These changes include: (a) More carefully managed coastal exposure; (b) a larger role of government in insuring coastal risks; (c) the introduction of hurricane deductibles; (d) a greater use of reinsurance capital; (e) the birth and rapid evolution of sophisticated catastrophe modeling; (f) strengthened building codes and an appreciation that these codes need to be enforced, as well as a greater understanding of the need for mitigation.[5] This article will briefly touch on these changes.
A. Coastal Exposure Management
Following Newton’s Third Law of Motion, Floridians have seen that every action has a reaction. For instance, the severity of losses from Andrew caused insurers to take unprecedented steps, from cancellations and nonrenewals, to requests for large rate increases. Lawmakers reacted by calling a special legislative session in May 1993, to put a moratorium on actions insurers were taking to reduce their coastal risk.[6] In turn, insurers reacted by adopting strict underwriting standards to limit the type and amount of new business they would write.
B. Enhanced Government Involvement
Also in 1993, the state was forced to create two home insurance pools which eventually combined to form Citizens Property Insurance Corporation (“Citizens”), a not-for-profit, tax-exempt government entity whose purpose is to provide property insurance to eligible Florida property owners unable to find insurance coverage in the private market. By 2007, the Florida Legislature eliminated most barriers for customers to enter Citizens, while rolling back its rates by 20 percent or more.[7] This formalized and accelerated its growth. Citizens would eventually turn from a residual market carrier of last resort to the largest property insurer in the state. By the end of 2007, Citizens had 18 percent of the market. By the end of 2011, it had 23 percent of the market.[8] This phenomenon represented a momentous change in the makeup of the Florida residential property insurance market over a period which spanned less than two decades.
This was a dramatic change in the Florida insurance market. At the time of Hurricane Andrew, August 24, 1992, Florida-based insurers made up six percent of the market, while the balance of the market consisted primarily of non-domestic national property insurers. Citizens had not yet come into being and the surplus lines market wrote little if any residential property insurance at the time. By December 31, 2011, Citizens held 23 percent of the market, Florida-based insurers had grown to another 45 percent of the market, “pups” (i.e., Florida-only subsidiaries of major national writers) constituted 14 percent of the market,[9] while other insurers (such as non-domestic national insurers, e.g., USAA) made up the balance of the market. By September 30, 2024, Citizens’ market share receded to 14 percent, while “pups” stayed fairly constant at 15 percent of the market. Additional capacity was found in new or existing Florida-based insurers, which now made up 58 percent of the market, leaving a balance of 13 percent of the market to national writers.[10]
C. Hurricane Deductibles
Floridians also saw the introduction of the hurricane deductible. For homeowners’ policies issued or renewed after January 1, 2006, an insurer must offer deductible options applicable to hurricane losses equal to $500, or two percent, five percent, and ten percent of the policy dwelling limits.[11]
D. Greater Use of Reinsurance
Also, in the wake of Hurricane Andrew, insurers made greater use of reinsurance, whether they wanted to or not. In 1993, Florida established a unique, mandatory public catastrophe reinsurance program. All property insurers in Florida must buy reinsurance from the state-run Florida Hurricane Catastrophe Fund.[12] The “Cat Fund” is a stable, albeit incomplete, source of reinsurance. It is designed only for hurricane losses. Insurers who participate in the Cat Fund have an annual deductible, which varies according to the exposures of each company, and an annual maximum payout. Insurers must, therefore, also purchase additional reinsurance, which is widely recognized as a cost of doing business in the state.
