Insurance reforms passed in Florida late last week could bring “much needed relief” to the property market, according to credit rating agency AM Best, even as capacity remains limited in the near term.
The new laws, which came as a result of a special legislative session that concluded on December 16, include the elimination of the assignment of benefits and one-way attorneys’ fees for property claims, plus the reduction of the amount of time to file a supplement claim.
AM Best said it considers these changes to be “credit-positive” for insurance companies operating in Florida, seeing as the elimination of assignment of benefits and one-way attorneys’ fees “could materially lower insurers’ defense and cost containment expenses.” At the same time, reducing the period to file a supplemental claim down to only 18 months could “alleviate concerns in the insurance-liked securities market about capital becoming trapped for long periods.”
However, the effectiveness of these plans remains dependent on how expected judicial challenges will play out. According to AM Best, national writers are likely to “remain wary” of Florida’s property insurance market until courts give their final ruling. Additionally, as local insurers depend heavily on reinsurance, losses that surpass reinsurance coverage could bring further insolvencies, while increases in reinsurance costs could pull premiums charged to policyholders higher.
“Legislators have taken aim at elements influencing rising reinsurance costs, but how material the potential savings for insurers will be under the new legislation will depend on whether the private reinsurance market interprets the most recent actions as viable mitigations since the risk of catastrophe losses remain,” said AM Best associated director Chris Draghi.
AM Best’s commentary also noted how the inherent risk profile of Florida property will continue to influence pricing and the balance of policies from the private market and Citizens Property Insurance Corporation. Nevertheless, new restrictions on insureds acquiring coverage from Citizens “should help move the market toward actuarially sound pricing.”
“The five largest national homeowners’ insurers account for over 50% of the US market outside of Florida, but just 15% of the market in Florida, demonstrating just how dire the situation is,” said Sridhar Manyem, AM Best senior director for industry research and analytics. “The legal environment and reinsurance market are two significant issues addressed by the special session that may ultimately make the market more attractive, but the effectiveness of reform will require time.”
