Several Florida insurers have filed requests for double-digit rate increases as high as 47 percent amid concerns that some companies will see their financial ratings downgraded in the coming year.
And with a week left in the Florida legislature’s current session, time is running out for lawmakers to pass litigation reforms that proponents say would help insurers’ bottom line. One bill to rein in the use of contingency risk multipliers that bolster attorney fees, HB 7071, passed the Florida House of Representatives Wednesday, but a companion bill has been stalled in the state Senate for several weeks.
The Insurance Journal reported this week that several Florida insurers would see financial rating downgrades later this year as the companies continue to struggle with claims protocols and court decisions that are unlike any other jurisdiction in the nation.
The president of Demotech Inc., which provides financial ratings to most of the state’s insurers, sees the next two to three years as a challenging time for the companies.
“I don't see downgrades or the litigation necessarily taking companies under,” Joseph Petrelli told the Florida Record, “but what I do see in the level of litigation and types of (court) decisions that we've seen in the last six or seven years in Florida is the difference between ultimately for the companies being profitable and being unprofitable. But I don't think it's going to tank companies."
Petrelli stressed that companies that receive downgrades are not necessarily bad companies but that companies’ ability to make a profit in the near term in the Florida market has been greatly diminished.
Since December, the companies that have sought public hearings before the Office of Insurance Regulation (OIR) to request rate increases are Capitol Preferred Insurance Co., which is asking for a 47 percent hike; National Specialty Insurance, 28.1 percent; and Edison Insurance, 21.9 percent.
Though Petrelli doesn’t see any Florida insurers failing, he does see consolidations and mergers as likely outcomes. That, in turn, means fewer insurance options for property owners, he said.
“I think you’re going to see these large rate increases into the future in the short term,” Petrelli said, adding that the “short term” would represent two to three years.
Another positive side to the situation is that Florida insurers are getting a better foothold on the state’s complicated claims landscape, he said.
“These insurance companies are in decent shape,” Petrelli said. “They’re starting to get their arms around it. They are going to be able to pay your claims.”
The enactment of a bill last year to root out fraud and excessive costs resulting from the assignment-of-benefits (AOB) system hasn’t been fully felt by private property insurers, he said.
“Typically, the way legislation works when there’s a legislative change, it’s kind of like a pig in a python,” Petrelli said. He added that prior to legislation taking effect, there’s often a surge in claims before the reforms kick in, and that surge may still be coming through the pipeline.
“The favorable impact is going to be measured well down the road,” Petrelli said.
He expects some companies to see their financial ratings downgraded from “A” (exceptional financial strength) to “S” (substantial financial strength). An “S” rating is still excellent, but the downgrading could still cause problems in the Florida insurance market because people are used to seeing companies get “A” ratings, according to Petrelli.
“It’s not like we’re taking someone from the Major League and putting them in Triple A,” he said. “We’re basically taking the starter out and resting them because they might have a rotator cuff injury if they’re a pitcher. But they’re still a major-leaguer.”
The Florida Association of Insurance Agents is also closely monitoring the insurers’ financial health and keeping its members informed, according to association President Jeff Grady.
“But you don’t want to yell fire in a crowded theater either,” Grady told the Record.
One possibility is that the narrowing of property insurance options in Florida will lead to the insurer of last resort, the not-for-profit, state-run Citizens Property Insurance Corp., taking on more customers later this year, he said.
Grady also agreed that the state’s AOB reforms passed last year have yet to produce much in the way of positive effects.
“Most of the private carriers that had AOB problems have said thus far they’ve not really felt a meaningful impact from the reform, but it’s still early,” he said.
In addition, the state legislature has done little this year on bills to curb aggressive attorneys from profiting from the current claims system and driving up premium costs, according to Grady.
“It is increasingly unlikely that the insurance market is going to receive any litigation reform or relief,” he said.
The OIR told the Record in an email that the public hearings on the rate filings allow the agency to carefully weigh the positions of insurers and members of the public.
“It is important to note, OIR carefully reviews proposed rate filings to ensure they comply with all applicable laws and are not excessive, inadequate or unfairly discriminatory, in accordance with section 627.062, Florida Statutes,” OIR spokeswoman Karen Kees said.
The agency will continue to work with the Gov. Ron DeSantis, his cabinet and Florida lawmakers to provide consumers with a stable and competitive insurance market, she said.