Florida property insurers are hitting interest rates by double-digit percentages, blaming ongoing damage from past hurricanes, a wave of litigation, and a law that encourages attorneys to sue by allowing the courts to pay them heavy fees.
The rate hikes in Florida, the third largest property insurance market among the US states, are the most memorable, according to some insurance agents and residents. One danger, they say, is that new prices could make home ownership in Florida unaffordable.
“I was amazed,” said Karlos Horn, a 35-year-old law student who owns a four-bedroom single-family home in Hendry County, Florida. He said his premium doubled to $ 200 a month last August.
That’s half of his $ 400 mortgage payment and the biggest increase in his five years as an owner.
Florida’s property insurance market, which earned $ 56.6 billion in premiums in 2019, is unique and covers complex risks, including devastating hurricanes and the effects of climate change. Many insurers left the state after suffering major losses from Hurricanes Katrina and Wilma in 2005. Today around 60 small and medium-sized businesses have taken out real estate policies there.
Although there were no major weather events over the past year, some insurers are still grappling with claims from Hurricane Irma in 2017, said Logan McFaddin, a Florida-based manager for the American Property Casualty Insurance Association.
You are also facing what McFaddin called “out of control” litigation in Florida, in part because of a law that may require insurers to pay “excessive fees” to attorneys in these cases. The practice has spurred a home industry of contractors and lawyers suing insurers to replace an entire roof when only a few tiles are damaged, insurers say.
Other less dramatic problems such as Leaking pipes, such as leaking pipes, occur at an “unusually high” frequency in Florida and often cause severe damage, including mold that constantly gnaws at profits, said Charles Williamson, executive director of Vault, a Florida-based insurance exchange for the wealthy.
Insurers also pass on the cost of hefty rate hikes on their own coverage, known as reinsurance, to consumers after insurers pay a certain number of claims.
Last way out
Florida’s domestic property insurers reported an underwriting loss of more than $ 1 billion and negative net income of nearly $ 500 million in the first three quarters of 2020, according to the Florida Office of Insurance Regulation.
“Insurance carriers understand their role in our market is to pay claims,” Florida insurance commissioner David Altmaier told Reuters. “The challenge is that these claims are so much more expensive than expected that it creates uncertainty and turbulence – and that needs to be addressed.”
Florida insurers called for 105 rate increases in the first ten months of 2020, Altmaier said. More than half of the increases approved by regulators were more than 10%.
Last month, Altmaier testified before Florida lawmakers, including his views on umbrella litigation. “We really need to spend some time … figuring out ways we can tone down this type of activity,” he said.
Lee Gorodetsky, a Fort Lauderdale, Florida insurance agent, said he could not remember such steep rate hikes during his 34-year career. “The last two years have been the worst we’ve seen,” he said.
As prices rise, more consumers are turning to Citizens Property Insurance Corp., Florida’s insurer of last resort, taking in high-risk customers who cannot get other insurance or who have to pay extremely high prices.
Citizens issued 545,000 policies as of Feb.5, up 23% year over year, and the number is expected to climb to around 700,000 by the end of the year, a spokesman said. The growth signals an unhealthy broader market by showing that typical coverage isn’t as widespread, industry experts said.
Insurers hope the Florida state government will pass bills to reduce litigation costs, which have increased in recent years. The law, if passed, would contribute to other reforms passed in 2019.
Measures include limiting the fees insurers have to pay for lawyers in claims disputes, reducing the time frame for filing claims, and limiting payouts for roof replacements.
However, the bill could also affect homeowners’ ability to make legitimate claims, the lawyers said. That would wrongly benefit the insurers, said a lawyer.
“It’s a great business model that insurers can collect premiums and not be sued if they don’t immediately pay for what is owed,” said Tampa attorney Chip Merlin, who represents policyholders. “It doesn’t take a rocket scientist to find out that this is good for the insurance industry.”
(Reporting by Suzanne Barlyn in Washington Crossing, PA. Editing by Lauren Tara LaCapra and Matthew Lewis)
Price history for real estate in Florida
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