Since the Florida property insurance market nearly became its own catastrophe a few years ago, this hurricane season arrived June 1 with 12 new insurers ready to help Floridians weather what’s coming.
Those new entrants were announced as a sign that the market forces that had been pushing Florida’s insurance industry to the brink of disaster have been calmed and the risk business is ready to handle what Mother Nature has to dish out.
Still, despite that development, the number of companies that didn’t pass a financial fitness test the state administers has more than doubled since last year. And it’s happening despite numerous legislative changes aimed at shoring up the state’s wobbly insurance market.
State regulators won’t name the seven companies that didn’t make it through the catastrophe stress test with the required financial surplus because that information is exempt from disclosure by state statute. Regulators also declined to say how long the flagged companies have been in the Florida market or whether they are among the so-called “take-out companies.” Those are insurers that policyholders are forced to take if Citizens Property Insurance Corp., the state-backed insurer of last resort, wants to take a property off its rolls.
Not the improvements promised
For Democratic Rep. Anna Eskamani of Orlando, the jump in the number of companies not passing the state stress test and plethora of start-ups among the new insurers confirms that Republican-led insurance reforms enacted between 2021 and 2023 have not yielded the promised results — no matter the number of new companies entering the market.
“It’s frustrating,” Eskamani, the ranking member of the House Ways & Means Committee. “We were told we’re not going to see results quickly, that we should give it 18 months. Now it’s been more than 18 months, we’ve not seen a dramatic improvement. We’re just lucky that we didn’t have major, major storm damage in Florida” last year.
State reports show that in previous years, one, two or three companies didn’t pass the catastrophe stress test.
After the test, which was tougher last year in keeping with the dire hurricane season predictions, each of the flagged companies addressed regulators’ concerns, reducing their exposure or identifying a parent company’s assets as backup funds, for example. Still, it points out that in addition to policyholders still paying premiums among the highest in the country, the state has yet to grow an insurance market with national companies increasing their Florida presence as state leaders had hoped when the reforms were passed.
Republican Rep. Adam Botana, representing Bonita Springs which has been raked by catastrophic hurricanes twice in two years, said he’s glad new insurers are coming to the state, but he’s not sure the current state rules are requiring enough of the ones on the ground.
He voted for the 2022 changes that made it harder to sue one’s insurer; now attorney fees can’t be added into a litigated settlement dispute against insurers. It was supposed to curb the legal fraud, waste and abuse believed to be at the root of Florida’s insurance market turmoil, but now Botana is seeing the downside of reducing options for those who suffered legitimate hurricane damage.
In committee, during the past session, he voted to re-introduce some attorney fees into the mix, thereby making it easier for constituents to hold insurers’ legally accountable. The effort died in committee, but Botana said he believes it will re-emerge in the next session.
“There are a lot of entities that are slow-rolling payments to people in their darkest times,” he said.
Still, state leaders are steadfast in their belief that the situation is improving even if nature’s fury still looms. Two other issues that have bedeviled the market are easing up, they believe. The number of lawsuits against insurers has dropped and the global markets that back up insurers’ reserves, the reinsurance market, is no longer as spooked as it was by the outsized number of Florida policyholders suing their insurers.
“The continued growth in Florida’s insurance market is due in large part to the historic legislative reforms we have enacted,” said Florida Insurance Commissioner Mike Yaworsky said in a release announcing the 12th new insurer to enter the market since 2021. “We must continue on this path and not turn the clock backwards.”
Back from the brink
This hurricane season dawned June 1 with new milestones of stability reached since state lawmakers assembled for special legislative sessions to address the insurance crisis. The situation appeared most dire in July 2022 when an insurance ratings company was threatening to downgrade dozens of Florida-based insurers, which would have impacted policyholders’ ability to refinance their home.
Now, though, the number of policies the state-backed insurer of last resort, Citizens, is carrying dipped below 1 million in October for the first time since 2022, indicating more commercial companies willing to take the risk. And the number of new insurers that entered the market officially replaced the 10 that had disappeared into insolvency between 2019 and 2022, plus two more.
Nationwide — not so much on Florida’s side
There’s no denying, though, these new insurers are not those with a catchy jingle on national TV commercials and insured risk spread over less-risky states than Florida, like Ohio. Among the state’s 20 largest insurers, more than half are limited mostly to insuring Florida property, and three of them are less than 5 years old.
Particularly alarming for Amy Bach, executive director of United Policyholders, is that some of these new, untested companies are among those that people are being forced to accept. Policyholders must take a commercial policy offering to get them off Citizens’ insurance, if the proposed policy premium’s cost is no more than 20% greater than the expected cost of renewing with Citizens.
“In Florida, it seems to be ABC Insurance — Anything But Citizens — and we don’t really subscribe to that,” said Bach, whose 30-year-old nonprofit is based in San Francisco. “At least you know with Citizens as the insurer, you have some accountability. You have some oversight. With some of these startups … it is less clear that the consumer has adequate protection.”
Out of the 12 new insurance companies, seven of them are what’s known as “reciprocal exchanges,” which first entered the Florida market in 2006, according to Mark Friedlander, senior director of media relations for the industry-backed Insurance Information Institute. Regulators declared that first reciprocal, a Jacksonville-based commercial insurer called the Commercial Insurance Alliance, insolvent in 2009, according to the institute’s research.
Newer type of insurer less capitalized
Reciprocal insurers have become more popular for high-risk locations, according to Insurance Business America. It’s easier to get admitted to the market as a reciprocal than the more traditional property and casualty insurer. The surplus that Florida statutes require of reciprocals, for example, is notably smaller than what’s required of traditional ones: Reciprocal insurers are required to have no less than $250,000 in surplus funds, compared with the traditional property and casualty insurer, which must have at least $2.5 million in surplus, according to state statutes.
Professor Charles Nyce, chair of the Risk Management & Insurance Department at Florida State University, said it’s doubtful that the major, national insurers are going to be carrying a lot of risk in the state of Florida — no matter what reforms the state undertakes.
“We’re never getting back to where 70% of the houses in Florida are insured by the two or three companies you know and love and advertise on the Super Bowl like they were prior to Hurricane Andrew,” Nyce said. “It’s called managing a book of business.”
And the business in Florida is just too risky for these national companies to take on a big chunk of it, he said. Bringing new, and thus, untested, companies to insure Florida property is going to be something of a risk the state must take, given the realities, he said.
“We need new investors, but we also need the right ones, the ones that are going to be in the market long term, because we, as the state of Florida, have a long-term problem,” Nyce said. “Building in hurricane-prone areas is a long-term problem that requires long-term solutions, and we just have to make sure these companies that are forming are here for the long term.”