Florida’s property insurance market is in free fall.
Florida homeowners pay property insurance rates that are three times the national average. Six companies have become insolvent and left the state in the last year. Citizens Property Insurance, the state-run insurer of last resort, now has more than 1.1 million customers, the highest in a decade.
And people who have paid off their mortgages are increasingly “going bare,” choosing not to carry the high-priced insurance and instead shouldering the economic risks themselves.
All this was happening before Hurricane Ian inflicted between $35 billion and $73 billion in insured damage in Florida, further tightening the affordability and accessibility crisis. Then, following the hit of Category One Hurricane Nicole, things got worse.
“The Florida homeowners’ insurance market’s already precarious position will weaken further with the destruction generated by Hurricane Ian, a storm that is potentially the second-largest hurricane in terms of insured losses,” wrote Fitch Ratings, the national insurance assessment firm in a report released a week ago.
Florida legislators have said the problem needs an urgent solution, so they will return to Tallahassee for a weeklong special session on Monday to address the problem.
“We know we have to do some aggressive things that some people in the insurance industry aren’t going to like, some consumers aren’t going to like, some legislators aren’t going to like,” said Rep. Bob Rommel, R-Naples, chairman of the House Commerce Committee at the Florida Chamber Insurance Summit held in Orlando last week. “But you still have to do it.”
Broad issues identified
Florida’s legislative leaders released a formal session proclamation that listed the issues to be considered during the session but waited until late Friday to provide the details. The proposals include:
- Curbing lawsuit costs by imposing additional limits on litigation, including making it more difficult for attorneys representing homeowners to obtain fees.
- Increasing the availability of reinsurance, the backup coverage purchased by insurance carriers to allow them to spread their risk. Reinsurance has become less available and more expensive.
- Eliminating the controversial practice known as assignment of benefits, which allows a homeowner to assign insurance benefits to contractors who do the work.
- Bolstering the financial stability of Citizens Property Insurance Corp., the state-run private insurance company of last resort.
- Requiring insurers to respond to claims faster and make homeowners file claims sooner.
- Tightening regulations on insurance companies by requiring them to send any adjusters’ reports to the policyholder within seven days after they are created.
- Exempting from property tax homes destroyed by Hurricane Ian and setting aside about $750 million for various restoration efforts.
Top on the list of issues to tackle is restricting the ability of consumers to sue insurance companies when they refuse to pay claims.
State regulators say that until limits were imposed on the practice of allowing homeowners to assign their insurance benefits to contractors, there was explosive growth in lawsuits against insurance companies as lawyers working with contractors would sue, alleging that insurers were operating in bad faith by denying or low-balling claims.
David Altmaier, Florida’s insurance commissioner, said that as a result of reforms made in in the 2019, 2021 and 2022 legislative sessions, lawsuits have declined about 20%, but about 20,000 people have also filed forms saying they intend to sue their insurers.
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“If those things turn into actual litigation, then we’re right back where we started,” he warned last week at the Chamber event.
Mark Friedlander, spokesman for the Insurance Information Institute, said that there were 116,000 lawsuits filed against insurers last year in Florida alone and, while Florida has 8% of the claims filed in the country, it has 80% of the litigation. The industry also points to insurance fraud as a rising factor in the increase in costs.
Gov. Ron DeSantis and Florida Legislative leaders say a key solution to the state’s insurance crisis is limiting litigation and discouraging challenges.
“If someone has a $20,000 claim and the lawyer gets $400,000 that’s going to be problematic, and that’s I think one of the reasons why a lot of companies don’t necessarily want to be in the state of Florida,” DeSantis told reporters.
But opposing any change in the law is the Florida Justice Association, the trade group for plaintiffs attorneys.
Amy Boggs, chairwoman of the Florida Justice Association’s Property Insurance Section, said that the insurance industry’s focus on lawsuits is a cop out.
