“The Perfect Storm” – How Hurricane Chaos Devastated Florida Insurers | Insurance business America
Property insurers have had a tough time recently – but will that change?
Disaster and flood
By Emily Douglas
In Florida, recent legislation could be crucial for stressed commercial real estate insurers – after nearly a decade of natural disasters devastated the reinsurance sector. Florida Senate Bill 2-A, passed in 2022, is intended to help stabilize the state’s property insurance sector and increase competition.
“This legislation was critical to the future of our state,” said Matthew Harrell (pictured), president of insurance at Franklin Street. “And our ability to provide affordable property insurance coverage to not only homeowners, but also commercial property owners. It was really a capacity crisis. If you look at the numbers, property insurance carriers in the state of Florida have lost more money every year since 2017. This is not sustainable.”
This situation left insurance carriers in a precarious position, considering exiting the Florida market due to mounting losses over an eight-year period and failure to achieve profitability. The unsustainability of a business without profits underscores the urgency of legislative intervention.
The catalyst for these financial difficulties, according to Harrell, was a “perfect storm” of increased hurricane activity and an increase in litigation. Florida experienced five of the costliest storms in the last seven years, making the challenges even greater for insurance providers.
“There has been an increase in hurricane activity and at the same time an increase in litigation,” Harrell said. “That’s exactly what the Senate bill addresses. It prevents legal disputes, [stopping] Lawyers are suing insurance companies for massively inflated claims that far exceed the necessary replacement value.”
Insurance reform in Florida
The bill also introduced reforms to streamline the claims process, establish deadlines for submitting claims, limit assignment of benefits to contractors and attorneys, and create a legal environment more favorable to insurance companies. And it was a glaring disparity that actually drove this crucial reform.
“The state of Florida accounted for 8% of property lawsuits filed in the United States … but 79% of total claim costs,” Harrell said. “This inequality highlighted the urgent need for legal reform. The benefits of this reform will be significant, but it will take several years to fully materialize. In recent months we have seen some positive changes in the property insurance market. I attribute these improvements in part to this legislative reform, but also due to the mild hurricane season in 2023. This is the first time in seven years that real estate companies are profitable. I am optimistic that these improvements will continue.”
Insurers are returning to Florida
The proof is already there if you know where to look. More and more mobile operators are returning to the market, activities are expanding across the board and, most importantly, more products are being offered.
“Insurance premiums have increased year over year as airlines have reduced capacity,” Harrell said. “This year we are seeing some easing in the insurance market as new capacity comes onto the market. This new capacity comes from both existing airlines expanding their routes and new airlines entering the market with fresh capital.”
Furthermore, a significant improvement in prices reflects even greater optimism in the industry. And Harrell believes this hopeful trend will only continue through the end of 2024.
“It provides much-needed relief to our customers,” he said. “Property taxes are going up, interest rates are going up, insurance premiums are going up and construction costs are going up. If you think about it, it really is a perfect storm. So when we see signs of easing or at least calming in property insurance, that gives us a little bit of optimism around a lot of the challenges that we’ve seen in the market.”
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2024-05-28 15:06:39
www.insurancebusinessmag.com
