Podcast: Discussing State Insurance Regulation with Beth Vecchioli

Nate Adams: Hey, good afternoon, this is Nathan Adams, a partner with the law firm of Holland & Knight. We're so excited that you could join us today for our podcast. I have with me my partner Mia McKown.

Mia McKown: Hi, Nate, I'm glad to be here and to talk about some of the pending issues that we're going to be seeing in the next legislative session because they're already starting to plan. So we need to get on these topics and start discussing them.

Nate Adams: Yeah, you know, sometimes people roll their eyes when they hear the word insurance, but it turns out to be a pretty important part of our lives. So that's what we're going to talk today about with Beth Vecchioli. Thank you for joining us today.

Beth Vecchioli: Thank you for having me, Nate.

State of Florida's Insurance Market

Nate Adams: So let's just begin with sort of an open-ended question, and that is what is the state of Florida's insurance market today?

Beth Vecchioli: It's a great question, and one which has a little bit of a complex answer. Overall, I would say that our insurance market is very robust. However, there are certain lines of business in our market that are stressed from time to time. It's usually pretty cyclical. Right now what we're seeing is the property insurance market and the auto insurance market are experiencing some stresses that they're working through. And so what happens when that occurs is that prices tend to creep up a little bit, and it's harder to find that type of insurance for consumers.

Property Insurance: Market Stressors and Growth of the Insurer of Last Resort

Mia McKown: Beth, you're talking about that it goes through cycles. What are some of the reasons why it makes it difficult to get property insurance? I know, I mean, as we're sitting here in the state of Florida, we know we're getting ready for or are in hurricane season. So I'm assuming that's an impact. And then it made national news that we have buildings that are collapsing. Do those kind of things that we see on the Weather Channel and on CNN live, do those have any impact on the insurance market here in Florida and nationwide?

Beth Vecchioli: Great question. Absolutely they do. I mean, we live on a peninsula that's covered by water on three sides, and so we have a tremendously long coastline that sticks out in the middle of the water. And we live in a tropical environment. We have more hurricane exposure, just the state of Florida, than probably anywhere in the world. So naturally, you can imagine a property insurance company that wants to do business in the state of Florida has to have a very healthy financial reserve in order to withstand those storms.

Our property insurance market, believe it or not, they're still fighting Hurricane Irma claims from four years ago.

So it takes a very long time to sometimes finally adjudicate all these claims. So there's a lot of stress on them in that regard, not to mention litigation in our state. We've been described as the "judicial hellhole for litigation," and so it's really, those are all cost drivers in our system. They make rates go up, and they also make insurers want to leave the state to go to a more friendly environment with tort reform.

Mia McKown: Is the "hellhole" caused by jury verdicts or decisions? I mean, what makes it "the hellhole?" Just an active litigation file by plaintiffs' lawyers or what? What causes that?

Beth Vecchioli: Right, exactly. It's all different things. I mean, jury decisions are unpredictable. I've heard some lawyers say that juries are becoming more and more unpredictable every day. A lot of juries don't understand insurance. People think that when they pay their premium, the insurance company owes the money back, that they're claims to be paid. But that's not always the case if it's not covered by the policy. And then attorney's fees, of course, is a big issue, which factors into the litigation expenses. So that has been very difficult for insurance companies to handle.

Nate Adams: And Mia mentioned the tragic collapse of the condominium in South Florida, so I'm just curious, what do you expect to come out of that?

Beth Vecchioli: Well, so right now, unfortunately, as they are inspecting through the rubble and trying to figure out the cause of the collapse and also trying to trying to compensate those victims and victims' families, insurance companies have paid already tens of millions of dollars. They're paying policy limits. Any insurance policy that building had, most of the insurers have already wrote the check for a victims' compensation fund. And so, you know, it's a horrible event, but it's a good example, as you mentioned, Nate, at the beginning, how much we need insurance. It exists in our everyday lives all the time. They're already paying policy limits. But more importantly, I expect that we will see legislation occur in the 2022 session that perhaps addresses some elements of our building code, of our building inspectors and the enforcement of our building code. That's super important as well. And then, of course, because you have condo owners that generally are on the board of these buildings that make these important decisions, there may be some changes to our condo laws as well. I understand The Florida Bar has already formed a task force to look at all of those issues. The Real Property Section of The Florida Bar is very involved. And so I expect that the end result will be some legislation.

Mia McKown: With all this stuff going on and the potential where this market may not always be where an insurance company thinks it's worth their risk, right, and they pull out of Florida, what options do the citizens have in our state for insurance? Because, as we talked about, it's, I mean, you have to have it. We need it for our homes. We need it for our cars.