“Litigation isn’t the problem — it’s the scapegoat,” Boggs said in a statement. “Behind every lawsuit is a homeowner or business owner who has been underpaid or wrongfully denied coverage. These people are desperate to repair their homes or restore their businesses. Property owners are living up to their end of the bargain under the insurance contract. It’s time the Legislature made insurance carriers do the same.”
Boggs said that despite three recent attempts at “reforming” Florida’s insurance market by lawmakers, “there have been zero improvements in the insurance marketplace for consumers, nor a reduction in insurance rates following repeated reforms.”
She said Florida lawmakers should instead focus their attention on what is driving insolvencies and premium increases and crack down on poor business practices and mismanagement of premiums.
“What we don’t need is more legislation that erodes the rights of homeowners in an attempt to bail out the industry on the backs of Floridians,” Boggs said.
During a call with reporters Tuesday, House Democrats argued lawmakers need to address rate increases, push for a national catastrophic risk pool, ensure homeowners are better educated on their policies and reduce the dependence on Citizens.
Rommel, however, told attendees at the Florida Chamber event that a consensus is emerging to lower litigation costs by limiting the attorney fees lawyers for contractors and customers can be awarded in litigation against insurance companies. The proposal released Friday provides a complete repeal of the requirement that property insurers pay the attorney fees of policyholders who successfully file lawsuits over claims.
Rommel and other critics argue that under Florida’s one-way attorney fee statute, unscrupulous contractors exploit the law to file lawsuits, knowing they won’t be on the hook for legal costs.
Opponents, however, argue that the one-way attorneys’ fee statute is intended to shield policyholders from legal bills if they want to sue insurers they suspect of low-balling their claims.
The change will “put property owners in an even worse situation when their insurance company decides to ‘underpay, delay and deny’ meritorious claims,” Boggs warned.
During the House insurance webinar last week, state Rep. Anna Eskamani, D-Orlando, asked Altmaier if the surge in lawsuits is caused by “what some call our liberal tort laws, or is it insurance companies being unusually recalcitrant and fighting claims that they just don’t want to pay out?”
Altmaier responded that after surveying the industry practices, he concluded, “it is less about insurance companies that are denying or delaying claims, and more about the environment in our state.”
The proposals released Friday would require the state to discipline insurers for abusing the appraisal process to low-ball payments, a practice that has drawn many lawsuits.
Costs rising for insurers
Another problem is the rising cost of reinsurance, the product insurance companies buy to help them play claims when their losses reach certain thresholds. But because insurance companies are allowed to pass on the costs of reinsurance to policyholders, when reinsurance costs rise, the cost of insurance for homeowners rises.
Late last month, Fitch Ratings released an analysis that said overall reinsurance prices are expected to increase by more than 10% in 2023. The company warned that those costs will be passed on to consumers and weaken the ability of the existing insurers to withstand Florida’s next hurricane.
Kitchen sink approach
House Speaker Paul Renner, a Palm Coast Republican, said lawmakers would “throw the kitchen sink” at the insurance crisis.
The first goal, he told reporters in November, “is making sure that we don’t have people leaving, and then we grow capacity so that everyone has an opportunity to find a private insurer and not have to go into Citizens, which is growing.”
He noted that with every new policy in Citizens, the cost of paying those claims is backed up by everyone else in Florida because every insurance policy from auto to peril will face a surcharge if Citizens runs out of money to pay its claims.
When asked what he means by “kitchen sink,” Renner explained that it means including things “that I as a conservative would not wish to do, which is put up some of our reserves to backstop the private market.”
For example, in a special session in May, lawmakers took a series of steps to attempt to stabilize the homeowners insurance market, including earmarking $2 billion in tax dollars to provide additional reinsurance to property insurers that otherwise might not be able to afford the crucial backup coverage on the private market.
Those changes resulted in an estimated 1% savings for insurance companies and consumers, Altmaier said during a webinar for state House members last week. “Unfortunately, it just cut a little bit off of how much rates needed to go up. But every little bit counts,” he said.
