Third-parties driving claims severity
The need for further legislative reforms in Florida’s property insurance market was on full display this past Friday at a public rate hearing where three companies proposed rate increases from 26% to 111%. All three companies’ representatives mentioned increases in the frequency and severity of claims resulting in litigation – many from non-weather events.
Regulators from the Florida Office of Insurance Regulation (OIR) held three public hearings to consider:
- Southern Fidelity Insurance Company’s filing on a use and file basis, requesting an 84.5% increase in Homeowners Multi-Peril (HO3) policies, effective December 1, 2021 for new and renewal business; and a 111.1% increase in Property/Personal (Dwelling Fire) policies, effective January 1, 2022 for new and renewal business;
- Cypress Insurance Company’s proposed 26.3 % increase in Homeowners Multi-Peril (HO3) policies, effective December 22, 2021, for both new and renewal business; and
- Centauri Insurance Company’s filing on a file and use basis, for a 28.3% increase in Property/Personal (Dwelling Fire) policies, effective April 15, 2022, for new and renewal business.
Each hearing lasted about an hour with pointed questions about the need for the increases, the number of consumers impacted and the timing of the increases for renewal and new business. The most obvious question from OIR was why these increases are needed.
“I wanted to point out that Commissioner Altmaier in an April 2021 letter to the Chair of the House Commerce Committee, stated that Florida accounts for 8% of all homeowners claims in the U.S., but a whopping 76% of all homeowners lawsuits filed against insurance companies. So Cypress is not immune to its share of those challenges,” said Cypress President Jay Rine. (Here’s the letter he referenced.)
Cypress, for example, noted an increase in non-hurricane wind and water claims, especially in Central Florida, and a “significant” increase in their severity, due in part it said, to use of Assignment of Benefits (AOB) agreements and involvement by public adjusters and lawyers. Cypress’ testimony was not unlike many state leaders in public meetings about the vast difference in claims payouts when a third party is involved versus a claim without the intervention of a vendor/lawyer duo. “And so whenever a third party is involved in a claim, it significantly increases the severity. And we are seeing more and more prevalence of third party representation claims for water losses,” said its Senior Vice President Ashley Ramos.
Representatives from Southern Fidelity Insurance and Centauri Insurance related similar accounts in their testimony to OIR. What is especially sad is that the consumer is the one losing here. But as Cypress’ Jay Rine pointed out, “policyholders expect the company to be there when they need us, and rate adequacy is necessary to fulfill that promise.” Well said Mr. Rine! OIR left the record open until February 4 and most likely its decision on these rate requests will be released several weeks after that.
These proposed increases don’t bode well for another driver of higher property insurance rates: reinsurance. Artemis, in its Friday article, Florida P&C rate filings show reinsurance firming needs to continue, noted “the reinsurance market has been lagging primary insurance pricing and also retrocession rate increases, suggesting that reinsurance rates need to catch-up further at the mid-year 2022 renewals.”
LMA Newsletter of 1-24-22