E. Sophisticated Catastrophe Modelling
Insurers also began to reassess the way they modelled catastrophes. Before Hurricane Andrew, insurers estimated the size of future losses using “experience” data, based only on what happened in the past. However, Andrew helped to prove that past data is a poor gauge for future catastrophe exposure. Today, catastrophe models generate thousands of sample hurricane events, track them across land with various wind speeds, assign probabilities to storm scenarios and landfall locations, and incorporate the individual insurer’s policy count and locations, to produce estimates of insured losses for an average event and a worst-case scenario.[13]
F. Building Codes and Mitigation
Before Hurricane Andrew, Florida law required all local governments to adopt and enforce a minimum building code that would ensure that Florida’s minimum standards were met.[14] Local governments could choose from four separate model codes. The state’s role was limited to adopting all or relevant parts of new editions of the four model codes. Local governments could amend and enforce their local codes as they saw fit.[15]
Hurricane Andrew destroyed many structures that were built according to code, demonstrating that Florida’s system of local codes was flawed. It was recognized that – in addition to saving lives and reducing property loss – statewide building codes reduce reliance on public disaster aid, ensure consistency for all building professionals, and enable communities to recover more quickly from disaster. The Governor appointed a study commission to review the system of local codes and make recommendations for modernization. The 1998 Legislature adopted the study commission’s recommendations for a single state building code and enhanced the oversight role of the state over local code enforcement.[16] The 2000 Legislature authorized implementation of the Building Code, and that first edition replaced all local codes on March 1, 2002.[17]
This new Building Code included stricter criteria, particularly regarding wind resistance, with key changes including mandatory impact-resistant windows and doors, reinforced roofs, improved roof-to-wall connections, and stricter standards for all building materials. In 2004, the state adopted the International Building Code as a model, adding some Florida-specific aspects.[18] New homes must be built according to the Building Code, and homeowners may be eligible for breaks on insurance rates when they retrofit their homes to comply with current standards.[19]
Further, the state encouraged homeowners to harden existing homes. The My Safe Florida Home Program was created in 2006.[20] This initiative offers free home inspections and grants up to $10,000 for strengthening homes against storms with impact-resistant doors and windows, aiming to reduce insurance costs through mandatory mitigation discounts. $150 million was initially allocated for the program, followed by an additional $200 million, enhancing services for seniors and low-income homeowners.[21] Since 2022 alone, the program has conducted over 104,000 free inspections, approved 38,000 grant applications, and allocated nearly $390 million in home hardening grants.[22]
4. AOBs and Rampant Claim Litigation
Everything finally was pointing in the right direction for a sustained market recovery but ultimately that would not be the case for Florida. In the decades following Andrew, there developed in Florida a so-called assignment of benefits (“AOB”) scheme to cheat insurers out of significant amounts of needed capital and surplus. An AOB allows a third party (assignee) to stand in the shoes of an insured and collect insurance proceeds directly from the insurance company. AOBs have been part of the Florida insurance marketplace for over 100 years and have been commonplace in the health insurance industry, where an insured assigns their benefits for a covered medical service to the health care provider so that the insurer pays the health care provider directly.[23]
Insurance policies typically impose certain duties on an insured in order to be covered under the policy, such as requiring an insured to file proof of loss, produce records, and submit to examination under oath. Florida courts increasingly held that an assignee did not have to comply with these obligations because the assignee agreed only to an assignment of the insurance benefits and did not agree to assume any of the duties under the insurance policy.[24]
Some assignees attempted to transfer broad rights under the policy and combine the AOB with authorization to perform services described only in general terms.[25] An AOB to receive payment under an insurance policy necessarily assigned the right to enforce payment. An unqualified assignment transferred all of the insured’s interest under the contract and the insured had no right to make any claim once the assignment was complete, unless authorized to do so by the assignee.[26] An insured who entered into an AOB may have unknowingly assigned their right to determine whether to file suit on the claim.
As such, many contractors purportedly would use AOBs to bypass homeowners and take legal action directly against insurers. This practice incentivized frivolous lawsuits (stimulated by a one-way attorney’s fees statute)[27] and skyrocketed the cost of claims. There developed a cottage industry of contractors, mitigation companies, and law firms to exploit the statutory scheme for profit. This manufactured event, once again, threatened the solvency of many insurers, discouraged new entrants to the market, and destabilized the availability of private reinsurance.
