Florida solves insurance woes on paper, must still prove in court: AM Best

Florida’s latest round of insurance reforms have the power to unbundle the compounding problems of excess litigation and reinsurance shortfalls that cripple the Florida homeowners market, but can’t unleash their power from day one, analysts at the AM Best ratings agency have warned.

“The legal environment and reinsurance market are two significant issues addressed by the December special session that may ultimately make the market more attractive, but the effectiveness of reform will require time,” analysts wrote.

One cornerstone of the legislation which was passed last week and signed on December 16 by Florida governor Ron DeSantis, are curbs against excessive claims litigation, which AM Best considers “credit positive” for insurers.

The bill eliminates Florida’s assignment of benefits (AOB) provisions and statutes on one-way attorney fees frequently blamed for the high litigation rates in the state. Designed to assist policyholders in pursuing claims in court, they have allowed contractors with lawyer support to launch a relentless barrage of court litigation, detractors say.

Their pending elimination “could significantly lower insurers’ defence and cost containment expenses,” AM Best analysts wrote.

But relief from those curbs on litigation is “unlikely to be immediate” given likely judicial challenges to the new law. And that leaves the industry lingering in the lurch until a new legal-judicial regime is more firmly in place.

And that interim status quo means over-reliance on Florida-focused insurers who are themselves over-reliant on increasingly scarce reinsurance.

The upshot: “capacity in the state may remain limited and individual policy premiums may remain high in the immediate future.”

Steps in legislation encouraging a depopulation of the state insurer of last resort, Citizens Property Insurance Corporation, could further that near-term impact before judicial reforms offer relief, AM Best warned.

The shortfall in reinsurance could yet be plugged by a new state reinsurance programme included in the bill, the second such programme crafted by Florida policy makers this year. The new programme, FORA, should provide coverage for the $5 million below the attachment point of the state’s cat fund FHCF at rates from 50-65% on line.

Curtailments on claim-filing horizons could “alleviate” concerns about trapped capital for the ILS market, analysts added.

“Absent successful opposition to the new bills, the legislation has potential to provide much needed relief to the Florida homeowners market.”

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