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Industry Experts Say Litigated Claims Could Reshape Florida Market Again

Nationally, 9% of claims are filed in Florida, but 81% of litigated claims, or 107,000, originated in the state in 2021.
  • Renée Kiriluk-Hill
  • November 2022

The Insurance Information Institute estimates that litigation expenses will add $10 billion to $20 billion to Hurricane Ian claim costs, in part because of the low rate of homes insured against flood losses, said spokesman Mark Friedlander. Despite recent legislative efforts to curb their misuse, assignment of benefits and litigation practices in Florida are expected to impact loss severity, “especially in cases where coverage leakage of water losses onto wind-only policies is likely,” said Rajkiran Vojjala, model development vice president at RMS.

In a state wrapped on three sides by “two of the largest bodies of water in the world,” Friedlander said the take-up rate for residential flood insurance—primarily through the National Flood Insurance Program—is 18%. That's higher than in any other state, but also means that more than 80% of Florida residents forgo the coverage. And take-up rates inland are just 2% to 3% where Ian continued to cause catastrophic flooding after making landfall Sept. 28 in Lee County on the Gulf Coast, said the Florida resident.

“There will be significant dispute over whether homeowners suffered windstorm versus flood losses,” Friedlander said. These expenses, not the cost of property repairs, rebuilding and replacements, is what will drive more small, regional carriers out of business, he added.

U.S. insurers incurred an estimated $53 billion to $74 billion of losses and a sizable portion will come on post-event loss amplification and economic and social inflation, according to Vojjala.

“There will be significant dispute over whether homeowners suffered windstorm versus flood losses.”

Mark Friedlander
Insurance Information Institute

“Social inflation factors will lead to complex and lengthy claims settlement processes in this event, amplifying loss adjustment expenses and corresponding claim costs,” Vojjala said. “A sizable portion of the losses from Ian will be associated with post-event loss amplification and inflationary trends. A combination of high claims volume, additional living expenses related to the massive evacuation efforts, prolonged reconstruction in the worst-affected areas, and the prevalent higher-than-average construction costs will contribute to a significant economic demand surge,” Vojjala concluded.

Nationally, 9% of claims are filed in Florida, but 81% of litigated claims, or 107,000, originated in Florida in 2021, Friedlander said. The next closest was California, where 3,600 claims were litigated. Pre-Ian, III projected that the number of litigated claims in the Sunshine State would rise to 130,000 this year. “Now we don't know” how high that number could climb, Friedlander said.

He pondered how many more P/C insurers would exit homeowners lines in Florida or become insolvent in the coming 18 months. “Every single company says the same thing, they cannot operate in a litigious environment. Legislators have not taken strong enough action to disincentivize the high level of litigation.”

Six P/C carriers were declared insolvent this year, on the heels of two insolvencies attributed to abusive legal practices, related to roof claims.

Wells Fargo Securities LLC Equity Analyst Elyse Greenspan and associates think Ian's auto losses could be outsized, layering on top of “an environment where loss costs are already in the double digits and car valuations are near record highs.” Her team projects auto losses in the range of $5 billion to $6 billion, higher than the $3 billion from extreme flooding event Hurricane Harvey in 2017 in Texas.

In an equity research note, Greenspan estimated that Progressive Corp. may have incurred $1.15 billion of catastrophe losses in September. Progressive's surplus at the end of the second quarter totaled $16.6 billion and “could go lower in Q3 given the losses and downturn in its equity portfolio,” the note said. “Right now we are including $800 million of personal auto losses, $104 million of commercial lines losses, and $230 million of homeowners losses for the month of September … of which the main event should be Hurricane Ian. Progressive does not have reinsurance on its personal auto book, while it does have reinsurance for its property book,” Wells Fargo's analysts said.

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