By 2020, it was reported that 20 percent to 50 percent rate increases on homeowners’ policies were being driven by excessive litigation and “unscrupulous actors.”[28] The Insurance Commissioner, citing NAIC data, declared that Florida had 8 percent of all homeowners’ claims in the United States, yet 76 percent of all homeowners’ claims lawsuits in the country.[29]
After some preliminary attempts to address these symptoms, the Florida Legislature focused on the root causes of this latest crisis. For instance, it repealed the one-way attorney fee provisions related to property insurance claims. In addition, it prohibited the assignment of post-loss insurance benefits (and attorney’s fees) under any residential or commercial property insurance policy issued on or after January 1, 2023.[30]
Legislation also tightened restrictions on roofing contractors and public adjusters to stem the increasing practice of blaming normal wear and tear on hurricanes or hailstorms to justify full replacement claims. It required earlier notice of property insurance claims, reducing the deadline for filing claims on any loss from three years to two years, and now one year.[31] Insurers, in turn, were required to respond more promptly to claims.
5. Sustained Net Underwriting Loss; Uptick in Insolvency
These reforms did not occur overnight. It took years for these reforms to be passed into law. This delay, certain court rulings, and the time it takes for reforms to have their intended effect, among other things, contributed to sustained underwriting losses and an uptick in receiverships. From 2017 to 2021, Florida domestic property insurers had cumulative net underwriting losses which exceeded negative $3 billion. The last time these carriers had positive net income was 2016. Rating organizations like A.M. Best took notice. On May 2, 2022, Best wrote that:
Florida personal property insurers have been reporting increasingly severe underwriting losses, owing to several challenges. Contrary to conventional perception, hurricane losses were not the primary culprit-results continue to erode despite the last major landfall occurring in 2018 (Hurricane Michael). The deterioration in performance is a by-product of the greater frequency of secondary perils (severe thunderstorms, wind, hail), higher reinsurance costs, escalating litigation costs, and building codes/laws that have been flouted by parties looking to profit. Insurers have responded with rate increases, underwriting adjustments, and targeted non-renewals while avoiding more problematic areas of the state.[32]
As mentioned, Florida experienced an uptick in receiverships. In 2020, no companies were placed in receivership. In 2021, two companies were placed in receivership.[33] And, in 2022, five companies were placed in receivership.[34] Research undertaken by Demotech indicated “that the meteoric, annual incremental increases in new litigated claim frequency had caused, or significantly contributed to, the insolvencies.”[35]
A. Further Reinsurance Relief
Lawmakers saw the trends. In 2022, among other things, they created two reinsurance programs to complement the Cat Fund. First, they established the Reinsurance to Assist Policyholders (“RAP”) program.[36] The RAP program authorized a $2 billion reimbursement layer of reinsurance for hurricane losses directly below the mandatory layer of the Cat Fund.[37] All eligible insurers had to participate in the program.[38] Insurers did not pay premiums for program coverage but they had to reduce rates to reflect savings.
Second, the Legislature established the Florida Optional Reinsurance Assistance (“FORA”) program for the 2023 hurricane season.[39] The FORA program provided up to four layers of coverage for a portion of an insurer’s hurricane losses in exchange for premium at “reasonable” rates. The Legislature allocated up to $1 billion to support this program.[40]
B. Increased Regulatory Oversight
Also, the Legislature vested the Office of Insurance Regulation (the “Office”) with increased regulatory oversight. In 2022, the Legislature passed a bill creating a Property Insurance Stability Unit within the Office (the “Stability Unit”).[41] The stated purpose of this Unit is to aid in the detection and prevention of insurer insolvencies in the homeowners’ and condominium unit owners’ insurance market.[42]
The Stability Unit has five principal functions to further its purpose:
- Conduct target market exams when there is reason to believe that an insurer’s claims practices, rating practices, investment activities, or financial statements suggest the insurer may be in an unsound financial condition;
- Monitor closely all risk-based capital reports, own-risk solvency assessments, reinsurance agreements, and financial statements filed by insurers;
- Have primary responsibility to conduct annual catastrophe stress tests of all domestic insurers;
- Update required wind mitigation credits; and
- Review the causes of insolvency and business practices of insurers and make recommendations to prevent similar failures in the future.[43]
The next year, in 2023, the Legislature focused further on insurer accountability, passing a bill which among other things specified factors the Office may consider in determining whether the continued operation of an insurer were hazardous to its policyholders, creditors, or the general public. It specified actions the Office may take in determining an insurer’s financial condition and actions the Office may order an insurer to take to improve the insurer’s financial condition. It required property insurers to report to the Office any temporary suspension of writing new policies. Further, it prohibited officers and directors of an impaired or insolvent insurer from receiving a bonus from the insurer or its affiliates. Section 626.9541(1)(w), Florida Statutes, a statutory section within Florida’s Unfair Insurance Trade Practices Act, now provides as follows:
1. Whether or not delinquency proceedings as to the insurer have been or are about to be initiated, but while such insolvency or impairment exists, no director or officer of an insurer, except with written permission of the office, shall authorize or permit the insurer to solicit or accept new or renewal insurance risks in this state after such director knew or reasonably should have known, that the insurer was insolvent or impaired.
