'The perfect storm' – how hurricane chaos wreaked havoc on Florida insurers

Author: Emily Douglas

Original article here.


In Florida, recent legislation could be game-changer for stressed out commercial property insurers – after a near decade of natural disasters has wreaked havoc on the reinsurance sector. The Florida Senate Bill 2-A, passed in 2022, is supposed to help stabilize the state’s property insurance sector and help stimulate competition.

“That legislation was critically important to our state’s future,” said Matthew Harrell (pictured), president of insurance at Franklin Street. “And our ability to be able to provide affordable property insurance coverage to not only homeowners but also to commercial property owners as well. It really was a capacity crisis. If you look at the numbers, property insurance carriers in the state of Florida have lost money every year on an increasing basis since 2017. That’s not sustainable.”

This situation placed insurance carriers in a precarious position, considering an exit from the Florida market as losses mounted over an eight-year span without profitability. The unsustainable nature of operating without profit underscored the urgency for legislative intervention.

The catalyst for these financial struggles, according to Harrell, was a “perfect storm” of increased hurricane activity coupled with a surge in litigation. Florida experienced five of its most costly storms in the last seven years, amplifying the challenges for insurance providers.

“There was an increase in activity of hurricanes and at the same time an increase in litigation,” said Harrell. “That’s specifically what the Senate Bill addressed. It’s preventing litigation, [stopping] attorneys suing insurance companies for massively inflated claims that are far and away higher than the necessary replacement cost value.”

Florida insurance reform

The Bill also introduced reforms to streamline the claims process, set timelines for filing claims, restricted the assignment of benefits to contractors and attorneys, and fostered a legal environment more conducive for insurance companies. And it was a glaring disparity that actually spurred on this key reform.

“The state of Florida represented 8% of property claims filed in the United States… but 79% of the total claim expense,” said Harrell.  “This disparity highlighted the critical need for legislative reform.  The benefits of this reform will be significant but will take several years to fully materialize.  In the past few months, we have begun to see some positive changes in the property insurance market. I contribute these improvements in part to this legislative reform but also because of the mild hurricane season in 2023. This is the first time in seven years that property carriers have been profitable. I am optimistic these improvements will continue.” 

Insurers return to Florida

The proof is already there if you know where to look. More carriers are coming back into the market, there’s increased operations across the board and, most importantly, more products are being offered.

“Insurance rates have been going up increasingly every year as carriers were cutting back their capacity,” said Harrell. “This year we’re beginning to see some loosening in the insurance market, as new capacity is entering the market. This new capacity is coming from both existing carriers expanding their lines but also new carriers entering the market with fresh capital.”

Furthermore, a noted improvement in pricing is reflective of yet more industry optimism. And for Harrell, believes this hopeful trend will only continue into the rest of 2024.

“It’s providing some much needed relief to our clients,” he said. “Property taxes are going up, interest rates are going up, insurance premiums are going up, and construction costs are all going up. If you think about it, it really is a perfect storm. And so, to see some signs of relief, or at least leveling off of the property insurance, it’s giving some optimism to a lot of the challenges that we’ve been seeing in the market.”

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