Why a special session must happen
Someone else beating the incessant drum for a special legislative session is Joe Petrelli, President of Demotech, the ratings firm that provides financial analysis for many of Florida’s 52 domestic insurance carriers. He’s a respected voice and has the chops of 26 years’ experience reviewing our market. He sent this letter last week to Governor DeSantis, House Speaker Sprowls and Senate President Simpson calling for urgent reforms and warning that a number of companies face ratings downgrades in the coming weeks and months without it.
“The conditions of the property insurance marketplace in Florida are unsustainable and, without the necessary corrective action, many Florida insurers will struggle to maintain adequate surplus, efficient capital sources will avoid the market, private reinsurance costs will become prohibitively expensive, and consumers will ultimately bear the cost,” Petrelli wrote.
His letter comes on the heels of Florida’s latest carrier insolvency with Avatar Property & Casualty Insurance Company now in receivership, the second insolvency in a month (and the fourth in the state since mid-2021 and the sixth since 2019). Avatar’s 37,000 policyholders are now left scrambling to find replacement property insurance by an April 13 deadline. All policyholders from other carriers will now bear the burden of a potential $70 million assessment to cover Avatar’s unpaid claims, plus an additional $312 million assessment to cover St. Johns Insurance Company’s unpaid claims from its February 25 insolvency.
Demotech President Joe Petrelli
“We believe that certain meaningful and significant legislative reform, if enacted during a special session prior to the most common renewal date for reinsurance treaties, June 1, may create circumstances permitting us to maintain ratings for some of those insurers currently expected to be downgraded,” Petrelli wrote.
Indeed, the Florida Legislature couldn’t have punted on further consumer protections at a worse time – when carriers need to make a big spend on reinsurance to cover themselves from what’s expected to be a very active hurricane season this year. “With short notice, at the worst possible time and right in the middle of hurricane season, people will be scrambling to find new insurance,” predicts Senator Jeff Brandes (R-Pinellas) in a recent interview with the St. Pete Catalyst.
Petrelli went a step further in his letter to the Governor and legislative leadership, noting the proposed legislation this session in SB 76 didn’t go far enough to temper the rapidly increasing and costly litigation that insurance carriers face. Other key areas of reform he said, should include a suspension of the Florida Hurricane Catastrophe Fund’s rapid cash build-up factor and lowering the attachment points required to maintain the net catastrophe retentions of carriers at a reasonable level.
Petrelli including in the letter his 2020 Florida Domestic Insurer Report: Point of No Return?, a cogent analysis with backing data on the critical need for comprehensive consumer protections in the marketplace with a “focus on the overwhelming majority of Floridians who purchase and procure insurance coverage yet do not have a claim.”
LMA Newsletter of 3-28-22