Beth Vecchioli: Great question. So what's important to understand is insurance companies don't have to do business in our state. So that's a voluntary act. And they are corporations with stockholders, so if it's not profitable for them to write insurance in our state, then to your point, Mia, they are going to leave and go to a more friendly environment. When that occurs, obviously we have what we call a residual market or an insurer of last resort. It's called Citizens Property Insurance Corporation. And the reason they exist is to help consumers find homeowner's insurance when they can't get it in the normal admitted market. Citizens is, because our property insurance market now is a little stressed, Citizens is growing by leaps and bounds. They already have almost 600,000 policies on our bill, and by the end of the year, the president has said that they expect to possibly have over 1 million policies. And that is usually an indicator that the admitted market or the voluntary market is experiencing a lot of stress.

Mia McKown: That's very interesting. I didn't know that, that it had grown that big.

Auto Insurance: An Antiquated System "Fraught with Fraud"

Nate Adams: Tell us about the auto insurance market as well.

Beth Vecchioli: We're working with an antiquated system called personal injury protection, commonly known as PIP. We're one of the few states that still is utilizing that type of system. Most other states have gotten rid of that system and formed a different system because the PIP system right now is fraught with fraud. The insurance companies don't have the resources to fight every claim that costs $10,000, which is the minimum coverage for PIP right now. So what happens is it's more expensive for them to litigate those claims, but they just write a check for the $10,000 to the claimant. It's easier. It's more cost efficient. Problem with that is that drives up rates. It's more of a frequency issue as opposed to a severity issue. They're paying more of these claims.

Right now, our auto insurance system has some of the highest rates in the country.

This past legislative session, there was a proposal to get rid of PIP and replace it with what's called a bodily injury and property damage-type system. Passed the legislature, by the way, but the governor vetoed it.

Mia McKown: Why did he do that?

Beth Vecchioli: I think it was a very wise decision because ultimately the regulator published a report that was commissioned by a private actuary that basically said rates could rise as a result of this new system. The whole idea was to try and get rates down, not increase rates. And the people that buy a minimum $10,000 policy will not be able to afford to pay any more for an insurance policy. And so then what we'll have is all these drivers that are not insured on our roads, which creates a more harmful situation for everybody. So that was the purpose of the veto. He was very concerned that the people that could least afford it would have to pay more for insurance.

Mia McKown: Well and I tell you, it is expensive. I know Nate has kid, teenage drivers, and Ava, my daughter, will be 16 soon. And when you look at those prices, it was shocking how expensive. I mean, I knew mine was, but then when you start adding drivers, it really does get expensive. And I was just curious about when you talk about where Florida has a lot of fraud. I mean, I've heard this as a rumor, and I don't know if this is true, but I just found it interesting that in some parts of the state, they actually would stage accidents and then fake injuries, make claims, knowing that an insurance company was going to pay the limits because it wasn't worth fighting over $10,000. Is that the kind of thing that you were talking about that they're dealing with as part of the fraud?

Beth Vecchioli: Exactly right. When the word got out that insurance companies were just stroking $10,000 checks instead of investigating claims, you can imagine how a new cottage industry was created. And that's, you described it correctly. There would be an accident that was staged. It usually is involved in a rear end collision. So the person in the car in the front gets out of the car claiming that they have neck injuries, back injuries, whiplash, they have to go see a chiropractor. And all of this is staged, and it's a network of individuals that participate. You've got the people driving the car, you've got the chiropractor, you've got the attorney representing them. And so they have figured out a way to get $10,000 checks pretty easily that way. That is certainly not a good outcome and not what our system is designed for.

Mia McKown: Do you expect that this issue will be back next session? It passed last session, and the governor vetoed it. Do you expect another attempt to try to find a compromise?

Beth Vecchioli: I think that the legislators that filed the legislation might feel like they really want to get it over the finish line, so they may file the bill again. I will tell you that because of the governor's veto, I don't think that it will get a whole lot of traction in 2022. Not to mention we have much more important things to deal with, right? I mean, we still have to deal with COVID, which our numbers are obviously getting worse. And more importantly, property insurance will be back on the radar because of the Surfside disaster.

Nate Adams: You see, it turns out insurance really is interesting, and sometimes I think people think of the insurance companies as the enemy, that they didn't get the right check or they didn't get enough of a check. But it's good to see the other side of this, which is that, hey, we need insurers. We want them to be in the state, because if we don't have insurance, then we've got to go to the insurer of last resort, which, you know, ultimately the sustainability of that approach is not a great thing. So, well Beth, thank you so much for your time. We appreciate everybody joining us today. We're going to be looking at doing some other podcasts in the future on other subjects. We hope you'll come back and join us for those as well.