Mark Friedlander on Florida's Insurance Overhaul

David Wright: 0:00

My guest today is Mark Friedlaender, Director of Corporate Communications at the Insurance Information Institute, a think tank dedicated to providing objective fact based information about insurance. Today we'll be talking about the new legislation that has been passed by the Florida Legislature and a special session only last week. Mark, welcome to the show.

Mark Friedlander: 0:16

Thanks again for having me. David, really appreciate being back here.

David Wright: 0:20

Is the insurance industry happy about this legislation, and why

Mark Friedlander: 0:24

The consensus is the insurance industry is very happy. We consider this to be groundbreaking legislation. In fact, in our opinion, we've never seen such a strong insurance reform package passed through the Florida Legislature. This is new territory. I mean, in the past, we've had the Senate pushing strong legislation, the house blocking it. Now we have new leaders in place. There's a new house speaker, there's a new seventh president, they were clearly in sync from the get go, that we have a major crisis on our hands and need to do something very drastic in terms of the industry to get it back on track to begin at least a road to stability. And I think that's what this package accomplishes.

David Wright: 1:13

How does it accomplish that?

Mark Friedlander: 1:15

Two key drivers of the Florida property insurance crisis have been litigation abuse, and roof claim fraud abuse, or really, I guess for a more general term, assignment of benefits abuse, roof claim fraud is a big part of that. But overall assignment of benefits abuse. So once again, litigation abuse, assignment of benefits, abuse, those were the key areas that needed to be addressed. And in the past, we've talked about the need for the industry, to no longer be required to pay one way attorney fees. We've heard this from industry leaders for many, many years. As I said, the Senate tried to push through legislation in the past, blocked by the house, it never made it to the house for this time it did. And this time it passed. That's the big ticket item. One way attorney fees, because those are the fees that have been driving Florida's domiciled regional insurers out of business. In fact, six companies failed this year. They were declared insolvent because of excessive levels of litigation. Literally, they were litigated out of business. There are 27 Other companies still on the Florida insurance regulators watch list today because of heavy litigation losses. And now we have hurricane Ian on top of this. And one important point on this new legislation. It's not retroactive. So all the claims that have been filed for hurricanes Ian and Nicole, that may lead to litigation, those still fall within the guidelines of the old regulation, which is one way attorney fees could be assessed. So could we see more Florida insurers fail because of litigation? Absolutely. And then we just have all these other cases in the pipeline. I was informed the other day, there are more than 100,000 assignment of benefits lawsuits working their way through the Florida court system. Those are non hurricane losses POVs, it will take up to five years for those to clear through the system, those expenses will continue to hit the bottom lines of insurers. So to think this landmark legislation, which it is, will make the problems go away immediately, unfortunately, not the case.

David Wright: 3:35

One thing I noticed as I was kind of reading through the bill, I'm not an expert on this. So a little bit of a layman's perspective. But I did see that that the assignment of benefits, removal won't be enforced. I mean, forgetting about claims on policies incepting on January 1, so for a policy and cepting. Today, they can still assign the benefit of the claim for the duration of that policy. So it's gonna be a little while before at least that particular reform, you know that the effects of that reform will will bite?

Mark Friedlander: 4:04

Exactly. I'm sure there's a very large volume of EO B's related to the hurricane. In fact, we know of unfortunately unscrupulous contractors working the streets of the neighborhoods that were devastated by Hurricane Ian in southwest Florida, getting homeowners to sign on the bottom line sign the form that will take care of the claim for you sign here is called assignment of benefits. We'll handle everything for you. And unfortunately, many homeowners that were devastated, just completely devastated with losses of their property from the hurricane have been scammed into signing al B's. So yes, there's a lot of ao B's in the system and in new ones, as you said brand new ones

David Wright: 4:48

coming and listen, it's gonna go to my podcast primarily with Dave Democ, which I which I actually produced, which had some specific stories of all these things if they want to get some on the ground detail, which I found really, really enlightening for myself. The one of the things I thought that kind of I'm wondering about here is, you know, if the two big reforms are assignment benefits, no longer possible in Florida on policies and something on or after January 1 2023. And the other one is when we attorney fees have been moved to your knowledge or the one way attorney fees is not going to happen just on is that a claims filing thing? So if you file a claim, today, you do not get a one way attorney fee. But if the claims in the system from last week, you can, is that the right way thinking about it?

Mark Friedlander: 5:31

That's the way it has been explained to me it was effective immediately. On Friday, December 16. Anything filed before then is subject to the old regulations being in one way attorney fees apply. And by the way, I should mention you know, we're hearing a lot from the plaintiffs bar very upset about this understandably so. Yes, big moneymaker for many firms around the country about around the state rather, you know, we know that it's going to change the dynamics of the way these plaintiffs firms operate. But Florida becomes the 40th state in the nation to eliminate one way attorney fees. So it's not like Florida, made some new rule in the world of legal related claim filings. We're number 40. We're way behind the eight ball, Florida should have taken this step years ago. And that is a big reason why you see Florida, such an outlier when it comes to the volume of property claim lawsuits year after year. And we were on pace this year. This before the hurricanes we estimated 130,000 property claim related lawsuits either first party or a OB related property claim lawsuits. 116,000. Last year, we've checked the totals across the country, we've looked at the data 3900 was the next largest state that was California, and California has twice as many properties to ensure that Florida does population has nearly double Florida's so 3900 in California 116,000. In Florida last year, we knew we had a major problem. This problem has grown year after year, this didn't come about overnight, all of a sudden, somebody flipped on a switch and said, what's going on in Florida, this has been growing more and more. The legislature looked at it every year, never did anything about it. And now we're in a crisis. So the problem is, how fast can you fix this? Because we've heard particularly from the minority party, in the legislature, the Democratic Party very upset with the legislation, because it doesn't bring an immediate fix. Well, we wish there could be an immediate fix that's just not realistic. We need to crawl before we walk and walk before we run. To get this Florida insurance crisis under control is so out of control, it's going to take several years to moderate not just weeks, months, days, several years to moderate. So what are we going to see going forward? Our projection is rates are going up more next year, or 33%. Average increases right now in Florida, amongst the highest average increases in the country will be 40% plus next year. That's because of the outstanding litigation costs, higher cost of reinsurance replacement costs values, which is a national issue, replacement costs are running double the CPI right now, you can't eliminate those. So every homeowner in the country seeing higher rates, you're not going to see lower rates in Florida, even if all the litigation disappeared today, you are not going to see lower premium Florida so any legislator who's promising lower rates are coming soon. They need to do their homework. I don't know, unfortunately.

David Wright: 8:51

Do you.. Do you kind of read into that? Because I hear that I'm a little worried. I understand that the I mean, listen, I mean, I spent a lot of years as reinsurance actuary Understand, when you put in a change, it's very hard for the insurance companies to tell, what's that really gonna be worth. So to commit to some kind of lower pricing in advance is suicide for insurance companies. So totally get that. But if you're a voter, and you don't have that experience, and you're saying okay, so I'm now you know, the some of the interested groups being the plaintiffs attorneys, but you know, hey, listen, like, you know, to a certain degree, I think they're on my side, or at least they say they are and they probably are in a kind of a short term sort of manner. They're saying to me that, you know, this is going to take away some of my ability to fight against the big bad insurance companies, and now my rates are gonna go up anyway. So, you know, do you do you worry about like a political backlash sometime next year. When that does happen, you know, or to what degree that happens and people are saying, Well, we tried, we told we did what you wanted us to do, and now you're not giving us anything back for it.

Mark Friedlander: 9:56

I don't think there were any politician instead passed this bill that approved the bill, those who voted yes. For it that promised rates were declining, the promise was, we will get the market stable. And I'm not sure. Like I said, once again, were there specific timelines laid out, I don't know. But it is, unfortunately, a situation that can't be fixed right away. And, you know, we promising that it's going to be resolved, and you're going to see a much better market soon, it's just not going to happen. And we need to get this under control. And as I said, a few minutes ago, it's possible more companies are going to fail, before the situation gets under control here in Florida.

David Wright: 10:42

Well, hopefully, if I think of like, if your DeSantis with an eye on the presidential election, the thing you don't want to happen here, is this thing to go to blow up in your face as being? I mean, I don't know, I don't totally understand the nuances of politics, no doubt, he really does. But you know, as a possibility is a pretty big call for for for him. And, you know, I can I've done some work in, in the past, in situations where there's a kind of a real negative feedback loop and the pricing environment, and I understand the, the urge for on behalf usually of more left leaning politicians, but not always to then just legislative price decrease and saying, Okay, we're gonna trade here trade is you get less claims cost, we get lower premium, and we're gonna, you know, we're no through the DOI, we're gonna force carriers, or we're gonna, we're gonna put a moratorium on read increases, something like that, right? So at least we know, we're gonna get something out of the bargain, right? We don't have that here. So there's a risk that they're gonna look bad.

Mark Friedlander: 11:43

Well, what I can tell you is what I know what was negotiated. In the legislation last week, some of the Democrats are pushing for a rate freeze, just freeze it for a while and go up Mark, if you put a rate freeze in place, you're going to drive more companies out of business, either they're going to completely fail, or they're just going to leave the state and say we cannot operate in the state of Florida under these conditions, that will just make the market worse. And we've heard from the Republican leadership, as we know, we have a supermajority now in Florida in both the House and Senate very strong Republican blocks of both. And while the leaders did not accept any of the amendments that were proposed by Democrats in the special session last week, they're at least willing to listen to some of those and bring them forth in the regular session, which starts in March, it runs March and April next year. So at least they are listening. But in terms of this specific bill that was pushed through very quickly, in a three day special session. Last week, Senate Bill two a, no changes were made. It was in sync from the get go. It was introduced the Friday evening before by the House and Senate. It moved quickly through committees and to four votes. And it was signed by Governor DeSantis on Friday the 16th. So no changes were made. But at least it sounds like the new leadership is willing to listen to other opinions on can we make more adjustments going forward?

David Wright: 13:12

I mean, that is incredible. I mean, it clearly came in knowing exactly what was going to happen. I mean, this is all locked in. Maybe maybe even before or the moment the election result was called because did you just say and it's something I didn't really realize that they tried probably tried to do something more aggressive at the earlier special session, but didn't have the sufficient supermajority, I suppose. And all the branches of the Florida government to do something.

Mark Friedlander: 13:38

Actually, the problem with the May special session was the Senate was willing to take the similar steps that were just passed, the House leadership was against it and will not move forward, specifically on the one way attorney fee issue. So it was blocked. It never made it any further. Right. It just died. The idea. So new leadership and the new leadership, we've known for months, who the new leadership was going to be we knew who the new house speaker was going to be knew who the new senate president was going to be. They've been negotiating with other members of the legislature for an extended period long before the election. So even before the election took place, our understanding is negotiations were taking place between the House, the Senate and the governor's office. And this was all laid out. Now. Yes, more work needed to be done, obviously, because it wasn't introduced until a few days before the session began. So details are being worked out. But the general premise of what was introduced in the bills it was a complimentary Senate and House bills, virtually identical almost word for word, because it was worked out before. This wasn't done in a rush after the election. Clearly, there were actions being taken long before the election took place.

David Wright: 14:59

Do you have any date or any kind of ability to estimate what you think the impact will be on claims cost.

Mark Friedlander: 15:05

We have not analyzed that there's just too much in the air, I guess in terms of the data and how long it's going to take to stabilize the market. Our here's our projection. You know, I think I already said about rates probably going up at least next year, again, perhaps seven to 8%. above where we are this year, maybe 40%, plus overall increases, on average across the state. The end goal here, at least the initial end goal, our first major goal, maybe let's say that way, first major goal of this legislation is moderate rate increases. So the year over year increases are not 40%, or 50%, or we hear from homeowners, they're over 100%. In some cases, we need to get that under control. So we need to bring it down. If If Florida could get in the high single digits, like the national average, that'd be a big win in our eyes. I mean, we think that'd be a great win for consumers. Number two, get the market stable. So you interest other companies in writing new home business here in Florida, a more robust market will lead to more choice. More choice means better quoting opportunities. Realistically, you may be actually dish may be able to shop your coverage, which you really can't do right now. Because in most cases, you have to keep the insurance you have or you go to citizens, the state run insurer of last resort, you have no other choices, there are no other private market options for you. Let's get a robust market. And we've heard from some of the agent groups, that there is interest in new companies coming to Florida and soon. I hope that's a reality. But we did hear from some of the agent organizations telling us they've heard that there is interest in companies entering the Florida market, that would be a big win right there. If you brought new companies to the market soon?

David Wright: 16:59

Well, I'll tell you, you know, I work for one of these agent organizations, and we are constantly talking about how we can bring more capacity into the state of Florida. And that capacity, be it you know, right up the stack from the insurance companies will be on the ground the reinsurance that back from the investors the back the reinsurance, we also back to everybody's freaking out. So, you know, it's, it is super difficult to get people to buy in. And, you know, to the point you were making a moment ago without this not being an immediate fix. Even if we hadn't had hurricane Ian, and we did, it still would have been a problem because for years, these companies have been losing, you know, these investors have been losing money on this business. And so, you know, you don't want to sort of see it before they believe it. That said, you know, we're gonna keep trying. Because, you know, I would love to bring a big program to Florida, it'd be great. Clean up.

Mark Friedlander: 17:47

Exactly. It was Yeah. Yeah. So that's the positive news. It sounds like there might be some interest. negative news is, we've heard from some of the global reinsurers who indicate the legislation is still isn't strong enough.

David Wright: 17:59

Interesting. Right? What's the what would they have seen happen?

Mark Friedlander: 18:04

I don't have the details, to be honest. But I've been told that read some reinsures Don't feel that what was done is enough to get them to continue to want to invest in Florida companies meaning offering reinsurance coverage to Florida property insurers. So did it turn the tide of those companies that have been on the fence or already made a decision? months ago? We're not touching Florida and 2023? I don't think it changed anybody's mind. I guess that's that's the takeaway here.

David Wright: 18:35

Interesting. What are what do you have an idea for what other levers are available to pull?

Mark Friedlander: 18:42

At this point? No, you notice that we are a non lobbying organization, we stay clear of legislative issues. We're on the outside looking at it, you know, through a much wider lens. And we really don't know what else can be done. To be honest. We haven't heard other proposals. Yeah, realistically, we I think we have to let this play out some very dramatic moves here. In terms of reform, like I said, we've never seen anything like it. We call it groundbreaking landmark, I think are the terms we've used. You gotta let it play out. I mean, we did not expect to see magic occur the day the governor signed a bill, that's just not going to happen. And everybody I think at Valve realizes that. Let's let it play out. Let's get things under control. But unfortunately, just taking the litigation pipeline alone and how much is already in the Florida court system or needs to work its way through the system. We've got a long way to go. We you know, we're on the one yard line and the other end zones 99 yards away. That's where we're still at.

David Wright: 19:51

Right? And I think you know, where my money goes is, you know, is it building codes, you still have the problem of the catastrophe risk, and that incredible moment after Hurricane Andrew in I think it's 92, where Florida tried to prevent companies from raising rates and locking the doors to the state. And that's when all the major major personalized carriers exit and have not returned. And so you want it was really weird little insurance ecosystem were accepted on excess and surplus basis. You know, you don't get access to the big brands, if you're in Florida, which are, you know, the probably the most effective operators, because they don't want to get tangled up with as crazy No, maybe some kind of long term pre commitment on behalf of the state to saying we're not going to do that to you again, maybe these sorts of things. You know, folks, would you know that, but which I mean, capital providers would say, okay, maybe there's a long term path to sustainability here. But how does you know, how does the legislature pre commit not going bonkers? 10 years from now, when it's Demott, democratics, or whoever the right whoever the public, whoever the, the, I'm not sure who the who was in charge of Florida back in the early 90s. But, you know, both Democrats and Republicans are perfectly capable of being nuts and protectionist in various ways. And so whoever comes in next, you know, who can say, right,

Mark Friedlander: 21:05

exactly. I mean, you have to go with what's now and right now, the administration in Florida is very pro insurance. Yeah, no doubt about it. They were, I know that the governor's campaign, his reelection campaign had a lot of support from major insurance players. So I don't think in the current administration, they're going to take any actions that would be negative to eventually drive companies out of the state. They want companies to invest in the state, they want new companies to come in. They want major carriers that have small market shares to grow their market shares in Florida. That's their goal here from everything we've been told.

David Wright: 21:46

So we'll just close on just one last kind of theme. Because listen, Mark, I'm a career insurance guy, you know, I believe you are too. So if you're on the other side of this issue, you're not gonna listen to this podcast and and say, well, they're by I mean, like, of course, they want their gloating or foundings, Chester's like yeah, hey, you know, let's make some more money. That's let's screw the consumer. That's what people on the other side are saying, right. But to the best of your knowledge, your ability, can you channel their counter argument? Maybe we'll find somebody to come on the show and talk to me about that. But like, what, what else would somebody do if you were a very big skeptic? And you don't like, you know, you just sort of look at your CV and mind be like, Well, I'm not paying I don't trust them. What do you do? What's alternative? Because only the greed is a problem.

Mark Friedlander: 22:28

You know, clearly, there are two sides to every issue. We understand that and we understand the concerns of the other side, particularly the plaintiffs attorneys now that have lost this mechanism to drive business their way with the one way attorney fees, but they don't come up with solutions. That's the problem. We heard one attorney on a recent program in South Florida say that this is a intentional crisis by the insurance industry, they're intentionally wanting to go insolvent because they don't want to pay claims. I mean, just ridiculous assertions. Others have said, you've got a problem in Florida because you deny too many claims. And our counter argument is they don't deny claims in other states, only Florida has a claim ever been denied. Apparently, never in 49 other jurisdictions or DC 50 other jurisdictions in the continental US. Never has a Claim Been Denied wrongly. People make mistakes. Yes, insurance companies make mistakes, too. Only in Florida, is it to the point where we have over 100,000 lawsuits annually because claims have been wrongly denied. But no other state, it just doesn't add up. And as I said, I'm sure everybody involved here is open to solutions to listen to all sides of the equation. But you've got to come up with realistic responses not you're intentionally wanting to go out of business, just ridiculous assertions. So until we have some legitimate conversation that actually makes sense. I'm not sure we're going to have any agreement at all between the insurance industry and the opposing sides here. Oh, you know,

David Wright: 24:17

I am reminded actually has one more thing you speaking of insolvency and what are the claims do that go to citizens and there's some changes to citizens as well, right. Maybe just give us a quick minute on that.

Mark Friedlander: 24:26

So the goal here was citizens is to bring it back to what it was intended to be an insurer of last resort. Right now. It's pretty much the insurer of only resort for the majority of Florida homeowners. They are going to be at 1.2 million policies enforced by year end, approaching their all time high of 1.5 million just around the corner. They want to depopulate and the way to depopulate will occur with this new bill. There's two provisions one is if when you get your citizens renewal notice, you also need to get private To ensure, quote, if available, in some cases is not going to be available. But if it's available, you need to look at other quotes from the private market. And if they're within 20% of the citizens cost being 20% cap above what citizens renewal is, you must move to the private market, you will be mandated to move, you cannot stay with citizens at the lower rate, because as you know, citizens is not offering policies at what we call actuarially sound rates, they're selling well below market because they are rate restricted. They only got a 6.4 increase approved this year, statewide. So you're going to be forced to move if, if this meets that criteria of the 20% rule. The other big item, though, is flood insurance, citizens. policyholders will now be be asked to include flood insurance is prior to their coverage. So they'll have to buy it separately, citizens will not offer it. But they must have a separate flood insurance policy in addition to citizens windstorm, if you're a windstorm, customer citizens, and it's a multi year rollout. So it's not an immediate change. It's a lot of variances. The first phase, for example, is for those homeowners that live in FEMA designated floodplains, and then it's based on the replacement cost value of your home. I think it's about a five year plan. But the goal is to have every citizens windstorm customer have flood insurance as well. And I know it's being applauded by the folks at FEMA is National Flood Insurance Program. They think this is the greatest idea they have ever seen from the private insurance market, or from the property casualty market, I should say, that's the private market, the citizens, of course, it's not privately run. But from the property casualty side of the business, to have a model where flood insurance will be a prerequisite for windstorm coverage. So interested, see how it plays out? We think it's a very innovative idea. And you know, we've kind of looked at it and said, Well, what about the customer and says, Oh, forget it, I'm not being I'm not gonna buy flood insurance, I'm just gonna move my coverage. Well, go ahead, move your coverage to a private windstorm carrier, and pay 50% or more, versus getting a flood policy, which, in Florida, if you live in a non flood, designated area, non floodplain designated area, you're paying about $500 average a year for flood insurance. Below, even the US average is running about 500. And once again, non FEMA designated areas. So pick your voice in here. Do you want financial protection or don't you that's what insurance is all about being financially protected from catastrophes. And unfortunately, we saw 1000s of Floridians that did not have flood coverage from particularly hurricane Ian, as well as some from the call. They don't have coverage. They have zero financial protection from those hurricanes this year. And look where they're at right now, hoping to get some FEMA funds very small amounts. Typically, well, under $10,000 is the average FEMA, individual grant, that's not going to help you replace your home has been destroyed. FEMA grants are not insurance, we continually push this and the gap that we see in lack of flood insurance, not only in Florida, but across the US is the biggest insurance gap in the US right now.

David Wright: 28:29

You know, and I predict years from now a ridiculously competitive market and the non flood zone flood insurance in Florida. And the prices are going to be kind of down to economic breakeven, like they do in all mandated coverages in a benign environment. So as long as that risk is, you know, there one of the problems with a lot of flood carriers is they don't have data on what benign flood risk is like, because the only people who buy it are the people who needed it last year when they got a flood or mandated by somebody else in a flood zone. So you know, the other thing that I'm excited about, again, as an actuary is, is the the data that's going to hit the system when you have a pretty hard flood requirement and many more people in Florida who are going to have to buy w two coverage. Okay, well, we can see that the intellectual opponents you know, they their arguments were evaluated at the ballot box and and, you know, we're gonna have what happened there happen there. We'll end it there. My guest today is Mark Friedlander of the triple life. Mark. Thank you very much.

Mark Friedlander: 29:26

Thanks for having me, David. Really appreciate it.