Florida home insurance market It has tumbled into collapse, but recent laws may avert disaster. Bankrate took a deep dive into Florida's insurance industry to find out what's causing the problem and report on proposed solutions. Helps you understand why the Florida home insurance crisis is happening and your options when you receive notice of cancellation or non-renewal on your homeowners policy.

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Back to Form Lightbulb Key Insights

• Gov. Ron DeSantis to Sign Second Insurance Reform Bill on December 16, 2022 Did. Together with previous laws, these new regulations will help stabilize a cramping home insurance market
• Florida accounts for only 9% of all home insurance claims in the country, but home insurance lawsuits accounted for 79% of all, many of which are fraudulent.
• Due to fraudulent litigation and high overall claims risk in Florida,
• The devastating damage from Hurricane Ian could exacerbate the crisis by further straining Florida insurers. I have.

Florida Insurance Market Crisis

Florida has always been a complex home insurance market, but recent problems have put the state's market on the brink of collapse. Since 2017, six property and casualty insurance companies that provided insurance to homeowners in Florida have been liquidated. Five more companies are in liquidation proceedings for his 2022. Other insurers have voluntarily left the state. Many more companies are choosing not to renew some home insurance policies, significantly tightening insurance eligibility requirements, or demanding significant premium increases.

For Florida homeowners, this translates into fewer home insurance companies and higher premiums. When a company becomes insolvent, the Florida Insurance Guaranty Association (FIGA) assumes all claims that the company owes. In late August, the FIGA board and the Florida Office of Insurance Regulatory Affairs (OIR) approved a 0.7% assessment to cover the cost of unresolved claims related to liquidated companies. This is his second evaluation this year, and in March he was approved for a 1.3% rating. Homeowners will pay these fees regardless of which insurance company they have.

According to Logan Macfadyen, Vice President of State Relations for the American Property and Casualty Insurance Association

Florida's property and casualty insurance market is in jeopardy as insurers grapple with uncontrollable legal costs and billions of dollars in losses from recent natural catastrophes. , “Florida's homeowners insurance options are becoming increasingly limited, and consumers face dire consequences.”

Why are home insurance companies leaving Florida

Florida insurance companies are canceling policies, leaving the state, and liquidating rapidly. why? What makes these companies reluctant to insure Florida homes?

Florida has always been a dangerous market for home insurers due to the high threat of widespread weather-related damage. , but the current crisis is the number of elements reaching a boiling point at the same time.

Florida Insurance Fraud

The biggest problem in Florida right now is home insurance fraud stemming from fraudulent roof claims. According to a proclamation from Governor Ron DeSantis' office, Florida accounts for only his 9% of domestic home insurance claims, but his 79% of domestic home insurance lawsuits. Many of these lawsuits are fraudulent. ICA Carter explains how fraud generally works.

1. First, roofers survey neighborhoods and offer inspections to unsuspecting homeowners. These contractors will inevitably “find damage” to the roof and often promise the homeowner a “free roof”, claiming they can waive the home insurance deductible.
2. Homeowners are pressured to sign benefit allocation forms. Give the Contractor the Right to Make an Insurance Claim on Your Behalf
3. The insurance company's loss adjuster will investigate the alleged loss. The assessor found no damage or much less damage than the contractor found, and found that the claim payment was less than what the contractor had requested.
4. The contractor files a lawsuit against the insurance company and demands payment of the claim. Contractor's original quote. Remember that the homeowner signed the contract benefits to the contractor, so the contractor does not need the homeowner's permission to do this.
5. The insurance company You have a choice: pay the legal costs or pay the costs of settling out of court. Either way, insurance companies will suffer losses from lawsuits.

ICA Carter said, “These schemes are happening and are happening more often,” putting increasing financial pressure on insurers. Businesses, especially in states with high claims costs due to weather-related events.

According to Mark Friedlander, director of corporate communications at the Insurance Information Institute, “Florida property and casualty insurers are Runaway litigation costs are projected to result in cumulative underwriting losses of $1.7 billion in 2021.” For the second year in a row, the Governor's Office reports net underwriting losses exceeded $1 billion. No wonder so many businesses go bankrupt or leave the state before that point is reached.

