Commenting on the legal system’s impact on the business, the executive noted that a balance has to be found between consumers, regulators and insurance companies.
“A tort reform is available to bring available capacity, which in turn will become more affordable capacity to the broader marketplace,” Garland explained.
After six years of losses, catastrophe reinsurers have been scaling back their exposures. Brokers have been struggling to draw in new capacity to the market. Alongside existing problems such as inflation and supply chain issues, losses from Hurricane Ian will add another layer of pressure to companies, especially those with exposure to Florida which were already in challenging terrain.
One factor that has steered investors and carriers away from catastrophe risk is its inherent volatility. However, Garland pointed out that, while the effects of climate change are known and a lot of the losses have been “baked into pricing” over time, in areas such as Florida, what often drives the magnitude of impact is the population shift and litigation.
“I think that going forward, regulators have to give more leeway [to (re)insurers] for fraud or lying rates to be changed to address climate change,” he added.
Paul Anderson, Aon’s executive managing director leading the US property growth team, flagged that a lot of Florida-domiciled companies were financially impacted despite the last few years – prior to Ian – having had a “relatively quiet” cat season.
Before the Category 4 storm hit the west coast of Florida last week, the state had been largely clear of major hurricanes since Hurricane Irma in 2017 and Hurricane Michael in 2018. However, in the following years, lawsuits from those events continued to be “reopened and litigated,” building up expenses for (re)insurers.
“Companies need to be able to make money in a quiet cat period in these handicapped states so that when the cat event happens… they could provide the coverage that they’ve offered,” said Anderson.
Until a few weeks ago, 2022’s hurricane season had also been relatively quiet. And with some of the legislative changes in Florida, there was hope among companies that they would “just need to get through this year” before financials started to improve, the executive added.
Munich Re’s head of business development Kerri Hamm suggested that more could be done in Florida.
“I don't think they went far enough [with tort reform],” she said, citing the fact that the market could still feel the effect of assignment of benefits even after the reforms. There was still “too much uncertainty” about poor behavior, fraud, litigation to underwrite with confidence.
“I would like to see for it to go even further, to clean up the legal system abuse issues that we see in that state,” said the Munich Re executive.
