Pandemic adds to financial troubles of carriers as hurricane season begins

Florida’s insurance market reported $797 million in profits in 2014 only to record $340 million in income loss five years later as hurricanes returned and litigation flourished.

Now the COVID-19 pandemic has made everything more difficult for insurers.

“The bottom line is this [market] has turned from incredible profitability, which by the way coincides virtually 100% with the increase in litigation in 2013 to 2019 from 27,000 ligation cases up to 89,000 litigated cases,” Barry Gilway, president, CEO and executive director of Citizens Property Insurance Corp., said in an Insurance Journal webinar.

Jeff Grady, president of the Florida Association of Insurance Agents, worries that carriers not downgraded by Demotech aren't in good financial shape. Large reinsurance rate hikes, pandemic expenses and more lawsuits will not help.

By providing rate affirmation for more than 40 Florida carriers, Demotech may have kept 1 million policyholders from having to find new coverage just weeks before the hurricane season, Gilway and Grady told Insurance Journal.

“If what played out with the threat of ratings downgrade plays out again, I would not be surprised to see a few more companies cobble up together and hopefully not many failures,” Grady told Insurance Journal.

Reforms to assignment of benefits lawsuits by the Florida Legislature helped somewhat, though less than half of first party litigation against insurers is through AOB lawsuits, Gilway told Insurance Journal.

Florida domestic insurance carriers are reeling from excessive first party lawsuits from water or roofing damage claims. Their options have been to file double digit rate increases or leave the parts of the state where lawsuits are rampant, he told Insurance Journal.

Those rate increases approved by the Florida Office of Insurance Regulation and withdrawals from some areas of the state will continue to increase the number of policies that Citizens, the state-run insurer of last resort, picks up.

Rate hikes between 20% and 40% were approved for Capitol Preferred Insurance Co., Velocity Underwriters and Edison Insurance Co.

After approval of a 33.5% rate increase, Capitol Preferred got the OK to cancel more than 23,000 policies just two weeks before the hurricane season. The company got the Florida OIR approval so it could save the 75,000 other policies that had capital and reinsurance behind them, Gilway told Insurance Journal.

Litigation has done more than fuel an increase in losses and costs. Reinsurers have pulled back from the market and significant costs increases for carriers are expected.

With the coronavirus pandemic costing many people their jobs and with others furloughed, policy cancellations have not been seen to cause policy cancellations, Grady told Insurance Journal.

Grace periods offered by carriers explains this in part, he told Insurance Journal. Policyholders were given payment flexibility without the state making it a requirement.

Insurance agents in the state may be experienced in dealing with hurricane season, but the coronavirus put a different spin on everything. Grady told Insurance Journal having agents work full time remotely before the season started on June 1 prepared the industry to act if a storm hits. While Tropical Storm Cristobal was not expected to make landfall even on the Florida panhandle, it marks the third named storm early in the season.

“Florida agents, and even consumers, are fairly battle tested on the hurricane front. We are ingrained with a lot of hurricane preparedness,” Grady told Insurance Journal.

Aerial imagery, online claims servicing and virtual inspection programs got started by Citizens before the coronavirus pandemic. Before visiting a home, adjusters will share qualifications and acceptances to reduce the risk for customers and give them assurances, Gilway told Insurance Journal.

Homeowners seeking new insurance find Citizens a better option, Grady told Insurance Journal, as he warned it shouldn’t be the favorite option. Things may change if litigation and financial problems stemming from the pandemic cause more carriers to stop offering coverage for parts of the state.

Gilway told Insurance Journal changes will first reach reinsurance. If it loses profitability, that affects industry capacity.

Without legislative reform changing the state’s one-way attorney fee statute and for first party lawsuits, the market will struggle to rebound, Gilway told Insurance Journal. That will cause Citizens’ policyholder count to grow.

“If it’s not resolved, then the market is unsustainable, we’re going to grow,” he told Insurance Journal. “It’s not going to change until we get some fundamental changes in the marketplace.”

But when carriers start making profits, the competitive nature of the marketplace will have them taking thousands of Citizens’ policies as they will carry no acquisition cost, Gilway told Insurance Journal.