Florida’s real estate insurance market is on the right track

The development of the Florida property insurance market deserves careful scrutiny based on verifiable facts. Two separate issues need to be careful. The story presented in a recent Tampa Bay Times article and the implications of the proposed new law passing through Congress.

A recent Tampa Bay Times article entitled “Florida insurance companies stepped on investors while claiming losses,” cites a state report that contradicts the basic financial reality of the Florida insurance market.

Just a few years ago, five of Florida’s top 20 insurance companies were public companies with transparent financial reports. Today, only three remain after two airlines (Fednat and United Insurance) went bankrupt. This reduction alone raises questions about hidden benefits claims. These were not private companies with uncertain finances, but public companies filed financial statements with the Securities and Exchange Commission under a federal securities fraud fine.

These are just five examples of around 30 homeowner insurance companies operating in Florida, but all five suggest that they exhibit similar financial losses from 2018 to 2022, representing broader market health. To further support this view, Demotech, Florida’s leading financial assessment agency, was scheduled to downgrade approximately 17 careers in 2022. Additionally, Florida’s Department of Insurance and Regulation published a watch list for 27 carriers that year. These metrics indicate that there is no evidence of excessive profits in the industry during this period.

For insurance companies and their affiliates, consolidated audited financial statements of Florida public insurance companies are often referred to as general agent management, and thus tell a clear story of economic risk.

Fednat:

2014: Stock price exceeds $32, net profit of $37.2 million2021: Net loss of $103.1 million2022: filed for bankruptcy after losing more than $180 million

United Insurance:

2015: Stock price: $27, net profit: $27.4 million2019-2021: Cumulative loss of $182 million2022: Filed for bankruptcy

Estate Insurance:

2015: Stock price: $27, net profit: $92.5 million2021-2022: Lost over $225 million2022: Stock price collapsed to $1.36 per share2024: Recovery to $12.10, net profit of $61.5 million, 8.02% profit ratio

Universal Insurance:

2018: Stock price: $452022: Net loss of $22.3 million, stock price fell to $8.572024: Recovery to $21.06, net profit of $58.9 million, profit ratio of 4.23%

HCI Group:

2018: Loss of $6.9 million2022: Loss of $54.6 million2024: Recovery to $116.53, net profit of $127 million, profit ratio of 18.62%

The assumption that insurance companies claim losses while generating “billions of profits” is difficult to match these verified financial results. These companies lost hundreds of millions of dollars in bulk during the period of trouble. The two went bankrupt. For the story to be accurate, these companies would have had to commit securities fraud on a large scale.

The right path

Financial results for 2024 show that Florida’s insurance market is on the right path to recovery, but it’s not there yet. The journey to market stability has begun, but remains incomplete. Two of the three publicly traded insurance companies have not reached profit margins considered optimal for long-term sustainability.

Heritage’s 8.02% profit margin is below the 10%-15% that rating agencies believe are needed for insurance companies in high-risk regions.Universal’s 4.23% profit margin is below the long-term stability target range.Only HCI achieved the profitability needed (18.62%) to survive the future storm and attract capital.

After accumulating hundreds of millions of losses between 2018 and 2022, these companies need time to rebuild their reserves. To justify taking money risks in Florida, where hurricanes are prone to occur, investors need more than 4.25% returns from the Department of Treasury, which is currently riskless. Insurers typically need a profit of 15% to 20% in a good year to offset catastrophic losses in a bad year. Despite the improvements in 2024, the average revenue for the five years remains negative, indicating that a market recovery requires patience and continuous reform.

Actual rate decreases

My agency has seen a significant drop in proportion across Florida, which contradicts the narrative that reforms do not benefit consumers. Here are some real examples from clients who live in various zip codes.

