Florida improves, California deteriorates on regulatory issues

The Florida property insurance market continues to show positive signs of improvement following the implementation of historic legal system abuse reforms in 2022/2023. But there remains a long way to go, David Sampson, the president and chief executive officer of the American Property Casualty Insurance Association (APCIA), told APCIA Today.

He noted that rate filings in Florida for 2024 show a slight downward trend for the first time in years. Ten companies have filed a zero percent increase and at least eight companies have filed a rate decrease to take effect in 2024.

In another indicator that the changes are having a positive impact, since the reforms, eight new companies have been approved to write homeowners policies in Florida, and an additional company has been acquired to expand its footprint in the state. 

“We are seeing real progress,” Sampson said. “The fact that startups are coming to the state is a very positive indicator.”

He noted that some 389,000 policies were taken out of Citizens Property Insurance (the state’s insurer of last resort) from January 2023 through March 2024. “Over time, consumers should start to see the benefit through improved availability and affordability of insurance,” he said.

But he added that while there are many positive signs of improvement, insurers are still dealing with the consequences of historic problems, including the impact of litigation that was filed or in progress before the reforms took effect.

He offers some stark context to illustrate this point. A January report from the Florida Office of Insurance Regulation (OIR) demonstrated that litigation had been an outsized problem in the state prior to the recent legal system abuse reforms.

“There are many positive signs that the Florida reforms are making a real difference.”

According to OIR, Florida had 14.9 percent of nationwide claims, but 70.9 percent of the nation’s litigation in 2022. The report also showed that in 2022, more than 58,000 property claims were litigated in Florida. Other states typically have only hundreds of such cases annually.

“It’s important to remember that right before the 2023 reforms took effect, trial lawyers filed a staggering 280,000-plus lawsuits. It will take time for this wave of litigation to wash through the system,” Sampson said.

That said, he is optimistic. “There are many positive signs that the Florida reforms are making a real difference. You must understand that Florida’s legal system problem has been in the making for decades. There’s not a silver bullet that’s going to solve it in a year. Many hundreds of thousands of cases need to go through the system.”

Sampson draws some parallels with the situation in California where, he said, the market situation has been deteriorating for decades. A key dynamic in that market is a piece of legislation known as Propositions 103. Passed in 1988, it forces insurers to obtain prior approval of automobile, homeowners and casualty insurance rates from the California Department of Insurance (CDI) before implementing rate changes.

“But the regulatory framework in California is antiquated,” Sampson said. Rate adequacy is a growing problem for insurers operating in the state. This is compounded by a changing risk profile with wildfire risk in particular causing major losses for insurers—something that is even harder to deal with because the state limits the use of forward-looking cat models. 

Sampson describes the situation as “dire”, with national carriers pulling out of the state as a result. “The market has not been profitable for the last decade; the risk profile due to wildfires has increased dramatically. When you cannot get an adequate rate to cover the risk profile, insurers are left with very few options.” 

He added that the APCIA is very engaged with the CDI and the Commissioner to find solutions to these challenges.

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