Florida property reforms said reducing policyholder options, raising rates

It’s being reported by local press that the property insurance reforms enacted in Florida during the special session of the legislative in May are in some cases having a negative effect, as they are resulting in reduced options for coverage, while prices are also being driven up.

The whole point of the property insurance reforms was to pass on benefits to the residents of Florida, but in a number of cases the reforms seem to be making the property insurance market even harder to access at this time.

As we previously reported, one of those reforms, the $2 billion Reinsurance to Assist Policyholders (RAP) program, where carriers taking advantage of it should be passing on savings to consumers, is not yet having much of an effect.

We also reported that, so far, there is no evidence at this time of any slowing in litigation rates in Florida’s insurance market.

Any cost-savings the insurer benefited from by tapping the RAP fund for reinsurance this year should have been passed onto their customers, but it has only driven low single-digit rate cut requests to be filed by carriers, while the same companies have recently hiked their rates by 30% and much more in some cases.

Now, another reform has been reported to be reducing coverage options and raising insurance prices for Floridians.

One reform passed focuses on roof replacements and states that insurers cannot automatically deny coverage because of a roof’s age, if the roof is less than 15 years old.

But reporting from ABC Action News suggests that this has driven insurance carriers to become even more reticent to take on risk from properties with older roofs, as they seek to avoid taking on additional risk of litigation, something they are unable to afford in the current climate.

As a result, new requirements are being imposed around roof repairs and replacements, in the wake of the reform being passed, including limits being placed on the age of the home itself, rather than just the roof.

Insurer Southern Oak is cited as an example, as it will only insure homes constructed in 2022 and for a minimum coverage value of $250,000.

At the same time, citing the higher reinsurance costs it would have to pay, from July 30th Southern Oak insurance is closing to new business in ten counties in Florida, including Broward.

Southern Oak said, “The Florida property insurance market is facing many challenges that have led to increased rates, less capacity, and some companies exiting the market. Thanks to a flourish of positive growth so far this year, we are outpacing our projected reinsurance growth and feel that temporarily limiting our capacity will maintain the level of financial responsibility and exposure management that our policyholders and agency partners know and trust.”

Independent agents say that insurers are looking to minimise additional exposure, particularly through avenues where litigation has been a serious issue in recent years, such as roof related repairs and replacements.

Other carriers that are imposing new age limit restrictions include Olympus, American Traditions, American Integrity, Universal P&C, and Frontline, the ABC news report states.

Part of this is said to be related to reinsurance, as Florida’s property insurers have largely bought the bare minimum in coverage they needed for ratings and capital adequacy at the renewals, given the harder rates.

But taking on additional and litigation exposed risk is now less appealing as a result, or their exposures could become too lagre for the reinsurance tower they have bought, it is said.

One way to reduce this risk is to impose restrictions and requirements on policyholders and new policy quotes, to ensure the risk of litigation and damage are minimised, which is hurting Florida residents in some cases and also likely to drive insurance prices even higher in future.

It’s another sign that the Florida property reforms are not perhaps working as hoped for yet, resulting in more pain for some of the states residents.

But, it’s also worth considering that this might have been inevitable, as the reforms bed in and insurers work out their new risk tolerances.

However, reinsurance pricing is also having an effect, as carriers have become so thinly covered by it in some cases, that they are having to react to the reforms by reducing risk appetite further.

Which is all part of the evolution of Florida’s property insurance market and this will take time to find a new equilibrium.

Although we still believe more meaningful reforms are going to be needed to bring back full-reinsurance market confidence in the states carriers and risks.

Read all of our news and analysis on the Florida insurance and reinsurance market.