On top of that, Florida also used to have a “one-way attorney fees” system. This means that if a court rules in favor of the plaintiff (in this case, the home insurance policyholder or the third-party contractor who filed the claim), the defendant (in this case, the insurance company) will pay the plaintiff's attorneys' fees. So not only were insurance companies paying for fraudulent lawsuits, they were also paying for fraudsters. Friedlander said the insurance reform bill, passed in December 2022, “addresses two root causes of Florida's home insurance crisis: litigation abuse and allocation of benefits (AOB) abuse… “Both must be eliminated to slow the flood of lawsuits being filed against Florida.” insurer. Moving forward, transfer of benefits for home insurance losses will be prohibited and Florida will no longer operate a one-way attorney fees system.

Age of the Roof

Instead of exiting altogether, some companies are tightening underwriting limits to reduce the risk of these scams. It may be the reason why several companies, including Southern Fidelity, Progressive and Universal, chose to continue operating in Florida but did not renew tens of thousands of policies. If the roof is less than 15 years old and has an average life of 5 years at the time the policy is issued, it is based on the age of the roof. That said, insurance companies must decide whether they are happy with these limits or continue to leave Florida.

Storm Risk

Risk is always a consideration for Florida home insurance companies. Because of the state's shape and geographic location, hurricanes can strike from either side. The peninsula is so thin that even inland homes are not completely protected.

Worse still, fraudulent claims can be more common after a storm. Yes, and storms are not uncommon in the state. Hurricane Ian made landfall on her Sept. 28 as a powerful Category 4 storm, causing widespread damage. The damage and financial impact of rising home repair costs, including the potential for fraudulent roof claims, could force an already wobbly home insurance market to collapse.

However, while the risk of hurricane damage complicates the situation, it is not pushing the market to the brink of collapse. After all, other dangerous states don't have this problem. A higher probability of loss generally means paying a higher premium to offset that risk, but coverage is usually still available. For example, Oklahoma has the highest average cost of home insurance in the nation at $3,593 per year for home coverage of $250,000 due to possible tornado damage, but homeowners in the state You don't face the same difficulties finding compensation that people in Florida do. .

Something What have you done to contain the crisis?

Yes, although the full effect of the measures has yet to be seen. Senate Bill 76 took effect in July 2021 and included several provisions to curb fraudulent claims that cost insurance companies a lot. One such provision is intended to reduce the solicitation tactics often used by rogue contractors in the initiation of fraud. While the legal action could help solve the problem, Sean Harper, CEO of Kin Insurance, warned that “additional action will be needed to bring the market back to health.” doing.

Florida legislators held a special session from May 23rd to May 27th. Congress has passed an insurance reform bill that includes several provisions to slow the market spiral. The provisions included setting up the My Safe Florida Home Program, which provides grants to help Florida homeowners strengthen their homes from damage. Additionally, a home insurance company cannot deny coverage on a home based solely on the age of the roof if the roof is less than 15 years old and has 5 years of useful life remaining (older roofs are more risky). may be rejected). damage). Finally, attorneys will be limited in the fees they can charge in property and casualty claims cases, which is expected to discourage fraudulent lawsuits and reduce legal costs.

UPDATE: December Special Congress Passes Promising Reform Bill

Additional bill signed into law on his December 16, 2022. Senate Bill 2-A. The bill has numerous provisions, but it focuses on one-way attorney fees and benefits fraud. Friedlander told his Bankrate:

“This is the most powerful package of insurance reform ever passed in Florida. This is the latest move by Florida's new legislative leaders to highlight the seriousness of the state's property insurance crisis. It shows that it understands and is beginning to take decisive action to pave the way for market stability.”

One-way attorney fees and benefits application form. Eliminating the quota would remove significant financial pressure from insurers and potentially reduce the number of fraudulent lawsuits. We hope that the combination of actions contained in Senate Bill 2-A will lift the spirits of rapidly declining insurance companies in the Florida market. Look at the positive impact of legislative reform. Florida's home insurance rate will drop by 2023 due to rising reinsurance rates and his double-digit replacement costs due to higher prices for construction materials and labor, in addition to costs related to ongoing litigation. is expected to remain high.

