Florida’s Republican-controlled legislature has finally taken meaningful steps toward addressing the state’s runaway property insurance crisis. Unfortunately, it waited until the market was on the brink of collapse when good options were impossible to come by. Going forward, the legislature must prioritize forward-looking solutions to forestall future crises before they begin.
The Sunshine State, of course, is where expensive real estate bumps up against ever-intensifying hurricanes, the looming threat of rising seas and the most notoriously litigious insurance market in the country. It’s also a market full of smaller regional insurers with business models that rely on access to reinsurance, effectively insurance for insurers. The rising cost of those policies has been at least one cause of the latest turbulence.
The popular knock on the legislation—which a special session of the Florida legislature just approved and sent to Governor Ron DeSantis for his signature—is that it amounts to a bailout of the insurance industry that won’t immediately address homeowners’ surging premiums. That’s accurate, but more than keeping a lid on premiums, Florida lawmakers needed to make sure that residents retained access to insurance at all.
The legislation would create a $1 billion state-backed reinsurance fund that primary insurers can turn to for coverage. It also addresses companies’ runaway litigation costs by taking away an advantage that homeowners’ had enjoyed against insurers in court. Finally, it took steps to reduce the number of homeowners covered by a state-backed insurer of last resort, which offers below-market premiums that the industry contends hurt its ability to charge fair prices.
The reinsurance fund is, of course, the quintessential short-term fix to tide the market over until, hopefully, the other measures start to pay dividends. It’s clearly not sustainable to imagine a world in which the state is left holding the bag for private insurers’ catastrophic risk.
The change to the litigation outlook may have a more enduring impact, but it comes at a cost. Advocates for the insurance industry have long contended that the problem with Florida is the long tail of claims and lawsuits that has followed every natural disaster. Governor DeSantis claims that the state accounts for more than three-quarters of the nation’s property insurance lawsuits even though it has less than a 10th of the claims.
Part of the issue, as the argument goes, is that the state’s laws made it so attractive to sue. Until now, the law has dictated that defendants (insurers) had to pay the attorney’s fees for prevailing plaintiffs (ostensibly homeowners)—the so-called one-way attorney fee statute. The threat of massive attorneys’ fees incentivized companies to just settle claims, and in recent years, it has devolved into something of a racket. In the most egregious cases, contractors would encourage homeowners to file claims under false pretenses and then help bring the claims to opportunistic lawyers. (Most claims probably fall into more of a gray area and aren’t so obviously fraudulent, but the extreme versions are what you often hear from Republican lawmakers.) There’s little doubt that the lawsuits pushed up insurers’ costs.
To address the matter, the new legislation does away with the one-way attorney fee benefit, a politically difficult move that takes away a benefit to homeowners that—for all its abuse—also helped many people. But the situation had become so dire that it was a necessary step to preserve access to the market.
The final change of note aims to ease the burden of the crisis on Citizens Property Insurance Corp., the state insurer of last resort. It may also push private insurance premiums higher, all else being equal.