2. Regardless of whether delinquency proceedings as to the insurer have been or are to be initiated, but while such insolvency or impairment exists, a director or an officer of an impaired insurer may not receive a bonus from such insurer, nor may such director or officer receive a bonus from a holding company or an affiliate that shares common ownership or control with such insurer.
3. As used in this paragraph, the term:
a. “Bonus” means a payment, in addition to an officer’s or a director’s usual compensation, which is in addition to any amounts contracted for or otherwise legally due.
b. “Impaired” includes impairment of capital or surplus, as defined in s. 631.011(12) and (13).
4. Any such director or officer, upon conviction of a violation of this paragraph, commits a felony of the third degree, punishable as provided in s. 775.082, s. 775.083, or s. 775.084.[44]
Florida has seen emerging trends resulting from these changes. As of today, there are signs that the Florida property insurance market is stabilizing. From the beginning of 2024 through the beginning of April 2025, twelve new insurers have entered the market.[45] Capital investment is on the rise. Insurance rates have stabilized (and even decreased in some cases). Citizens has successfully offloaded more than 400,000 policies to private insurers over the last year, a major step in reducing the state’s exposure. Additionally, litigation is on the decline. Lawsuit filings against insurers are down 23 percent and are back to pre-2018 levels.[46]
6. Surfside Condominium Collapse
The June 24, 2021, collapse of the Champlain Towers South beachfront condominium in Surfside, Florida, which caused the deaths of 98 people dramatically affected the commercial residential insurance market. It was discovered that a lot of commercial properties were undervalued and so under-insured to their current value. Underwriters and brokers now focus more on insurance-to-value for condominium buildings, which has (in many instances) dramatically increased the cost of condominium policies.
The Legislature convened a Special Session during May 2022, and put in place a number of laws to bring condominium buildings up to code. For instance, Senate Bill 4-D created a state-wide inspection program for condominium buildings taller than three stories.[47] Starting in 2025, the buildings will go through a milestone inspection certification process when reaching 30 years of age, or 25 years if the building is located within three miles of the coast, and will be inspected again every 10 years afterward. The inspection records must be posted online and shared with tenants. Condominium associations will no longer be able to waive the requirement that they keep a reserve fund large enough to maintain the structural integrity of the building.[48]
The collapse and these measures have affected home ownership in the state. Insurance rates for condominiums on the coast have increased several-fold. Condominium associations have issued assessments to fund association reserves that had been under-funded or not funded at all. As a result, condominium ownership has become much more expensive, with some paying more in insurance and assessments than their monthly mortgage payment. Some have been forced to sell to cash buyers at massive discounts or risk foreclosure.[49] As with measures enacted after Hurricane Andrew, further reform may be needed to address these issues.
7. Conclusion
Florida has faced a variety of challenges to its homeowner’s insurance market. The Florida experience has shown that the path toward market stability is not the result of a single action. Rather, it is the result of a multifaceted approach, that has sought to address the root causes of Florida’s insurance crisis, such as rampant litigation abuse, fraud, and an unsustainable reinsurance market.