What Farmers Insurance's exit means for Florida insurance market

State faces "a very rough situation"

What Farmers Insurance's exit means for Florida insurance market


By Jen Frost

Farmers Insurance’s exit from its own-branded business in Florida is yet another sign of the state’s insurance market’s continued volatility, with pressure piling up on insurer of last resort Citizens in the wake of Hurricane Ian.

Floridians are no strangers to insurer exits. Farmers Insurance, which will no longer sell Floridian home, auto, or umbrella policies under its exclusive agent business, is the fourth insurance company to voluntarily withdraw from some or all business in the state in the past year-and-a-half, according to the Insurance Information Institute (Triple-I).

Thirty per cent (30%), or 100,000, of Farmers Insurance’s customers in Florida are said to be affected by the insurer’s withdrawal.

Farmers’ market share may be comparatively small when stacked against regional carriers, but its partial exit fits into a concerning trend, according to Triple-I director, corporate communications, Mark Friedlander.

“Every property insurer needs to assess its own risk tolerance and determine whether it could profitably write business in Florida – every company does that,” Friedlander told Insurance Business. “The companies that have previously determined they cannot do that voluntarily withdrew from the state, and now Farmers is following that pattern.”

Farmers Insurance Florida action part of wider trend

In the past 18 months, seven Florida-domiciled insurance companies have been declared insolvent, while 15 property underwriters have put a moratorium on new business.

Eighteen (18) Florida-domiciled insurance companies currently sit on the state regulator’s watch list, and while this is down from 24 last year, this is not necessarily cause for celebration.

“Is it better? Maybe that’s open to interpretation, because several of those companies that were on the list previously had been declared insolvent,” Friedlander said. “That’s not a good way to get off the list.”

Throw in the threat of yet another forecast above average Atlantic basin hurricane season, with Florida’s coastal waters breaching 90 degrees Fahrenheit – “that is just fuel for a hurricane to blow up if it makes landfall in Florida,” Friedlander said – and the outlook remains bleak.

Florida’s state insurer of last resort under pressure

Last year, Friedlander warned of the insurance company insolvency impact that a major hurricane could have on the state. This year, in the aftermath of deadly Hurricane Ian, estimated to have driven tens of billions of dollars in insured losses, he cautioned of the burden that a major storm could have on state insurer of last resort Citizens and insurance buyers across Florida.

“The bigger issue is Citizens, because they continue to increase their risk exposure and are not allowed by regulations to charge actuarially sound rates,” Friedlander said. “That potentially puts every Florida insurance consumer on the hook to replenish those funds.

“Were Citizens to deplete those reserves and hit a certain level [through paying claims], that triggers a surcharge, and that would apply to every Florida consumer that pays an insurance bill in the state.”

Citizens is now approaching 1.4 million policyholders. The last resort provider has a market share of 18%, up from 15.6% at the end of last year. Meanwhile, projections show policyholder count could increase to 1.7 million by year end.

“They’re on pace to set their all-time high, which was about 1.48 million,” Friedlander said.

Citizens has this year requested what would be its highest ever rate increase, of approximately 14.2%, though this has not yet been approved. However, its policyholders pay 40% less than their private market counterparts according to Triple-I analysis, and by Citizens’ projections the insurer of last resort would need a rate hike of 57% to keep up with actuarially sound projections.

“Even with a double-digit increase, if it gets approved, they’re still far short of what they should be charging for risk,” Friedlander said.

Meanwhile, the state’s insurer is growing at a rate of 30,000 policyholders a month, and insurer exits and withdrawals threaten to add to more to the load, according to Friedlander.

Florida CFO Jimmy Patronis said in a Tuesday update that recent reforms are likely to boost Citizens to the tune of $600 million, and that “several” carriers had expressed interest in taking on business from the insurer of last resort. In the same update, he threatened Farmers Insurance with potential fines if an investigation unearths enough complaints.

More private insurance market failures not ruled out

Following years of difficult conditions, there has been one positive sign for the private market: Florida’s insurance industry saw a net income gain of $60 million in the first quarter of 2023, its first positive result in seven years and a reversal of a $1.4 billion loss at year-end. Industry underwriting losses for the quarter, though, sat at $50 million.

“We’re cautiously optimistic that we won’t see worse market conditions for the second half of 2023, but there are a lot of variables, and certainly hurricane activity is one of them,” Friedlander said.

Despite challenging conditions and the Ian impact, the state’s private insurers have broadly secured reinsurance renewals, though rates and costs were typically up 50% to 70%, according to Triple-I sources.

Nevertheless, while reinsurance offers a vital cushion, it does not entirely protect against the risk of further insolvencies in the event a massive storm hit later this year.

“[It’s possible that] major hurricane losses could push companies over the edge, smaller regional insurers,” Friedlander said. “We could see more failures this year.”

Among businesses already piling up in Florida’s insurance insolvency graveyard are United Property & Casualty Insurance (UPC), which crashed out of the market and into insolvency in February hot on the heels of FedNat Insurance, St Johns, Avatar Property & Casualty, Lighthouse Property Insurance, Weston Property and Casualty, and Southern Fidelity.

Lawsuits continue apace in Florida despite reform

Insurance stakeholders and experts – Friedlander among them – have previously blamed the litigious environment and “man-made” issues in Florida for the state’s insurance woes. Florida accounted for 79% of America’s homeowners’ insurance litigation, but only 9% of claims, according to the Florida governor’s office figures oft-cited by Triple-I and other insurance stakeholders in 2022.

Despite reforms stemming from a December special session, Friedlander said that legal action and contractor fraud continue to be the overriding factors causing insurers to think twice about the state.

Prior to the signing of a tort reform bill into law in March, more than 280,000 lawsuits across lines of business were filed against Florida insurance companies, according to Triple-I. Post-March, the threat of litigation has continued, with 60,000 lawsuits filed in May and 50,000 in June, Friedlander said.

“We’re still seeing a massive volume of lawsuits being filed against Floridian insurers despite the major changes in regulations that we certainly support,” he said.

While Triple-I remains confident that reforms will help stabilize the market, Friedlander caveated that the organization does not know how long they will take to have an impact.

“When you have a market that has been so unstable for so many years, you can’t just fix things quickly,” he said. “And unfortunately, in many parts of the state, we’re seeing worse conditions this year than we saw last year.”

Florida homeowners face massive insurance costs

Floridians are, on average, paying $6,000 – 42% higher than last year – for their homeowners’ insurance, more than triple the US average of $1,700, according to Triple-I.

Some policyholders have seen renewal bills double or triple, Friedlander said, citing anecdotal reports.

“It’s a very rough situation, and unfortunately we’re not surprised,” Friedlander said.

For now, it seems, Florida’s residents will continue to bear the burden of its troubled insurance market.

Do you have a view on Farmers Insurance’s withdrawal from some Florida new business? Sound off in the comments.

Related Stories

Keep up with the latest news and events

Join our mailing list, it’s free!