Homeowner’s Policy:

New Port Richie: 4.3% decreases from $5,198 to $4,974St. Petersburg: 45.9% decrease, from $4,654 to $2,520Largo: 28.7% decreases from $20,566 to $14,660

Condominium Unit Policy:

St. Petersburg: 25.2% decreases from $1,279 to $957Sarasota: 52.9% decreases from $1,754 to $825

These represent substantial Florida homeowners. We observe a double-digit decline from flat to double-digit decline across business books, spanning concrete evidence that the 2022 reforms are working as intended across multiple carriers and regions across Florida.

Understanding two important factors provides an essential context.

First, many homeowners have doubled their premiums since 2020, as well as rising rates, as well as Florida’s construction costs have skyrocketed since 2019. This important context was missing from the report.

Second, while some companies are misusing this structure when it comes to managing agents in general, Florida’s Insurance Regulation Authority has approved each MGA contract and fee. With or without an MGA, carriers should spend 25-40% of their insurance premiums on operating costs. During the crisis, affiliates returned almost $700 million to insurers who were actually struggling. It was largely inconsistent with the systematic profit extraction narrative.

As the Florida insurance market ultimately shows signs of healing, what could set back and threaten this progress? Currently, Senate Bill 426 and House Bill 1551 pose significant risks by proposing to reintroduce one-way lawyers’ fees into property insurance litigation. This is one of the key factors that contributed to the market collapse in 2022, and its recovery could quickly undermine the stability we have begun to see.

The questions surrounding these bills are simple: Who will benefit? It is noteworthy that both bills are sponsored by lawmakers who can personally benefit from their passing. Both sponsors are associated with law firms that handle property damage and insurance litigation, creating potential conflicts of interest between professional work and legislative activities.

House staff analysis explicitly states that these bills will cause higher insurance rates, hurt consumers and benefit law firms that specialize in insurance litigation. Instead of continuing the rate reductions we are witnessing now, these proposals can reverse our progress and bring us back to a spiral of escalate premiums and market instability.

As an insurance agent paid to the committee (percentage of premiums), I advocate for reforms that effectively reduce my income through lower premiums. This contrast highlights those who put consumers first in this discussion.

The misconception promoted by supporters of these bills is that more claims have been denied since the 2022 reforms. My experience with the agency and feedback from other agents regarding the 2024 hurricane season have been very positive in terms of claims. There are always opportunities for improvement, but the majority of policyholders, including myself, were paid in a fair and timely manner.

Hurricane Helen’s challenge was that, outside Perry, it was primarily a flood event. Homeowner’s policy excludes flood coverage. Many insured people contacted us who asked to file a claim they knew they would be denied specifically to qualify for a SME, Management Disaster Relief Loan that requires insurance denial. These context-specific “denials” were strategically sought by policyholders rather than evidence that insurers would become more restrictive.

The Economics of Litigation

Since the reforms in 2022, litigation has fallen by about 70%, representing a significant decline in the income of trial lawyers. However, their ads remain very visible throughout Florida. Economic incentives are transparent. Litigation-friendly policies benefit lawyers financially regardless of their impact on consumers.

These bills reverse many reforms that have begun to heal Florida’s insurance market, threatening the profits we see right now.

New insurance company entering FloridaCitizen insurance will provide hundreds of thousands of insuranceMany policyholders’ rates dropFinancial recovery of surviving companies

If the bill passes, we can expect reinsurers to raise interest rates, private insurers to reduce Florida exposure, and citizens will be overloaded again.

The Florida insurance market has finally shown signs of recovery after years of instability. The 2022 reforms are beginning to bring tangible benefits to consumers throughout increasing competition, lower rates and healthier markets. House staff analysis for HB 1551 and SB 426 shows that premiums could rise and reverse this positive momentum. As policymakers are evaluating the legislation, the main consideration is the impact on Florida homeowners who have overcome years of insurance challenges. Our state deserves a stable competitive insurance market that serves the long-term benefits of property owners across Florida.

Jake Hallhaus is the president of HH Insurance, based in St. Petersburg.