Renner and DeSantis said they also plan to use state surplus to back-stop the reinsurance market but emphasized that it is only a temporary fix.
The legislative proposals create new optional hurricane reinsurance using $1 billion in state funds that eligible property insurers can purchase at near-market rates.
“The only justification for doing that is to do it alongside systemic reforms that are going to fix the problem again, grow that capacity from the private market,” Renner said.
“I do not want to be in a situation where we make any kind of new long-term taxpayer commitment to underwrite insurance. That is not the goal,’ he explained. “The goal is to have a healthy private market, to then begin depopulating Citizens so that we get back to where we were not too many years ago, which is a healthy, vibrant market where people can not have a cardiac arrest when they get to renew their policies.”
The $2 billion shot in the arm for reinsurance, however, did little to stem the flow of homeowners flooding into the state-backed Citizens, which now reports it has 15% of the state market.
Altmaier told attendees at the Florida Chamber’s Insurance Summit that the state should revise the way Citizens sets its rates, which now limits how much rates can rise in a year. He said that makes it “too easy” to obtain Citizens insurance on the open market.
But, Altmaier admits raising rates on 700,000 people “is not easy for an elected Legislature.”
The proposals released Friday will likely result in everyone with a Citizens policy paying more for their insurance. As soon as April, they would have to buy flood insurance in order to retain their Citizens coverage, and those with Citizens would not be able to renew their coverage if they receive policy offers from private insurers that are within 20% of the cost of the Citizens premiums.
Potential impact on real estate
But while accessibility and affordability is one problem, Fitch’s analysts noted that another problem looms: “A lack of property coverage availability for Florida residents could promote economic repercussions affecting the state’s real estate, mortgage and labor markets.”
In other words, the real estate engine the state has driven to recover from the COVID-19 pandemic could begin to sputter, resulting in declining state revenue.
The answer will require creativity and innovation, said Senate President Kathleen Passidomo, a Naples Republican whose home was badly damaged by flooding during Hurricane Ian.
She said she wants to focus on expanding Florida’s supply of affordable housing, encouraging more mixed-use developments to make it possible for lower-income homeowners to live alongside wealthy ones.
“We have to get creative — which government is not really good at — but if we get creative and start looking at creative ways of providing mixed-use, mixed-income housing, so you can have a cop living next to a nurse living next to a janitor living next door to a teacher living next door to a secretary,” she told reporters last month.
One thing is certain: Legislators are not expected to talk about restricting building on coastal and flood-prone areas, especially in regions recently slammed by hurricanes.
Instead, the focus is on raising the building code standards in high-risk areas, as the state did in Southeast Florida after Hurricane Andrew in 1992.
“Look at like a Miami, and these homes that are built, those condos can withstand a Category 5, I mean, like no question they can do it,” DeSantis told reporters.
Renner agreed. “I really do believe we’ve proven it that we are more resilient today than we were in the 1970s or ‘80s,” he told reporters last month. “And so whatever life and the weather and the climate may send our way, I’m confident in the innovation of the people of Florida in our ability to technologically outstrip and outpace anything that those storms may bring.”
The policy to put structures back on the coast that can withstand the heavy wind forces, however, is expected by many analysts to price many modest-income homeowners out of the market, raising fears that only wealthy elites will be able to return to the coasts.
In a note to lawmakers Friday, Passidomo said that goal was “for Florida to have a robust property insurance market that offers homeowners the opportunity to shop for insurance that meets their needs and budget.”
“We also want to make certain that when damage occurs, claims are paid promptly and fairly, so homeowners do not have to contend with time-consuming and expensive litigation,” she wrote.
Renner warned that whatever legislators do, Floridians should not expect “an overnight drop” in the cost of homeowners insurance. The changes, he said, could take two to three years to make a difference.
Herald staff writer Ana Ceballos and the News Service of Florida contributed to this report.