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Ashley Kalifeh, partner, Capital City Consulting
17 March 2022News

Manmade problems behind meltdown of Florida’s insurance market

Florida’s insurance markets remain one of the state’s great challenges and currently resemble the meltdown they experienced in the aftermath of Hurricane Andrew, in 1992. But despite the biggest challenges being manmade this time, solutions remain hard to come by.

That was the key takeaway from a panel discussion titled ‘Hot off the floor – Florida legislative update’ held at the Bermuda Risk Summit taking place in Hamilton this week. The session included Ashley Kalifeh, partner, Capital City Consulting; Cecil Pearce, president of the Florida Insurance Council; and Tim Meenan, managing shareholder at Meenan PA. It was moderated by David Hart, CEO of the Bermuda Business Development Agency.

They noted at the start that House and Senate leaders in the state couldn’t agree during the roughly 60-day session on a solution for homeowners of double-digit rate increases, so they passed nothing.

Straight out of Florida’s legislative session, the three senior policy experts provided an “insider’s” look at what happened, what did not, and what remains to be done.

Hart asked them whether they believed there would be a special session on insurance issues. Kalifeh said ‘no’, Meenan said ‘yes’ and Pearce joked, “I follow Tim but I think Ashley may be right.”

Hart then asked Kalifeh to “look into a crystal ball” and say whether she predicted there have a speaker in the house, a senate president and governor “all aligned” in supporting the insurance industry, rather than a small group of trial lawyers able to continue their lucrative campaign against Florida’s property insurers.

“The next two sessions could be the perfect alignment to get some ins reform done,” suggested Hart.

Kalifeh replied: “Our legislative changes through every election cycle. They serve two-year terms as senate president and as house speaker, and so I say ‘no’ to a special session because we’ll have the same two people in place leading the legislature until November. And so we’ll be confronted with the same sets of challenges that we’ve had in this session and have had in the past. With November coming, we have two very smart leaders coming up.”

“I think those two are much more aligned with my view of – and how we see - the civil justice system and how it should be used as a force for good,” Kalifeh said.

“I think you’ll see them lean into some of these issues but, as they remind us, they need to get the right team on the field. There’s only so much two people can do, and you have a 120-member House of Representatives and a 40-member Senate, and so this election cycle will be really critical for them to be able to get and retain the candidates that are like-minded on these very important issues, to be able to field the teams necessary to carry something over the finish line.”

“Pretty good, for the most part”

Hart noted that Florida has 22 million people and is the 15th largest economy in the world. Last month, it broke a new record for annual visitors, he said, with 122.4 million visitors in a 12-month period. Some 800 net new residents move into Florida every day and $1.3m of new capital inflow into the state every hour of every day. It has unemployment level of 3.5%.

“Things look pretty good for the most part, but there are some exceptions to that and, unfortunately, insurance is one of those great challenges for our state,” he said.

Pearce explained to the summit’s delegates that Hurricane Andrew, in 1992, caused the first “meltdown” of the state’s homeowner market.

“The whole market shut down, and so it was incumbent upon the legislature and the governor at that point to take bold action and they did. Scroll forward to today, and the marketplace is very similar to post-Andrew. The difference is, this is not a hurricane, wildfire, flood or tornado. This is a manmade problem. That translates as Florida has a problem of being run by a small group of trial lawyers and roofers.

“We’re going to have to have legislation and take some bold action like back in those days. We’re not competing against Mother Nature. We’re competing against two business groups – trial lawyers and roofers. We just finished a session, nothing passed, so we’re looking at either a special session or it will be this time next year before we have a shot at fixing this problem.”

Kalifeh said: “Cecil’s right: acts of God are not our problem, acts of man are our problem. The good news is, we can solve acts of man, although we have not been successful in doing that yet. Florida has grown over time so the fact the number of lawsuits is growing too is really not a surprise, but what’s interesting is when you control the population you see a tremendous spike.”

She added: “Property lawsuits continue to plague the market but this permeates all coverages; this is not really a problem that unique to property insurance. Property insurance is what people are feeling most acutely at this time. To borrow a hurricane term we have a cadre of Category 5 attorneys and they are filing a tremendous amount of lawsuits that are not supportable by any law of physics, or anything else for that matter. But some of them are filling 4,000 lawsuits a year. And so what you see is that a very small group of attorneys is causing a total blast of Florida’s property insurance market.”

Meenan added: “To put those numbers in scale: 4,000 lawsuits, so imagine if they were roof losses and all you want to do it settle them and not litigate them, the fee is between $5,000 and $10,000 per case. Times by 4,000, that’s $30m in attorney’s fees.” He joked that “politics in Florida is a contact sport.”

Pearce had a special message for the summit’s audience. “The Florida Insurance Council for over a decade has had a very good relationship with Bermuda and the reinsurance community for over a decade. In order for the Florida marketplace to work, we have to have Bermuda. Bermuda has been very supportive to our domestic companies and so my message today is, thank you.”




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