In other words, mitigation may come, but it will take a while for homeowners and insurers to feel it.

Demotech responds to potential downgrade

Many home insurance companies have been hit hard by rampant fraudulent lawsuits, so they may not be as financially stable as they used to be. In late July 2022, financial strength rating agency He Demotech announced it was considering lowering the financial strength ratings of 27 property and casualty insurers.

The situation is complicated. These carriers may no longer have the financial strength they once had, but downgrades also pose problems. The downgrade in financial ratings will affect homeowners with federally backed mortgages (Fannie Mae and Freddie Mac mortgages). Because these lenders require Demotech rated home insurers to maintain at least an 'A' level. Demotech has not released the names of the companies it is considering downgrading.

“Preliminary assessments are preliminary only,” Demotech president Joe Petrelli told Bankrate. Some of the 27 may hold an 'A' or higher rating. However, in the event of these downgrades, homeowners covered by the covered companies may need to seek alternative insurance providers in a market where options are already limited or expensive. .

Rating downgrades can pose challenges for companies and their insured persons, That hardship cannot be factored into or taken into account in ratings based on specific data and objective application of rating methodologies.

— Joe PetrelliPresident of Demotech

The Florida OIR established a reinsurance fund through its last insurance company, Citizens. This means that if an insurer's financial strength rating is downgraded below the 'A' level, the downgraded company will be able to purchase coverage from Citizens to back the loan, just as co-signatories back the loan. means Reinsurance through Citizens will allow the downgraded insurer to meet the requirements of Fannie Mae and Freddie Mac. This is important as it eliminates the need for policyholders to search for new property and casualty insurers. But reinsurance solutions are putting more strain on Citizens, which already takes considerable risk, by insuring more policyholders in the state as other insurers pull out of Florida. .

Details: Demotech downgrade and what it means for Florida's non-life insurance market

Update: Florida aims to succeed Demotech

On September 9, the Florida legislature approved a $1.5 million plan to find an alternative financial strength assessment firm to Demotech. The state will seek alternatives, such as hiring consultants to find another company or creating a state-sponsored financial strength assessment agency. In response, Petrelli issued a statement:

“Since 1996 in Florida, Demotech has provided neutral and unbiased ratings to property and casualty insurers. There are approximately 50,000 such ratings nationwide.Our review and analysis process has been consistent throughout this time.Currently, there are at least four rating agencies in Florida and nationally that are accepted by government-backed mortgage companies. taxpayers can conduct research on rating alternatives at no cost by reviewing existing Freddie Mac and Fannie Mae seller or servicer guides. is a needless response to a non-existent problem.The reality is that when Hurricane Andrew devastated the state nearly 30 years ago, the Florida-affiliated rating agency chose to withdraw, while Demotech stepped up.

It remains to be seen whether finding another rating agency will yield meaningful results in rectifying Florida's home insurance crisis.As always, Bankrate continues to monitor the situation.

Do not update risk How to Reduce It

If you live in Florida, you can reduce the risk of non-renewal by planning. There's nothing you can do to prevent your company from leaving the state, but there are things you can do to keep your home as insured as possible:

• Replace your roof. Keep up to date and in good condition: Inspect your roof regularly and repair any minor damage. If you can afford it, replace your roof before it reaches 15 years to reduce the risk of it not being renewed.
• Attach wind dampening:State law requires Florida home insurance companies to offer discounts on certain windbreak features, such as hurricane straps and other roof braces. These features make the property more attractive to insurers by reducing the risk of significant damage to the home.
• Maintain your property: In general, maintaining your property will help you find insurance coverage. In addition to checking your roof, regularly check other parts of your home's exterior for damage. You should also ensure that your home does not have large tree branches or other potentially dangerous objects overhanging it, as storms can damage your roof.

Additionally, there are ways you can mitigate this. Help reduce the impact of home insurance fraud and avoid corporate liquidation. ICA Carter points out that “consumers have the power to deter contractor fraud by being informed and reporting fraud.”

