Florida's insurance chief touts progress but urges patience

As property owners in Florida continue to be hit by skyrocketing insurance costs, the man charged with overseeing the industry in Florida says things are going to get better. 

Soon.

Yet Michael Yaworsky, commissioner of Florida’s Office of Insurance Regulation, is also a realist. He knows his reassurances and optimism bring little comfort to those caught in the middle of what’s been an insurance market on the brink of catastrophe.

“We were heading in a very bad direction for almost a decade,” says Yaworsky, who credits Gov. Ron DeSantis and the Legislature for passing reforms that are beginning to show some positive results.

But, he adds, “It's going to take time for consumers to feel that turning of the aircraft carrier.”

The reforms he’s referring to include limiting how much attorneys can collect to cut down on lawsuits and working to expand the number of companies doing business in the state to create competition that will lower rates.

Citizens Property Insurance Corp., the state-run insurer of last resort, is also seeing the number of policies drop due to a depopulation plan the legislature approved.

The reforms are already leading to the cost of reinsurance falling and Citizens’ surpluses rising.

And, according to a Florida Chamber of Commerce presentation, thus far this year 10 companies have filed for zero rate increases, and, notably, nine have filed for rate decreases.

And one of the biggest indicators of the changes: less lawsuits. 

According to CBIZ Insurance Services’ May Florida Community Association Property Insurance Marketplace Update, “Expenditure on legal defense costs, expressed as a percent of premium, fell from 8.4% in 2022 to 3.1% in 2023.”

That remains far higher than the 1.2% the entire industry sees, but it is “a significant drop from the year prior.”

“We're seeing these good trends emerge,” Yaworsky said, speaking at SWFL Inc.’s Insurance Summit in Fort Myers held July 16. 

“We're seeing companies, legacy domestic carriers that weren't writing… they're writing, new companies are writing. I think by the end of August, we'll have an announcement from a major national carrier that is planning on reentering Florida’s market in substantial way.

“We're seeing good news.”

Yaworsky, appointed commissioner in February 2023, sat down with the Business Observer at the summit to talk about the reforms and the state of the industry. Edited excerpts: 

You have been on the job now for about 16 months. Any surprises?

The reality, for the prior commissioner and myself, although we're coming out of it and seeing improvement, is that we found ourselves choosing the best of bad options. And that that weighs on you a good bit, honestly. When you make decisions on insurance, you're affecting the bottom line of people’s pocketbook and their welfare.

As a former chief of staff at OIR, has your approach or thoughts changed or about what's going on?

The market was in a place for years where it was deteriorating and it was managing the decline, or managing the crash, as best you could. And now we're moving to a place thanks to reforms and market movements where we're on the upswing and moving in the right direction. And what I think about more than anything is trying to manage the upswing in a way that is going to lead us out of this cycle of the past 30 years, where we have these ups and downs, and being thoughtful about the improvement in a way that has long term sustainability, performance.

Things are getting better, but before we get to that, can we get your perspective on how bad things were?

My first day on the job, and this is a classic example, the team brought me a spreadsheet of where all of our domestic carriers would be if just the cost of reinsurance alone, that one factor, had increased another 50%, 60%, like it had in prior years. And that had most companies unable to provide cover for the policies they had. We would have been looking at a near market collapse in 2023 had that happened. Fortunately, the legislature acted in 2022 and we saw really good energy around that.

One of the first things I did was have a conference call with 215 representatives of insurers and we went line by line on all the changes that the legislature had done. It wasn't the CEOs. I wanted to talk to the analysts that were giving recommendations and say, “This is what they did.” But it was bad. I mean it was. There's no getting around it. We were at a make or break time.

Can you talk about how things have improved, are improving?

If you go back to that demarcation line, you have to recognize that a lot of the changes that the Legislature passed, in a legal sense, did not take effect until the end of 2023. For example, any lawsuit filed prior to the end of the effective date of renewal of any individual policy was under the old framework. So you can't really say everything changed as soon as the Legislature did it. But that initial step gave us the room to begin to say, “Florida is taking the crisis seriously, it's moving in the right direction. We need everybody, the companies, the reinsurers, everybody, to buy into ‘Things will get better.’” And we are seeing data now that shows, yes, in fact, things are getting better.

One thing I didn't mention earlier is the frequency of non-cat claims. That's claims that are outside of a natural catastrophe, that's just your everyday claim. What we’re seeing is the amount, the propensity, has gone down dramatically across the state since the passage of these reforms. That's an indicator that maybe some of those bad actors that were out in that space are not finding a way to make their business model work around the new laws in a way that's beneficial to them, they haven't yet figured out a way to do that. And so that's a good sign that we're seeing improvement.

The other is the reinsurance discussions. You know, negative 2.5% doesn't sound like a lot, but in a time period when other markets around the country, in the world, have seen an increase in the cost, it's notable to Florida, given the (risk of catastrophe) that it is seeing a decrease.

Given that we are in transition period — heading in the right direction but still dealing with some of the old issues — what would happen if we are hit with an Ian type storm but in Tampa or Miami?

That's not a great scenario for anybody. A Miami direct hit would be a very costly event. A Tampa direct hit, depending on what happens, could even be worse with flood risk and other things tied in there with the bay. But the companies have built their towers (combination of excess and umbrella policies that provides additional coverage for property or liability risk) and one of the things that we do at the office is a reinsurance data call in four parts. We break it down and then we gather the data: What their what their reinsurance pie looks like; the available capital that they have on hand in their reserve; and then we kind of we add their exposure. Then we test that against models of multiple historic storms that have gone through Florida. This year, as a first year, we did a sequential requirement where we wanted to see how the companies will withstand against multiple storms in a single year...ultimately, the goal is to get to a point, again where if you live in Florida the insurance industry needs to be resilient enough and capitalized enough to be able to sustain whatever may come.

What is your office doing to make sure new insurance companies coming into the state are solid?

The bottom line is that we want companies in this state that are well capitalized, will managed, paying their claims, appreciate the law. The laws around the solvency of insurers is complicated. For one thing, it uses not GAAP accounting but statutory accounting, and another number of other things. It’s very interesting and complex. Insurance is just different. Because ultimately, unlike just about every other business, on a day to day basis you are selling a product at the time of which it's sold the cost of it is unknown. Fundamentally, that's really different than most businesses and so there's a lot of rules in place that are unique to insurance.

When we look at it, Florida has among the most robust laws in place around solvency requirements now. And the legislature two years ago gave us new authority. They gave us authority to create the insurance stability unit within OIR that, if there's a challenge with an insurer, we have the ability to move that in a specialized unit that then specifically focuses on, ultimately, the health and welfare of the policyholders. You know, we like to see companies thrive and do well. But if they're not, our priority instantly shifts wholly toward making sure that the consumer has cover. And if they don't have cover, getting them on somewhere else as smoothly as possible.

From your point of view, everything looks positive. But for the homeowner, they're still looking at that bill.

We finally got some reforms to bring a lot of the excess under control. And it's going to take time for consumers to feel that turning of the aircraft carrier.

There’s a trailing effect. There’s a lot that goes into ratemaking, but one of the key ones is experience, what claims experiences look like. The insurer has to see that good news, the decrease in claims frequency, decreasing litigation, other things. And then it's got to roll that into a (rate) filing which the consumer doesn't feel until their renewal. Which is why if they're feeling pressure now, I encourage them to call their agent today and say, ‘Hey, is there something else better for me?’ Maybe there's a rate that’s been approved that applies to them that they can get a benefit from.