It wouldn’t be considered news to any Florida homeowner if you told them that their insurance premiums have been trending significantly upwards in recent years. Florida’s rate increases could easily be shrugged off as a consequence of disaster claims and payouts to policy holders—after all, we’re no strangers to yearly hurricanes. But, ending the story there would omit the most significant factors that are actually driving Florida’s P/C industry into unsustainable territory. According to a new report commissioned by insurers, lawsuit-reform groups, and state representatives, it’s primarily an out-of-control litigation economy that is causing Florida’s insurance market to be pushed to the brink of collapse.
In preparing this research report, Guy Fraker—a prominent name in the insurance industry with 30 years of experience—analyzed thousands of litigation records and documents from regulators and also interviewed executives, lobbyists, regulators, consumer advocates, reinsurance companies, investors, and climate scientists. His findings make it clear that the current litigation environment is eroding carriers’ ability to do business, with their losses having nearly doubled in 2020 over 2019. This is especially bad for consumers, as the billions in cash flow leaving insurers’ balance sheets is not being distributed to Florida families: rather, it’s going into the pockets of fewer than 2,500 attorneys and contractors.
While the volume of claims after storms is always going to be a factor in premium costs, the truth is that claims unrelated to catastrophes account for the majority of all litigation. It’s also worth noting that the ever-rising expenses facing Florida insurers are greatly outpacing those of insurers in other similar, catastrophe-prone states. In 2019, for example, Florida insurers paid almost $3 billion in lawsuit costs; the fees paid out to attorneys far exceeded the damages paid out to insureds—a whopping 750% more, on average. Funding this out-of-control litigation has essentially forced a “hidden tax” upon Florida consumers, resulting in an average loss of $680 per family in 2020. Unfortunately, there’s little evidence to suggest that stability is on the near-term horizon.
Between 2011 and 2019, four Florida statutes were passed that have further worsened this litigation crisis. These laws pertain to: assignment agreements, mandatory replacement cost coverage for residential roofs, a multi-year statute of limitations to file and first notice of loss, and the one-way attorney fee statute. These, along with a pair of Florida supreme court decisions, according to Fraker’s report, were passed with little recognition of how they might ultimately coalesce to form a major threat to Florida’s insurance industry—and, by extension, to Florida’s economy.
In considering how we might begin to resolve this crisis, Fraker states that Florida legislatures must take multiple actions in 2021 and 2022. While a balanced economic system gives some level of governance to all stakeholders, Florida’s litigation economy currently operates almost entirely at the expense of the insurers. This has imposed an undue financial burden onto the state’s economy and residents, resulting in the devaluation of corporations, jobs, and spendable consumer income.
The report recommends a variety of reforms, including: 1) adjusting attorney contingency fee statutes, eliminating fee enhancements, and establishing limits on fee awards, 2) reversing the statute that makes insurers pay 100% of litigation costs when a plaintiff prevails by $1 in a claim dispute, 3) changing the 3-year First Notice of Loss deadline to one year, 4) implementing pre-suit mediation or alternative dispute resolution options similar to Citizens, 5) consolidating litigated cases so that multiple suits are not filed for the same property, and 6) stopping contractors from speaking on behalf of an insured without the insured’s involvement.
By taking legislative action soon, Florida may be able to avoid dipping too much further into this economic crisis and may instead begin to put the P/C insurance market back on a sustainable path—one that boasts fairer policies and gives more consideration to all parties involved. Ultimately, if reform is successful, it will help stabilize Florida’s economy, chart a more sustainable path for the insurance industry, and provide some much-needed relief to Florida families and businesses.