whether that alone is enough to help them fill their reinsurance towers remains to be seen.
Read our coverage of Florida’s property insurance crisis below: