The Florida property insurance market is facing systemic challenges. Rising insurance costs and decreasing availability in the property market are due to a number of compounding factors, namely rampant lawsuit abuse. In 2019, more than 76% of all claim-dispute lawsuits in the United States were in Florida, according to National Association of Insurance Commissioners (NAIC) data mined by the Florida Office of Insurance Regulation.
Rising sea levels and stronger storms also contribute to an increasingly cautious admitted insurance market. As a result, more Floridians are turning to the state-backed insurer of last resort, Citizens Property Insurance, which now comprises an unsustainably larger share of the marketplace.
As supply and demand for insurance ebbs and flows, a type of insurance known as “surplus lines” serves as a critical safety valve. During a hardening marketplace, when the coverage is too high or too risky for what traditional carriers are willing to embrace, it is not uncommon to see surplus lines filling in the gaps.
The surplus lines industry is positioned to tailor coverage for unique risks and help consumers with challenging or hard-to-write circumstances. This is largely due to being regulated differently than traditional insurers. The surplus lines industry works to adapt quickly, which is helpful for new and emerging industries like technology and cybersecurity. It also covers more complex risks for which a level of customization is required, such as hospital systems, amusement parks, ports and other critical components of Florida’s economy.
While surplus lines serve as an important piece in the overall insurance market puzzle, they are not a true substitute for a healthy domestic market.
“There’s a realization amongst many of our members that they know they have to be part of the solution,” Kyle Ulrich, president of the Florida Association of Insurance Agents, told the Insurance Journal last year. “It’s in agents’ and consumers’ best interest that there’s a stable marketplace with a lot of competition on both forms and prices.”
We have seen more homeowners’ policies of late go to the surplus lines market due to diminished admitted market appetite. However, the industry remains hopeful that Florida will see trends over the next year that show reforms, such as SB 76, having a positive impact on loss costs and claims development. As capacity in the admitted market increases, surplus lines will be able to serve as its backup for unique, unusual and large risks.
The insurance industry must work together to develop solutions that lead to a healthier, more diverse and more sustainable insurance market. While the market is facing significant challenges, agents and brokers across the state continue to advocate for policies that ensure people get the coverage they need at a fair price.
The surplus lines market will endeavor to fill in critical gaps in the property insurance market as efforts to fight fraud and abuse continue. We look forward to watching Florida’s political leaders win this fight on behalf of ratepayers statewide so that our customers will again have quality and affordable coverage options from our admitted market partners.
Kathy Colangelo, ASLI, CIC, works for Hull & Company, Inc., a member of Bridge Specialty Group, in Tampa, and the president of the Florida Surplus Lines Association.