A Tale of Two State Insurance Markets

Florida fixed its market with reforms. California didn’t. See the results

WSJ editorial. Excerpts:

"The 1945 McCarran-Ferguson Act enshrines state regulatory authority over insurance. This system has worked relatively well over 80 years."

"Until recently, California was the only state that prohibited carriers from using catastrophe models to project disaster risk and pricing reinsurance costs into their premiums."

"Insurers are paying out $1.09 in expenses and claims for every $1 they collect in premiums. They’ve curbed their exposure in part by dropping policy holders in high-risk areas and leaving the market." 

"Insurance Commissioner Ricardo Lara rejected FAIR’s (the state’s insurer of last resort) proposed rate increases while requiring it to cover homes worth up to $3 million." 

"the insurer in 2021 requested a 48.8% rate increase—less than the 70% it needed—but was approved for 15.7%."

"To prevent more insurers from leaving the state, Mr. Lara last month finally let carriers price in their reinsurance costs and use catastrophe models. But he also capped the reinsurance costs that carriers can pass along."

"Unable to raise rates, many insurers have increased deductibles and capped maximum payments."

"the Federal Emergency Management Agency covers losses if homeowners are “under-insured.” This means taxpayers in Houston and Little Rock may pay for rebuilding multi-million-dollar homes in California."

"[Florida] State law had allowed policy holders to assign their claim benefits to contractors working with trial lawyers. Contractors would inflate charges and then sue insurers if they rejected them"

"Insurers lost hundreds of millions of dollars a year, and more than a dozen failed between 2020 and 2022. Others left the market because litigation costs made it difficult to obtain reinsurance."

"Enter Gov. Ron DeSantis, who championed tort reforms in 2022 and 2023 that have stanched the flood of frivolous lawsuits"

"nine insurers have since entered the market."

"Sixty percent of Florida’s top 10 carriers have expanded their business in the state, and 40% have filed for rate decreases. The average monthly request for rate increases is now 1.2%"