Florida’s Property Insurance Market
Art Randolph

Florida’s Property Insurance Market

The Wind Is (Finally) Blowing

With Hurricane Hermine bearing down on Florida, I recognized that I could not physically do anything to assist my sister and her family in Jacksonville (or my friends and extended family throughout the state), nor my insurance company clients that admirably serve the communities that will be affected by the storm. However, Hermine obligates me to contemplate the potential impact she may have on the underwriting results and financial solvency of Florida property insurers, and how the property insurance landscape might be altered.

My good friends at Thomas Howell Ferguson P.A. requested that I facilitate a presentation at the upcoming Insurance Conference on Financial Reporting to highlight the influence that the assignment of benefits (AOB) provision afforded in insurance contracts has had on recent underwriting results, and to discuss matters that insurance company executives should contemplate as they endeavor to establish adequate reserves for their year-end financial statements. For background, unscrupulous contractors (e.g., water remediation companies and roofers) and trial lawyers have capitalized on this contract provision to inflate repair costs and file law suits if insurance companies deny the claims or pay less than the demanded amount. The phenomenon is pervasive with respect to water damage and roof damage claims as policyholders “assign” their insurance benefits to these contractors in an effort to expedite repairs and absolve themselves of perceived insurance company red tape. Thus, AOB is not a type of claim, but rather an alternative mechanism by which to submit a claim to an insurance company for remuneration.

In culling together the statistical data and information for my presentation, I concluded that a historical primer on how events and market trends have dictated insurance company behavior and regulatory (re)actions would be beneficial to the audience. For some reason, I kept coming back to “Florida Property Market: It’s Always Something!” or “Florida Property Market: Now What’s Next?” as potential session titles. To understand this, you need only consider that prior to this week, Florida had not endured a catastrophic weather event since 2005 (Hurricanes Katrina and Wilma). Several years ago, the state had a mind-boggling definition of sinkholes (now defined as catastrophic ground collapse and not just a minor crack in a basement wall). Now, Florida is grappling with the AOB phenomenon. Make no mistake about it. The Florida insurance marketplace is a petri dish for scams, fraud, abuse… you name it.

Once Florida achieved a level of normalcy in the wake of the 2005 storms, sinkhole claims became an anchor around insurers’ necks starting in 2009. Once the Florida legislature finally passed sinkhole reform in 2011 (in conjunction with insurer underwriting initiatives), the “entrepreneurs” cultivated their new value proposition to Florida’s insureds by assisting them with repairing and remediating water claims. The following graphs place this into context by examination of expected gross ultimate losses (including defense and cost containment expenses) per exposure unit (i.e., earned house year). The data is based on a credible sample of Florida personal property experience.


The magnitude of the catastrophe experience in 2004 and 2005 makes it challenging to fathom the financial implications of sinkhole claims and AOB. Removing catastrophe claims permits the comparison to be more illustrative.

It’s reasonable to question the need to highlight sinkhole claims and those associated with AOB given that the results are de minimis compared to those for catastrophe claims. Insurance companies purchase robust amounts of reinsurance protection for catastrophic events. However, sinkhole claims and AOB-linked claims are essentially attritional losses (i.e., little to no reinsurance protection) to the primary insurer.

The intersection of weather catastrophes and the pervasiveness of the unresolved issue of AOB lends itself to pondering:

  1. What will be the solvency impact of significant weather events and AOB on new entrants to the market and those that are thinly capitalized?
  2. In light of the state’s population growth over the last decade, are there sufficient numbers of claims professionals to adjudicate the claims in a timely and cost-effective manner?
  3. Given that a significant weather event has not occurred in Florida since 2005, will industry benchmark loss development patterns upon which actuaries rely be predictive of today’s claim reporting and settlement environment that would contemplate increased demand surge (e.g., building materials and skilled craftsmen) and a higher propensity for litigation (yes, there are still open Hurricane Wilma claims)?
  4. What effect might catastrophic events and AOB have on policy count depopulation efforts of Citizens Property Insurance Corporation, Florida’s property insurer of last resort?
  5. Will the capital markets rethink the issuance of insurance-linked securities, which may be further complicated if the Federal Reserve increases interest rates? (see Pinnacle’s recent blog post entitled How Windproof is Investor Confidence in Insurance-Linked Securities)
  6. How will reinsurance costs recalibrate given the low rate environment during the last several years?
  7. And, the granddaddy of them all, how will property insurance rates change (and what will the Florida Office of Insurance Regulation permit)?

There are no definitive answers to any of these questions. We will continue to monitor developments and industry data to ensure that Pinnacle equips our clients with the tools to make better business decisions given everything that is afoot in the Florida property insurance market.

Putting aside the passion my colleagues and I have for our clients whom we dutifully serve in Florida, and the contempt that most have for the bad actors in the state, to our friends in Florida, know that the Pinnacle family has you in our thoughts and prayers as you weather this storm.

Art Randolph, FCAS, MAAA, CPCU, ARM, ARe, is a Principal and Consulting Actuary with Pinnacle Actuarial Resources, Inc. managing the Atlanta, Georgia office. He has been in the insurance industry since 1998, consulting since 2001. His consulting career has focused on medical professional liability, homeowners, workers’ compensation, commercial and personal automobile, general liability, and commercial multi‐peril exposures. Art is a member of the CAS Program Planning Committee and the AAA Medical Professional Liability Committee, and is actively involved with Physician Insurers Association of America (PIAA), National Association of Mutual Insurance Companies (NAMIC), Florida Chamber of Commerce, Casualty Actuaries of the Southeast (CASE), Gamma Iota Sigma Insurance Fraternity (GIS), and International Association of Black Actuaries (IABA, Director & Past Treasurer). He is a past member of the CAS Examination Committee and served as President & Director of the IABA Foundation.

«July 2020»