Like the worrying economic and unemployment data emerging as Florida and the world fight the coronavirus pandemic, the emerging picture for homelessness, bankruptcies, and insurance rate increases are raising fears of a property insurance crisis impacting Florida’s real estate market.
Last year, several insurance companies failed financially, forcing thousands of homeowners to scramble for insurance coverage. The insurance losses related to 2017′s Hurricane Irma are approaching $18 billion and the losses from Hurricane Michael’s Category 5 devastation in 2018 are more than $6 billion. Couple those losses with today’s major economic downturn and it becomes likely that rating agencies will likely downgrade a number of insurance companies because of their troubled financial conditions.
But it’s not just storms and the economy causing this crisis. South Florida-based People’s Trust Insurance Company, for example, which insures more than 100,000 properties in the state, recently announced it will be unable to provide insurance policies to residents of six of the largest counties in the state because "the continued bombardment of lawsuits from lawyers and the increased costs...continuing to drive up our total cost of claims.”
When claims costs go up, insurance rates do too. Even before the COVID-19 pandemic, the Office of Insurance Regulation (OIR) approved many double-digit rate increases to make up for soaring financial losses. Some insurance companies are requesting rate hikes ranging from 20 percent to 60 percent and analysts say nearly all customers should expect at least a 20 percent increase in homeowners’ insurance costs this year. For the average Floridian, that means paying $350 to $700 more per year—a cruel blow just as many people have taken huge income hits, lost jobs, or are on a fixed income.
A leading cause driving the current rate increases is a locust swarm of lawsuits driven by unscrupulous contractors sweeping neighborhoods looking to coerce unsuspecting homeowners into filing claims, whether they’re valid or not. In 2019, a year without a major storm, the number of lawsuits against Florida insurance companies was 16.8 percent higher than in 2018. Less than halfway through 2020, property insurance lawsuits have already tripled the number of lawsuits for all of 2015, with many companies experiencing over a 100 percent increase compared to last year. Hundreds of lawsuits, prodded by those who will profit from the litigation, continue to be filed every week for Hurricane Irma, a storm that occurred three years ago.
Additionally, non-storm related lawsuits for roof and water claims are moving up the state to the Greater Orlando area, spreading from the south Florida counties whose residents have been plagued with high insurance rates and bombarded with legal ads encouraging lawsuits. As a result, the state is now seeing thousands of central Florida homeowner insurance policies canceled. Insurance companies have to decide if Florida’s long history as one of America’s top 10 “judicial hellholes” for lawsuit abuse is worth enduring to stay in the marketplace.
Clearly there is plenty wrong with the system even though the legislature has made modest changes over the last 10 years. In 2020, State Sen. Jeff Brandes, R-St. Petersburg, co-author of this piece, proposed legislation to protect consumers from the rate shocks resulting from trends such as the lawyer fee multiplier that massively inflates $500 per billable hour attorney fees, frivolous “bad faith” lawsuits, and the prevalent legal gamesmanship dominating Florida’s court system. The proposals also aim to provide more insurance coverage options so Floridians could tailor their policies to their pocketbooks.
Never has the need for tort and insurance reform in Florida been greater. All consumers, particularly senior citizens, young families, and small businesses are being hit hard by skyrocketing costs, paying the price for policymakers who do little about rampant litigation abuse. State leaders must continue to hold insurance companies accountable while simultaneously stopping the ravenous and ruinous lawsuit factories that make insurance unaffordable.
Without reforms, Floridians face massive insurance rate hikes, and insurers simply won’t offer the coverage homeowners need in some regions. The risks of economic devastation caused by shocking insurance rate hikes are real and Florida lawmakers must work to stop the tidal wave of higher property insurance rates about to hit Florida.
State Sen. Jeff Brandes (R) represents Florida’s 24th District in Pinellas County. Adrian Moore is vice president of the Reason Foundation and lives in Sarasota.