Will Florida’s Special Session Fix the Homeowner’s Litigation Crisis?

As we write these words, lawmakers sit in Tallahassee deciding the fate of insurance for Florida Homeowners–and some pretty hefty reforms are on the table.

The homeowners insurance market in Florida is in crisis due to the outsized number of lawsuits and fraud schemes that have become so prevalent in the state. Every homeowner insurer in Florida is painfully aware of the fact that 76% of all homeowners lawsuits in the United States happen in the state of Florida, despite the fact that this state accounts for just 8.2% of homeowners claims made nationwide. 

Florida’s litigation crisis has fallen on the shoulders of both insurance companies and their policyholders. Following fairly mild hurricane seasons between 2019 and 2021, Floridians were still paying the highest insurance rates in the country, $4,231, which is almost three times the national average premium of $1,544. 

The problem that has exacerbated Florida’s monumental amount of litigation claims stems from the state’s generous provisions that often benefit both contractors and lawyers. The CEO of the Insurance Information Institute Sean Kevelighan explained, “Florida has one of the most generous attorney-fee mechanisms in the country—sometimes resulting in insurer payment of plaintiff attorney fees far greater than the damage awards given to the policyholders who are the plaintiffs themselves.” He goes on to state, “A 2017 state Supreme Court decision allows courts to award plaintiffs’ attorneys 2-2.5 times their hourly billing rate when courts rule in favor of policyholders. These ‘contingency fee multipliers’ can result in attorneys receiving several hundred thousand dollars for a simple lawsuit.”

During the Florida Chamber Insurance Summit in Orlando last week, it was largely agreed that the litigation crisis is being driven significantly by one-way fees of Assignment of Benefits (AOB) attorneys. Fees can be 50x what the actual claimant is awarded in these lawsuits. One cited example: the award to the insured was $41k, and the attorney fees for the same case were $1.2 million. Both the award and the attorney fee must be paid by the insurance carrier. The general consensus is that these 1-way attorney fees are a big part of reforms that both carriers and homeowners are hoping will be addressed during the special session.

This unsustainable environment has been the dominant factor that led to 7 major Florida insurance carriers to enter into insolvency, liquidation, or required mid-term cancellations in recent years, and this number is growing. 

While the state of Florida was able to enact some reforms in May 2022 to provide some relief in SB2 to dis-incentivize frivolous claims that often stem from contractors who are responsible for hundreds of lawsuits against insurance carriers, these changes simply change the rules for contractors who are profiting off of suing for nominal claims. In short, these reforms were a good first step, but not the end of the litigation crisis in Florida’s homeowners insurance market.

As of December 14, the Senate has passed a property insurance overhaul in the current Special Session. As the bill awaits approval by the House, a number of proposed changes are included:

  • Reforms to the outsized litigation claim environment which is driving rates to an unsustainable level for Florida homeowners. This addresses eliminating the requirement for property insurers to pay the attorney fees of policyholders who successfully file lawsuits over claims. In addition, the proposed bill requires quicker processing times by insurance carriers during the claims process. Also included is the end of “assignment of benefit” practices in which policyholders sign over their benefits to contractors, allowing the contractors to directly seek payments from insurers.
  • The high cost of reinsurance (insurance that covers insurers). Lawmakers will create a new, taxpayer-funded $1 billion program to offer reinsurance, mimicking a similar program they created this summer.
  • Depopulating Citizen’s, the State’s insurer of last resort, which has exceeded 1 million policies for the first time in 10 years. The bill would force people with Citizens policies to pay for flood insurance and require homeowners to secure coverage with private insurers if they offer a policy up to 20% more expensive than Citizens.

So will Florida’s special session fix the homeowners insurance crisis? If these reforms are passed, over time we should see some relief to stabilize the volatility of litigation claims. However, even with reforms, Florida’s insurance problems are not over. The disruption of Citizens depopulation presents a whole new set of challenges for carriers, and compounding this with an inflationary market, we will start to see a polarization of “winners” and “losers” from a carrier profitability perspective.  

The key for carriers to survive and thrive in this challenging environment is to think differently about how to solve problems. Pinpoint has partnered with homeowners insurance carriers in Florida to take a data-driven approach to proactively manage litigation and profitability by making the earliest available and most accurate risk and loss predictions. We have applied our innovative modeling approach to both measure and manage litigation risk and customer lifetime value for each homeowners carrier book of business, arming insurers with the capability to accurately measure litigation risk and overall profitability at the earliest point. This capability enables insurers to manage risk in their book, assess this risk in book rolls, and avoid costly litigation claims before they are filed.

Each time we model the litigation risk for a Florida homeowners carrier, we find that our process consistently outperforms other models and interventions currently available to our clients. According to Michael Lorian, CEO of True Property Insurance, Pinpoint offers “an important step in predicting behavior and ultimately reducing frictional costs and premiums” for carriers.

For more information on strategies to manage profitability and homeowners litigation risk, reach out to Pinpoint Predictive to learn about our 30 day Proof of Value for litigation risk modeling.