Q&A – Are Florida’s Auto Insurance Reforms Working?
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Today’s entry: Brian- Two quick questions on the auto insurance story. What does Florida having the lowest insurance loss ratio mean (as in what is it)? Also, how did Florida suddenly go from worst to first? It doesn’t appear to be due to better driving based on what I’ve seen.
Bottom Line: Great questions, I’m sure you’re not the only one unsure of what insurance loss ratios mean and what’s going on with them in Florida. Today’s question comes following the news that after years of significant increases in auto insurance rates in our state, auto insurance rates are set to drop by an average of about 7% in Florida going forward. This was the determination made by Florida’s Insurance Commissioner Mike Yaworsky after the state’s top five auto insurers, Progressive, Geico, State Farm, All State and USAA submitted their rate requests to the state for consideration. Those five companies underwrite 78% of the auto insurance policies within the state.
Key to the coming decline in auto insurance rates is what you’re asking about – Florida having had a huge decline in its insurance loss ratio. So, about that. The insurance loss ratio is how much insurance companies paid out in total auto insurance claims and related expenses. Here’s a look at the change over the past three years:
- 2022: 80.5%
- 2023: 74.5%
- 2024: 53.3%
What that greater than 27% decline means is that two years ago approximately 81 cents out of every dollar collected in insurance premiums was being paid out in insurance claim related costs. On the surface that might not sound so bad, however by the time the cost of operating the business is accounted for it’s not sustainable. That’s why rates continued to rapidly rise higher. The industry average loss ratio is about 65%. That allows for profitable operations for the insurers and a stable overall insurance market. That mid-60's level is also why we are set to see a related decline in insurance rates. For years Floridians have been paying the price for exceptionally high payout costs by insurers, to attempt to bring us in line. This cycle we’ll see costs cut to bring us back in line with the industry averages.
In answer to your second question, your anecdotal observation is on point. Much like the biggest driver of Florida’s property insurance crisis in years gone by, the biggest driver of Florida’s auto insurance crisis wasn’t the level of claims activity, but rather litigation associated with it. It’s not coincidental that Florida’s property insurance and auto insurance crisis peaked at the same time and are improving at the same time. Here are how litigation reforms enacted by the state legislature impacted Florida’s auto insurance market:
- Elimination of One-Way Attorney Fees: Previously, insurers had to pay policyholders’ legal fees if the policyholder won a lawsuit, incentivizing frivolous claims. The Civil Remedies law in 2023 repealed this, requiring both parties to cover their own legal costs, reducing the financial incentive for unnecessary litigation.
- Prohibition of Assignment of Benefits: AOB allowed third parties, like auto glass repair shops, to file claims directly, often inflating costs or engaging in fraud. Reforms banned AOB, ensuring claims are handled directly by policyholders, which cut down on fraudulent or exaggerated claims.
- Tighter Claims Filing Deadlines: The deadline to file insurance claims was reduced from three to two years, enabling faster and more accurate claim processing, which reduced litigation over disputed or delayed claims.
- Pre-Lawsuit Notification: required policyholders to notify insurers at least 10 days before filing a lawsuit, allowing for mediation or alternative dispute resolution, which decreased the number of cases going to court.
What this means in terms of savings over the next year is that the average full-coverage auto policy will decline by $226 dollars per vehicle with the average minimum liability policy costing about $99 less. It’s good news that will hopefully continue. It’s also a particularly good time to rate shop for auto insurance policies if you haven’t done so in a long time. You might be shocked at how much you could save by shopping around.