What Farmers Insurance’s exit means for Florida insurance coverage market

Farmers Insurance’s exit from its own-branded enterprise in Florida is yet one more signal of the state’s insurance coverage market’s continued volatility, with strain piling up on insurer of final resort Citizens within the wake of Hurricane Ian.

Floridians are not any strangers to insurer exits. Farmers Insurance, which is able to not promote Floridian dwelling, auto, or umbrella insurance policies underneath its unique agent enterprise, is the fourth insurance coverage firm to voluntarily withdraw from some or all enterprise within the state prior to now year-and-a-half, based on the Insurance Information Institute (Triple-I).

Thirty per cent (30%), or 100,000, of Farmers Insurance’s prospects in Florida are stated to be affected by the insurer’s withdrawal.

Farmers’ market share could also be comparatively small when stacked in opposition to regional carriers, however its partial exit suits right into a regarding pattern, based on Triple-I director, company communications, Mark Friedlander.

“Every property insurer needs to assess its own risk tolerance and determine whether it could profitably write business in Florida – every company does that,” Friedlander instructed Insurance Business. “The companies that have previously determined they cannot do that voluntarily withdrew from the state, and now Farmers is following that pattern.”

Farmers Insurance Florida motion a part of wider pattern

In the previous 18 months, seven Florida-domiciled insurance coverage firms have been declared bancrupt, whereas 15 property underwriters have put a moratorium on new enterprise.

Eighteen (18) Florida-domiciled insurance coverage firms at the moment sit on the state regulator’s watch record, and whereas that is down from 24 final 12 months, this isn’t essentially trigger for celebration.

“Is it better? Maybe that’s open to interpretation, because several of those companies that were on the list previously had been declared insolvent,” Friedlander stated. “That’s not a good way to get off the list.”

Throw in the specter of yet one more forecast above common Atlantic basin hurricane season, with Florida’s coastal waters breaching 90 levels Fahrenheit – “that is just fuel for a hurricane to blow up if it makes landfall in Florida,” Friedlander stated – and the outlook stays bleak.

“The bigger issue is Citizens, because they continue to increase their risk exposure and are not allowed by regulations to charge actuarially sound rates,” Friedlander stated. “That probably places each Florida insurance coverage shopper on the hook to replenish these funds.

“Were Citizens to deplete those reserves and hit a certain level [through paying claims], that triggers a surcharge, and that would apply to every Florida consumer that pays an insurance bill in the state.”

Citizens is now approaching 1.4 million policyholders. The final resort supplier has a market share of 18%, up from 15.6% on the finish of final 12 months. Meanwhile, projections present policyholder depend might enhance to 1.7 million by 12 months finish.

“They’re on pace to set their all-time high, which was about 1.8 million,” Friedlander stated.

Citizens has this 12 months requested what could be its highest ever charge enhance, of roughly 14.2%, although this has not but been accredited. However, its policyholders pay 40% lower than their non-public market counterparts based on Triple-I evaluation, and by Citizens’ projections the insurer of final resort would want a charge hike of 57% to maintain up with actuarially sound projections.

“Even with a double-digit increase, if it gets approved, they’re still far short of what they should be charging for risk,” Friedlander stated.

Meanwhile, the state’s insurer is rising at a charge of 30,000 policyholders a month, and insurer exits and withdrawals threaten so as to add to extra to the load, based on Friedlander.

Florida CFO Jimmy Patronis stated in a Tuesday replace that latest reforms are more likely to increase Citizens to the tune of $600 million, and that “several” carriers had expressed curiosity in taking up enterprise from the insurer of final resort. In the identical replace, he threatened Farmers Insurance with potential fines if an investigation reveals sufficient complaints.

More non-public insurance coverage market failures not dominated out

Following years of adverse circumstances, there was one optimistic signal for the non-public market: Florida’s insurance coverage trade noticed a web revenue acquire of $60 million within the first quarter of 2023, its first optimistic end in seven years and a reversal of a $1.4 billion loss at year-end. Industry underwriting losses for the quarter, although, sat at $50 million.

“We’re cautiously optimistic that we won’t see worse market conditions for the second half of 2023, but there are a lot of variables, and certainly hurricane activity is one of them,” Friedlander stated.

Despite difficult circumstances and the Ian impression, the state’s non-public insurers have broadly secured reinsurance renewals, although charges and prices have been sometimes up 50% to 70%, based on Triple-I sources.

Nevertheless, whereas reinsurance gives an important cushion, it doesn’t solely defend in opposition to the danger of additional insolvencies within the occasion a large storm hit later this 12 months.

“[It’s possible that] major hurricane losses could push companies over the edge, smaller regional insurers,” Friedlander stated. “We could see more failures this year.”

Among companies already piling up in Florida’s insurance coverage insolvency graveyard are United Property & Casualty Insurance (UPC), which crashed out of the market and into insolvency in February scorching on the heels of FedNat Insurance, St Johns, Avatar Property & Casualty, Lighthouse Property Insurance, Weston Property and Casualty, and Southern Fidelity.

Lawsuits proceed apace in Florida regardless of reform

Insurance stakeholders and consultants – Friedlander amongst them – have beforehand blamed the litigious setting and “man-made” points in Florida for the state’s insurance coverage woes. Florida accounted for 79% of America’s owners’ insurance coverage litigation, however solely 9% of claims, based on the Florida governor’s workplace figures oft-cited by Triple-I and different insurance coverage stakeholders in 2022.

Despite reforms stemming from a December particular session, Friedlander stated that authorized motion and contractor fraud proceed to be the overriding components inflicting insurers to assume twice in regards to the state.

Prior to the signing of a tort reform invoice into legislation in March, greater than 280,000 lawsuits throughout strains of enterprise have been filed in opposition to Florida insurance coverage firms, based on Triple-I. Post-March, the specter of litigation has continued, with 60,000 lawsuits filed in May and 50,000 in June, Friedlander stated.

“We’re still seeing a massive volume of lawsuits being filed against Floridian insurers despite the major changes in regulations that we certainly support,” he stated.

While Triple-I stays assured that reforms will assist stabilize the market, Friedlander caveated that the group doesn’t know the way lengthy they are going to take to have an effect.

“When you have a market that has been so unstable for so many years, you can’t just fix things quickly,” he stated. “And unfortunately, in many parts of the state, we’re seeing worse conditions this year than we saw last year.”

Florida owners face large insurance coverage prices

Floridians are, on common, paying $6,000 – 42% increased than final 12 months – for his or her owners’ insurance coverage, greater than triple the US common of $1,700, based on Triple-I.

Some policyholders have seen renewal payments double or triple, Friedlander stated, citing anecdotal experiences.

“It’s a very rough situation, and unfortunately we’re not surprised,” Friedlander stated.

For now, it appears, Florida’s residents will proceed to bear the burden of its troubled insurance coverage market.

Do you might have a view on Farmers Insurance’s withdrawal from some Florida new enterprise? Sound off within the feedback.