Litigation Economy a Bigger Threat to Property Owners Than Weather Events: New Report

Litigation Economy a Bigger Threat to Property Owners Than Weather Events: New Report

January 20, 2021
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When asked about what drives up insurance premiums, many may initially think of frequent hurricanes and flooding. In fact, Florida has faced major hurricanes and natural disasters for three consecutive years in the period between 2017 and 2019. However, a new report by Guy Fraker of Cre8tfutures Innovation System & Consultancy finds that hurricanes are not the primary driver of insurance premiums. Instead, the author points to the so-called “litigation economy” prevalent in the state as the biggest threat to the state insurance market.

When Two Storms Collide

The report, titled Florida’s P&C Insurance Market: Spiraling Towards Collapse and featured in Insurance Journal, identifies several recent trends that have severely impacted the Florida insurance market. In particular, the author identifies legislation on assignment agreements, mandatory replacement cost coverage, multi-year statue of limitations, and one-way attorney as having nurtured the current state litigation environment into being.

Coupled with prevalence of natural disasters in the state, insurers and property owners face a double-sided threat. The exponential increase in litigation makes certain protections unviable for insurers and ultimately results in higher premiums for consumers. The report notes that some carriers have resorted to limiting their coverage of certain areas in South and Central Florida. However, the author emphasizes that while the prevalence of natural disasters plays a role, it is not the primary factor, as 60% of all litigation is associated with non-catastrophic losses.

Since 2013, insurers have been faced with more than 200,00 lawsuits. The brunt of these have primarily been related to general water and roofing damage unrelated to natural disasters. Additionally, the author found that litigation costs in Florida are 17% higher compared to other states prone to natural disasters. On average, litigations fees are up to 7x higher than the damages paid to policy holders. Unfortunately, these added expenses ultimately fall upon all consumers, who face higher premiums and less damage compensation.

What This Means for Property Owners

The current litigation environment drives up prices for consumers and decreases the quality of available coverage. With less coverage and profitability, investors are growing weary of the Florida insurance market, which may ultimately lead to less revenue for the state economy. Not least, this could affect property investments throughout the state if owners and investors are unable to get adequate policies.

To keep prices reasonable, some insurance carriers may opt to include exclusions in their plans, such as windstorm. Lacking competitive options, consumers may be forced to search for state alternatives, such as Citizens Property Insurance Company.

Due to the uncertainty caused by high insurer defense costs in courts, reinsurers are cautious about the Florida insurance market. This means increased reinsurance rates for carriers, who are already paying up to a third more on reinsurance premiums than their competitors in other states prone to natural disasters. The author of the report cites a history of underestimated damage assessments in the wake of hurricanes, which failed to take potential litigation risks into account.

What You Can Do

To even the playing field for consumers, the report recommends multiple legislative actions. This includes radical changes to attorney fee structures, the use of fee multipliers, and limits to one-way attorney fee awards. In addition, the author recommends shortening the 3-year deadline for first notice to a single year and encourage alternative dispute mechanisms.

To ensure that you will always have access to fair and competitive insurance premiums, make sure to support state legislators who are committed to putting the insurance industry back on the right path. If you have any concerns regarding your coverage or questions around your policy, be sure to reach out Family Insurance Services today.