Financial issues now facing a large Florida property insurer at the start of hurricane season are symptomatic of ballooning reinsurance rates and a relentless litigation environment, according to an industry representative.
Michael Carlson, president and CEO of the Personal Insurance Federation of Florida, said the current situation with Capitol Preferred Insurance Co., which is under a consent order with the Florida Office of Insurance Regulation (OIR), reflects pervasive problems in the Florida insurance market that can harm consumers and companies alike.
Capitol Preferred has lost more than $48 million in the years 2017, 2018 and 2019, leading the company to increase rates by 36.5 percent earlier this year, according to the May 12 consent order. The company will also cancel more than 20,000 policies in order to stabilize its financial position.
PIFF President and CEO Michael Carlson
The crux of the financial problems facing Florida insurers stems from state laws allowing attorney fee multipliers and one-way attorney fees, which benefit trial attorneys, according to Carlson. Companies are pressing the state legislature to take up these issues next year.
“The problem of lawsuits on property is a very significant one,” he told the Florida Record. “While assignment-of-benefits reform, which passed in 2019, will ameliorate, hopefully, a lot of problems with regard to third parties … there is a gaping hole in Florida policy in what we would call first party-claims.”
Losses from past hurricanes have exceeded companies’ predictions and reflect rising litigation costs associated with claims, according to Carlson.
“The trial bar has pretty rapidly moved away from focusing on the third-party AOB litigation business model,” he said. “They’re now trying to get first-party claims. That’s the homeowner.”
Plaintiffs’ attorneys are engaging in mass advertising and pervasive neighborhood canvassing in a way that makes it difficult for insurers to fight back, Carlson said.
“It’s a very well-thought-out, concerted effort by very smart people who want to make a lot of money,” he said.
Demotech, the company that rates Florida property insurers, has reaffirmed most of the Florida companies’ “A” financial ratings, including Capitol Preferred. But Demotech has also said that this is the result of recent changes in insurers’ business models and some consolidation within the industry.
The disposition of the policies being shed by Capitol Preferred remains uncertain. Citizens Property Insurance Corp., the not-for-profit entity set up by state lawmakers, is now preparing for the effects of the OIR consent order.
“We don’t know how many policies will be coming our way,” Citizens spokesman Michael Peltier told the Record. “We are in a financial position to assume any and all of those policies without jeopardizing our ability to pay claims.”