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Changes in Florida’s Insurance Market May Lead to Inexperienced and Undercapitalized Insurers

2016 is expected to be a year of significant changes in Florida’s homeowners’ insurance market.  The insurance market in Florida is changing quickly resulting in a lot of new insurers springing up, leading to the likelihood of a greater number of insurance disputes.

The shift was covered in a special report from A.M. Best. It noted how the market is shifting in Florida as Citizens Property Insurance Corp. (Citizens) – the state-run property insurance company- depopulates and moves its policyholders to the private market, which has resulted in the emergence of many new and untested, in-state insurers.

The A.M. Best report noted that while these new companies have seen sudden and fast growth as Citizens’ has shifted its market position, there is “significant risk as proper risk management, risk analytics and overall infrastructure to manage the growth are in some cases untested.”
This certainly raises the prospect of more inconsistencies and insurance disputes for the payment of insurance claims in Florida.

While Florida has not had many major storms in the past few years, it has been hit by other unique issues, including a rash of sink-hole claims. The Best’s Special Report, titled, “Florida Property Insurers Remain Untested: Will 2015 Be the Year?,” highlights how sink-hole losses, fast rising reinsurance costs and overall market conditions have prompted many larger, national carriers to reduce Florida property exposures. This may not be good news for policyholders. The increased involvement of smaller and less-experienced insurance companies has been seen since 2007.

The report identifies that a key component of how insurance companies analyze risk remains their exposure to hurricane loss and the recoveries of reinsured losses. A.M. Best stated many companies have a very high gross probable maximum loss. A stress test is also performed on the company’s capitalization that “measures the capital position post an event and its ability to absorb a subsequent event on its capitalization.”

In 2004, a series of four hurricanes caused significant insured property losses in Florida, with two of them causing damage in Jacksonville and Northeast Florida. In the wake of hurricanes, insurance companies often seek to limit their exposure by denying or underpaying claims, leading to a spike in insurer bad faith and breach of contract lawsuits, as seen after Hurricane Sandy hit New Jersey in 2012.

Florida’s new insurers will be tested if and when Florida is next hit by a major hurricane. Jacksonville has not suffered a direct hit from a hurricane since Dora in 1964, but its rapid development in the 50 years since, means considerable property damage would be likely if another storm came ashore here.

There are many scenarios that can lead to disputes. Often an insurer will not offer fair value for property damage under a homeowners or an auto policy. An insurer may claim a policyholder intentionally caused a loss or has exaggerated the value of items destroyed.

In the aftermath of Hurricane Sandy, insurers found a number of ways to reduce claim payments. For instance, commercial property insurance policies provide for higher “named storm” or “hurricane” deductibles than standard deductibles. While Sandy at one time possessed hurricane characteristics, it lost those traits before making landfall, and the National Weather Service downgraded it to a post-tropical cyclone hours before it hit New Jersey. Some of the insurance companies tried to apply so-called “hurricane” or “named storm” deductibles to cover Sandy losses, despite the National Weather Service’s official classification of Sandy as a post-tropical cyclone when it hit land.

As with any purchase, consumers should make sure to do thorough research before buying an insurance policy. Always make sure to read the fine print. Because insurance disputes are normally resolved based on the language contained in the policy, you should be clear about the details of the policy and thoroughly understand your obligations as well as your rights.

Written by David Macauley
Our experienced Jacksonville insurance attorneys will be happy to consult with you at no cost to talk about your insurance dispute. If we accept your case, you do not have to pay us anything unless we make a recovery for you. Call us at (904) 632-0077.