In 2007, then Florida Governor Charlie Crist placed a note in the historic “Wailing Wall” in Jerusalem where Jews and Christians say prayers. Crist wrote: “Dear God, please protect our Florida from storms and other troubles.”
No other state has suffered more storms and other difficulties.
“Florida is always in Mother Nature’s crosshairs,” says Don Griffin, who researches for the American Property Casualty Insurance Association (APCIA). Six of the ten most expensive storms in our nation’s history, lying between the steaming waters of the South Atlantic and the Caribbean, have walled the Sunshine State. Three of these happened in just two years – 2004 and 2005.
These storms seem to favor the Florida Peninsula, which dates back to the Great Miami Hurricane of 1926, even before the World Meteorological Organization began naming it. It took the wind out of the sails of Florida’s first economic boom.
But then the state recovered and now more than three-quarters of its 21.5 million people live in areas near the two coasts. Six of the 15 largest metropolitan areas in the US at risk of a storm surge – Miami, Jacksonville, Tampa, Bradenton, Fort Myers, and Naples – are all in the eye of a “storm surge,” wind-driven water strong enough to cause drive home straight away, according to CoreLogic, which assesses potential property damage nationwide.
After the massive losses from the 2004 and 2005 hurricanes, insurance companies like State Farm – the largest home insurer in the country – told Florida officials that they would be scaling back operations and stop offering property insurance to residents. Other major insurers followed suit.
Fewer and more costly insurance options for Floridians
This left Florida homeowners with few options, with the exception of the state insurer of last resort, Citizens Property Insurance, or a contingent of small startups, largely backed by private capital.
Some of these startups are now at risk of losing their creditworthiness, shaking off policyholders, and – if they’re lucky – being taken over by more resilient competitors. Your answer: increase homeowner insurance premiums by around 12% to almost 40% in the coming year.
A headline in the South Florida Sun Sentinel newspaper summed it up: “Insurance companies will get more out of us this storm season.”
Other Florida difficulties
But that’s just one part of the story. As Crist stated in his prayer, Florida “has other difficulties”. State regulators say perverse laws allowing contractors and attorneys to cut insurers out for three times the true value of insurance claims in some areas have created a legal loophole. And it threatens to flood them even in years when there are no storms.
Let’s look at the hurricane problem first. Crist’s plaintive plea was answered positively for almost 10 years after 2007. Then Hurricane Irma roared through in 2017, followed by Michael the next year, which caused $ 30 billion in damage.
Because of the insurance policy rules that allow Florida policyholders up to three years to make a claim, it took more than a year for what insurers call “loss creep” to catch up.
Applications to increase the insurance rate for Florida homeowners filed with the state insurance department last fall poured in and regulators couldn’t deny them. Florida insurers posted a profit of nearly $ 800 million in 2014, down from a net loss of $ 340 million in 2019, according to Citizens CEO Barry Gilway.
Non-renewal indications are flooding the market
Then came non-renewal notifications for the most vulnerable homeowners in Florida.
Many insurance agents with customers whose insurance coverage was terminated sought replacements. According to the National Association of Insurance Commissioners, Florida property owners with coverage of $ 300,000 to $ 399,999 pay an average of $ 2,350, compared to the national average of $ 1,252 for the same amount of insurance.
“It’s also important to know that most homeowner insurance policies don’t include flood insurance,” warns State Insurance Commissioner David Altmaier. Flood insurance can easily add an additional $ 1,500 to the bill, according to quotes from websites that sell them.
And some homeowners may not be able to get any insurance at all except from the state.
“If a house in Orlando is older than 2010 and worth less than $ 300,000, no company is going to write [insurance for] You, “warned Locke Burt, CEO of Security First Insurance Co., in a June 2020 Sun Sentinel article.
Florida’s current and unconventional insurance structure is based on “reinsurance”, which protects insurers from major catastrophic losses such as hurricanes. Property insurers, many of which emerged after the 2004-2005 disasters, do not have much capital to settle claims like large insurers that have left or cut their cover can do.
Instead, these insurers rely on private capital like hedge funds that raise billions of dollars and gamble that hurricanes don’t happen so often that they lose money. But if they do, they’ll raise their prices. And Florida reinsurers are predicting they will hike their rates by 25% to 45%, according to Artemis.
Florida home insurance companies must pass this increase on to homeowners in order to maintain their reinsurance coverage.
“Degenerated into a Racket”
But hurricanes are just a calamity. And in the years when there weren’t, insurers still suffered a tsunami of lawsuits. The Florida legal landscape is designed to benefit policyholders who are forced to assert claims against insurers. But state officials say the laws went too far.
One of these laws is the “performance allocation” or AOB. This law allows a homeowner with any ordinary ownership claim – such as a leaky air conditioner on the roof that damaged the home while the occupants were away – to refer the claim to a contractor rather than negotiate a settlement with the insurer. Find out more about AOB from Citizens Property Insurance here.
Unsurprisingly, the cost of these claims nearly tripled in South Florida when contractors took the ball and ran with it, according to the Florida Consumer Protection Coalition.
According to James Graganella, CEO of Capitol Preferred Insurance Co., another domestic state insurer, the number of lawsuits rose more than 700% from 2016 to 2019.
AOB “really degenerated into a bully,” Florida Governor Ron DeSantis said last year, urging lawmakers to pass reforms.
“Plug The Dike, Another Leak Occurs”
In spring 2019, the state passed a service reform package to curb AOB abuse. Critics doubt this will help much, however, as it benefits the state’s major law firms.
“Every time industry, lawmakers, and regulators clog the levee, another leak occurs,” said Lynne McChristian, director of insurance research at the University of Illinois.
And what’s worse for insurers is another state law known as “One-Way Legal Fees”. The aim is to protect policyholders from statutory bills if they want to sue insurers for non-payment or low claims. In conjunction with AOB, it has become a gold mine for both contractors and lawyers, according to spokesman Mark Friedlander of the Florida Insurance Information Institute, which represents property insurers.
Contractors can file massive insurance claims lawsuits because they don’t have to pay legal fees, and lawyers can continuously increase their fees until the insurer reaches an agreement. Even if the insurance company wins in court, the legal fees can cost more than the profit was worth.
Friedländer said that a crime reform package in the 2020 legislature had failed.
Florida Home Insurance policyholder almost always pays
Ultimately, and almost always, the cost of claims is passed on to the Florida home insurance customer. And it’s not over yet. Ross Nottingham, chairman of Hiscox Reinsurance in North America, warns that the large premium increases reinsurers receive “could potentially be offset by the actual cost of risk in Florida”. This includes increasing damage payments due to the “loss creep as a direct consequence of damage fraud”.
To make the breach worse, critics accuse Florida home insurance companies of hiding their financial troubles by calling them “trade secrets,” despite the fact that the data is being shared with rating agencies like Demotech, which have downgraded some. According to Sun Sentinel, among the data they hide is the number of policies in place, the payment of claims, and any allegations of illegal activity.
Average premium data is available from the National Association of Insurance Commissioners on their homeowners insurance report. Florida Insurance has a rate comparison tool that homeowners can use to find cheaper businesses.