News + Notes: NAIC Issues National Call for Data, TPLF Sees Dip in 2023, New Ban on Asbestos Finalized and More

The NAIC’s national call for policy and claim is intended to help regulators address a growing crisis in property insurance, but some states are opting out of full participation in an effort to attract new capacity.
By: | May 12, 2024

NAIC’s Call for Data Meets Resistance

A comprehensive initiative by state regulators to investigate the high costs and accessibility of homeowners insurance faces hurdles, as key states consider opting out of the data request, according to the New York Times. 

The National Association of Insurance Commissioners (NAIC), the body that represents state insurance regulators, announced in March that state agencies were seeking detailed data from insurers, including the types of coverage offered in different ZIP codes, recent claims payouts history, customer deductibles and opportunities for discounts through home improvements. The aim was to address the affordability and availability of homeowners insurance and the financial health of the insurance industry. 

The data request — the largest and most comprehensive ever conducted at the national level — was set to reach over 400 insurance companies, providing insight into approximately 80% of all homeowners’ plans in the U.S., based on total insurance premiums. Some of the data was to be shared with the Treasury Department to help identify areas where homeowners face the highest risks and living costs. 

However, each state regulator has the discretion to participate in the data call, and some states facing the highest risk of damage from severe storms and turbulent insurance markets — including Louisiana, Texas and Florida — have signaled they may share limited data or opt out entirely. This reluctance could create a significant gap in regulators’ picture of homeowners insurance markets nationwide and hinder their efforts to address the complex issues caused by inflation and severe weather due to climate change. 

The reluctance of states like Texas and Florida to fully participate, and Louisiana’s complete opt-out, could leave out crucial data. Louisiana’s insurance regulator, for example, has decided not to compel companies operating in the state to share their data, focusing instead on regulatory and legislative efforts to attract insurers and stabilize the market. 

Despite this, regulators maintain that the program represents a significant advancement in understanding homeowners insurance. The data collected could shed light on why major insurers have withdrawn from states like Florida and California, and why some homeowners, unable to afford rising insurance costs, have reduced their coverage. 

Third-Party Litigation Funders Draw Down Financial Commitments 

U.S. commercial litigation funders committed less capital to new deals in 2023 in response to broader financial market trends, ultimately drawing down third-party litigation investment by 14%, according to a report by Westfleet Advisors. 

The report reveals that companies financing U.S. commercial lawsuits committed $2.7 billion to new financing transactions in 2023, a significant dip from the $3.2 billion they committed in 2022. Despite this, the total assets under management in the U.S. litigation funding market remained relatively stable, at $15.2 billion. 

Westfleet described the industry as being in a state of flux, as higher interest rates make other asset classes more attractive to large institutional investors. This shift in investment preference — and the resulting difficulty in raising new funds — led litigation funders to ration their capital. 

Burford Capital, the only publicly traded U.S. litigation finance company, saw a 5% drop in new commitments in 2023, to $691 million. However, the company’s total revenues tripled, to $1.1 billion, during the same period. 

The report also highlighted a significant shake-up in the industry, observing that many professionals moved between funders, started their own funds or shifted to competing fields like contingent risk insurance. Some litigation funders even exited the market, leading to a drop in active funders — from 44 in 2022 to 39 in 2023. 

The report noted that large law firms increased their share of total new commitments. Firms among the 200 highest-grossing U.S. law firms had $960 million allocated to them in 2023, an increase from $890 million in new commitments the previous year. 

Critics of TPLF, including many in the insurance industry and the U.S. Chamber of Commerce, have called for tighter regulation of the litigation funding industry, arguing that it promotes unnecessary litigation and undermines transparency. Industry supporters, however, maintain that it levels the playing field and promotes access to justice. 

Florida Insurers Reverse Seven Years of Losses 

Florida’s insurance companies have reported net income for the first time in seven years, largely as a result of investment income and a mild hurricane season, per an analysis by S&P Global Market. 

Last year, around 50 insurers reported a combined net income of $147.3 million, a significant turnaround from net losses exceeding $1 billion in each of the previous two years. This group excluded state-backed Citizens Property Insurance Corp., Florida’s largest underwriter of home insurance policies. 

Although the insurers still recorded collective underwriting losses of $190.8 million, this figure was significantly less than the losses of nearly $1.80 billion in 2022 and $1.52 billion in 2021. It’s a noteworthy improvement, given Florida’s struggle to maintain stability in the state insurance market since 1992, when Hurricane Andrew severely impacted the state. 

The risks for carriers have been escalating due to climate change, which is intensifying the strength of hurricanes and rainstorms. This has prompted some insurance companies — including Farmers Insurance and AAA — to discontinue new coverage or non-renew certain policies in Florida. Since 2021, nine insurers have either been declared insolvent or merged into other companies in the state. 

Despite these challenges, the insurance sector in Florida has shown signs of recovery. Average annual property insurance premiums jumped 42% last year, to $6,000, compared to a national average of $1,700. The state’s government and Governor Ron DeSantis have been working on measures to protect insurance companies from lawsuits and setting aside funds for reinsurance. 

Carriers are hopeful these changes have led to reduced expenses, particularly litigation costs. Florida regulators have also approved six new P&C insurers to start writing residential property insurance policies this year, potentially spurring a resurgence in the state’s insurance market. 

Biden Administration Finalizes Asbestos Ban 

The Biden administration has finalized a ban on chrysotile asbestos, the only type of asbestos still used in the United States, marking the first significant restriction on the toxic industrial material since 1989, according to the New York Times. 

Chrysotile asbestos is linked to lung cancer and mesothelioma, a cancer that forms in the lining of some internal organs. The substance is used in a variety of products, including roofing materials, textiles, cement, automotive parts, and the diaphragms used to make chlorine. The ban will prohibit the use, manufacture and import of this form of asbestos. 

The ban is a diluted version of a proposal announced in 2022, which would have seen a two-year phaseout for most commercial uses. The current regulation allows up to 12 years for companies to phase out the use of asbestos in manufacturing, depending on the facility. This change follows lobbying efforts by companies and trade groups who argued that a more immediate ban would prove onerous for some operations, including the manufacture of chemicals used in drinking water purification. 

Critics of the new rule argue that it falls short of a comprehensive ban on all forms of asbestos, which is linked to an estimated 40,000 deaths annually in the United States. This figure includes a disproportionate number of firefighters, who are frequently affected by mesothelioma due to asbestos exposure in damaged buildings. 

Critics have also expressed concern over the lengthy transition period and inconsistent compliance deadlines, which could allow dangerous exposure to chrysotile asbestos to continue for years. 

The current ban represents the first legal constraint on a deadly substance since 2016, when Congress updated and strengthened the 1976 Toxic Substances Control Act. The rule contrasts sharply with the position of the Trump administration, which fought legislation that would have banned asbestos, instead imposing a policy that EPA scientists said would have allowed industries to continue its use. &

The R&I Editorial Team can be reached at [email protected].

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