Kyle Ulrich: Florida’s insurance market faces threat of destabilization

In April, the Tampa Bay Times published an article titled “Failed insurance execs are taking new jobs. Florida says it’s illegal” focused on the Florida law barring “officers and directors of insolvent insurers from taking on equivalent roles at other companies without first proving they weren’t responsible for the prior failure.”

As the article points out, the Office of Insurance Regulation (OIR) is in an unenviable position to enforce this law, which has been in the books since 2002. What the article fails to capture is that this law has the potential to destabilize the Florida insurance market at a time when, for the first time in many years, a fragile sense of optimism is drawing capital and competition to the market.

The article rightly points out that the primary reasons for recent insolvencies were storms and litigation.

However, it goes on to say, “Most companies experienced those factors – and only a few of them went insolvent.” Per the Florida Insurance Guaranty Association (FIGA), between 2017 and 2022, 11 domestic insurance companies went insolvent in Florida, arguably more than a few. During that same time frame, the most recent Property Insurance Stability Report from the OIR reports over $5 billion in underwriting losses and highlights the dramatic impacts of litigation on the Florida market, pointing out that “One of the primary challenges for Florida’s property market has been the frequency and severity of litigated claims.”

Since then, the Florida Legislature responded and passed the most comprehensive property insurance reform legislation in a generation, creating a window of opportunity for the Florida market and a wave of optimism from investors looking to enter the state.

However, capital investment also requires intellectual capital, particularly in a state that is unique when it comes to property insurance.

The challenge is that this legislation effectively benched much of the talent pool, with a depth of experience in the Florida market and careers built in this industry.

The OIR has a duty to comply with the law and enforce the regulations under its purview. Still, it is worth considering whether this legislation passes muster when implemented. Though it has been in the books since 2002, FAIA is unaware of a previous instance when this law was applied with such broad implications.

Others commenting on this issue have questioned the law’s constitutionality, and many have lamented that this legislation effectively requires career professionals to prove their innocence to continue working in the industry.

The article points out that “how the person is supposed to prove they weren’t responsible is not defined in the law,” and goes on to say that “state regulators have not completed financial autopsies on … companies that have gone insolvent in recent years.”

Is it possible that some of the people responsible for the operations of the now failed companies should not be running companies? Yes.

However, given the number of companies that went insolvent, it would be naive to believe that all were the result of poor management. The data shows that the industry’s challenges were more systemic, particularly relating to litigation and lawsuit abuse, and it is possible that in most cases, no matter what decisions companies made, some were destined to fail.

At this moment, the Florida insurance market is poised for an infusion of capital from investors who need capable teams with a depth of experience in Florida.

The OIR’s expedited reviews of “benched” insurance executives will provide the certainty needed to investors who are currently deciding whether to invest in Florida.

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Kyle Ulrich is president and CEO of the Florida Association of Insurance Agents (FAIA).