Citizens board, officials cite lawsuits as ‘root problem’ of insurance crisis

Citizens to the rescue — but for how long?

Lawsuits are the primary driver of Florida’s property insurance crisis, board members and staffers of Citizens Property Insurance Corporation said during their board meeting Wednesday.

“If something is not done about this litigation disparity, I’m not sure you’re addressing the root problem,” said Citizens board member Scott Thomas.

He was referring to Florida’s outsized share of insurance litigation. The state accounts for 8% of property insurance claims but 70% of lawsuits.

That has increased costs for insurers, who have lost more than $1 billion per year the last two years, and are on track to lose another $1 billion this year, according to estimates cited by Citizens President and CEO Barry Gilway.

Gilway also cited the rampant lawsuits — Citizens has seen their total lawsuits rise from 9,834 in August 2021 to 12,761 in August 2022 — as the main cause of rate increases, dropped coverage and insolvencies by five carriers this year.

The litigation and loss have led reinsurers, who provide coverage to insurance companies, to either hike their prices for Florida coverage or refuse to underwrite in the state altogether.

That has strained the Florida market, Gilway said, because “we are now a market dominated by domestic insurers that tend to be smaller companies more reliant on reinsurance and the capital markets. History indicates that these companies tend to be far less stable than national carriers.”

The smaller companies used reinsurance to spread risk and expand their coverage, but with reinsurance becoming more costly or impossible to acquire, it has led to a contraction of the marketplace. And since only a few large national insurance companies still do business in Florida, such as State Farm and Allstate, Citizens is the repository for many of the policies left behind.

For Gilway, Florida’s law allowing for “one-way” attorney’s fees, which requires the insurance company to pay the litigation costs for the consumer if the consumer wins in court, gives too much incentive to file suit over a claim.

“The one-way attorney fee statute, in my opinion, it’s just got to go,” Gilway said.

The trial lawyer lobby would likely fight any attempt to eliminate the law, and placed the blame on the hike in lawsuits on insurers’ penchant for lowballing consumers or refusing to pay claims.