TALLAHASSEE, Fla. — Florida lawmakers last week made changes that will bring “much-needed relief” to the struggling property insurance system, but the impact of the legislation won’t be immediate, financial ratings agency AM Best said in a new report.
The report pointed to parts of the new litigation containment law that insurers have long pushed up costs. However, underlying issues in the system were also cited, such as: B. National insurance companies, wary of doing business in the state, and Florida airlines, which rely heavily on reinsurance.
Reinsurance, which is an important backup coverage, has become more expensive and difficult to buy for Florida insurers — with the cost being passed on to homeowners. The law, passed during a special session last week, included steps such as allocating $1 billion to a temporary program to help insurers get reinsurance coverage.
“The top five national homeowners insurers account for over 50% of the U.S. market outside of Florida but only 15% of the Florida market, which shows how dire the situation is,” Sridhar Manyem, senior director, industry research and analytics for AM Best , said Tuesday in a prepared statement accompanying the report. “The legal environment and the reinsurance market are two important issues that will be addressed by the special session and may ultimately make the market more attractive, but the effectiveness of the reform will take time.”
The law, which Gov. Ron DeSantis was quick to sign, made a number of changes to try to reduce litigation costs. Among those changes was the elimination of so-called “one-way attorneys’ fees,” which required insurers to pay the attorneys’ fees of policyholders who successfully filed lawsuits.
The law also abolished the long-controversial practice of assigning benefits for property insurance claims. In the assignment of benefits, policyholders assign claims to contractors, who then collect payments from insurers. Insurers claim the practice has led to increased lawsuits.
The AM Best report states that “if these measures prove effective, they could significantly reduce insurers’ defense and cost containment costs.” It also said the changes “will bring much-needed relief, but such relief is unlikely to materialize immediately”.
Among other things, the report states that the law is likely to attract court challenges.
“Until the courts rule, national writers may still be wary of Florida’s environment,” the report said.
Last week’s special session – the second such session in seven months on property insurance – came after two years of major problems in the insurance system.
Insurers have dropped hundreds of thousands of policies and sought large rate hikes because of financial losses. At the same time, the state-backed Citizens Property Insurance Corp., which was established as an insurer of last resort, has more than doubled its policy count to 1.14 million.
During last week’s session, lawmakers passed a 105-page bill that addresses numerous issues, including trying to force Citizens’ policies into the private market. It will prevent Citizens policyholders from being able to renew coverage if they receive policy quotes from private insurers that are within 20 percent of the cost of Citizens premiums.
However, the measure met with opposition from Democrats and groups such as the plaintiffs’ attorneys. They said it won’t translate to lower interest rates for homeowners, at least immediately, and hurt homeowners’ ability to fight insurers in claims.
However, Republican supporters said it was designed to stabilize interest rates and bring more insurers to Florida.
The AM Best report is titled “Florida Insurance Reforms: Long-Term Relief on Horizon; Short-term headwinds remain.” Noting remaining questions about how the changes will affect reinsurance, it said, “Weather losses from hurricanes remain an important factor to consider when doing business in the state.”
“Legislators have targeted elements that will influence rising reinsurance costs, but how substantial the potential savings for insurers under the new legislation will be depends on whether the private reinsurance market interprets the recent measures as viable mitigation, given the risk from disaster damage remains. ‘ said Chris Draghi, an associate director at AM Best, in a prepared statement.
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