• Know the signs and stay educated:ICA Carter has created an educational resource, “Demolition of Contractor Fraud: Steps to Become a Victim,” to help homeowners recognize signs of fraud, stop it before it happens, and report it. Did.
• Beware of solicitations. : Soliciting business is not against the law, but contractors who survey neighborhoods after a storm, especially those who offer incentives or rebates for inspections, may be part of the scam . Instead, if you're concerned that your home was damaged after a storm, contact your insurance company.
• DO NOT SIGN TRANSFER OF BENEFITS:Although these forms are prohibited by Senate Bill 2-A, it's still useful to be careful when working with contractors. By staying in control of our policies, you can decide whether or not to file a lawsuit. This greatly reduces fraudulent lawsuits. Note that these forms are often buried in legitimate looking contracts. Once signed, the form becomes legally binding, so it is important that you read everything you are asked to sign. Don't let the contractor simply point out the signature section of the document or scroll through the details on the tablet screen. Please read the entire document carefully.

In addition, some companies offer discounts if you agree to make their policy non-transferable. Kin is one such company. Harper said the large number of unallocable policies has shielded the company from much of the litigation nightmare involving other carriers.

Home insurance canceled What to do if you receive a cancellation

If you receive a cancellation of your Florida homeowners insurance, act quickly. With the hurricane season approaching and the insurance market in turmoil, it may be difficult, but possible, to get another policy.

McFaddin recommends “working closely with your insurer or insurance agent to review available options.” ICA Carter's advice is similar: “Consumers should contact their insurance agent immediately to determine their homeowners insurance options.”

Home Insurance Coverage in Florida Even if you're struggling to find coverage,

Kin

Florida's home insurance companies are not immune to raging lawsuits, but Harper said: , said his company is “doing a few things that will allow us to continue operating in Florida when others aren't around or out.” jobs. “In addition to the fact that most of the company's policies are non-transferable, the company also employs its own system for assessing claims damages.

Harper said Kin's weather system It uses software that monitors and pinpoints which homes may be damaged, after which the company proactively contacts homeowners to file claims. You can determine if there is a need and weed out predatory contractors.

— Sean Harper CEO of Kin Insurance

Citizens Property Insurance Corporation

Citizens are often the sole source of income for homeowners in many parts of the state. It's one of the options. The company experienced rapid growth as other carriers exited the market. In 2018, the company had only 414,000 of his active policies. By August 2022, that number has surpassed 1,000,000. Citizens spokesman Michael Peltier told his Bankrate that the company is creating between 5,000 and 6,000 new policies a week, and in many parts of the state he said Citizens is “currently It's the only game in town,” he said.

That said, Peltier says there are “underwriting guidelines,” so it may not be an option for all homeowners. Citizens are also affected by the same issues plaguing other insurers, recently raising premiums. The company requested his 10.7% markup on standard home insurance policies, but the Florida OIR approved his 6.4% markup. 6.4% is certainly better than he is at 10.7%, but many Citizen policyholders may feel burdened by a larger bill. The rate increase he will take effect on September 1st.

Furthermore, Friedlander notes that because Citizens insures many of the high-risk homes, other insurers have walked away, and that “a major hurricane that hit Florida was a big deal with the company.” “It could have a devastating effect on the industry.” Providing reinsurance to companies in the event Demotech downgrades their ratings increases Citizen's risk in the event of a catastrophe.

However, citizens may take some comfort from the December 2022 Reform Bill. The policyholder must accept private insurance quotes if he is no more than 20% higher than Citizen's quote. In addition, Citizen's rates must be actuarially sound, which is currently required to be uncompetitive with the private insurance market. Finally, Citizen policyholders are required to purchase flood insurance. Interest rates for last-resort policies could be even higher in the future, but in theory should help curb the influx of policies that could drown citizens outright.

Conclusion

Insurance has always been complicated by the high risk of storm damage in Florida home states, but the outbreak of fraudulent roof claims has pushed the market to the brink of collapse. rice field. The problem may not be limited to Florida. If insurance fraud increases in other high-risk states, such as Louisiana and California, those markets could start to deteriorate. But steps have been taken to protect businesses and policyholders from financial rating downgrades, laws have been passed to help curb fraud, and insurers have taken a different approach to insuring Sunshine State homes. There is hope in learning to take But will these measures be enough to save the market from chaos?