Florida Insurance Market Challenges

By now some of you may have already learned that 50,000 homeowner insurance policies were dropped across the state by three insurance companies. This is happening as many insurance carriers are spiraling to stay afloat. South Florida and Treasure Coast homeowners are seeing their premium rates increase by 20 percent or more. In some cases, rates have doubled. So, what is the state of property insurance in Florida, and how did we get here?

"That is a short question with a long answer," one carrier executive stated. They added, "some clients are seeing quotes triple from their previous payments."

As of last year, estimated losses leftover from Hurricanes Irma and Michael totaled about $29 billion in claims. But the major problem driving up the costs of insurance is litigation. The downward spiral of the property and casualty insurance market didn't start in the court system, but that's where it's being held up.

Mark Friedlander, spokesman for the Insurance Information Institute said, believe it or not, it started at any homeowner's door.

"A roofer comes knocking on your door and says, 'We just did your neighbor across the street, beautiful new roof. And guess what? Your neighbor didn’t even pay for that beautiful new roof. We could do the same for you. Let us look at your roof and see if it requires any repairs or complete replacement, if it does require that, we will take care of everything with your insurance carrier,'" Friedlander said.

The policyholder signs what's called an assignment of benefits or AOB over to the roofing company, which basically means the third party can "stand in the shoes" of the insured and seek payment directly from your insurance company.

"Now, when the roofer sends the bill to the insurance carrier, the insurance carrier says, ‘Wait a second. This is an outrageous expense. This is not customary charges for this repair,'" Friedlander said. "Then the roofer gets together with the attorney and the attorney files a lawsuit against the insurer. And the policyholder, the homeowner, has no idea this is happening."

According to a report presented to the Florida Legislature, analyzing the state's property insurance market, insurance companies alone paid nearly $3 billion in lawsuit costs. "These types of frivolous lawsuits are being filed by the thousands. That's what's the major driver of these expense hits that insurers are facing now," Friedlander said.

The report also found that while a significant number of claims filed after storms are driving up costs, about 60 percent of the lawsuits filed against insurers are unrelated to catastrophes. Based on recent data from the National Association of Insurance Commissioners, 76% of property claim lawsuits in the U.S. were filed in Florida. "Now, we've created a situation where the Florida insurance market is in a very precarious position. You now have insurers that need to take drastic actions to keep operating really to stay above water to keep [their] business running," Friedlander said.

Some insurance carriers writing policies on Florida are now feeling the heat, and the economic stress is not sustainable. Some longtime carriers in the Florida marketplace have been severely downgraded by A.M. Best, pointing to further economic perils for these companies.

Florida Legislature Passes Sweeping Insurance Reform Bill

On May 26, 2022, a bipartisan property insurance bill was signed to provide some relief to consumers facing rising insurance costs within the state. This bill, known as Senate Bill 2B, is one of the most significant forms of legislation passed in an effort to alleviate ongoing challenges across Florida’s property insurance market. Specifically, the bill was implemented to help reduce rising insurance costs, increase claim transparency and limit the number of frivolous lawsuits that have contributed to elevated expenses. 

The legislation within Senate Bill 2B provides $2 billion in reinsurance relief through the Reinsurance to Assist Policy program to benefit policyholders over the next two years. The bill requires insurance companies to file a supplemental rate filing once enrolled in the program to provide relief to policyholders.

Through this bill, Florida homeowners can receive grant funding to help make their homes more durable against storms, thus minimizing potential property claims stemming from storm damage. This initiative is being accomplished through the $150 million dedicated to the My Safe Florida Home Program. This program gives consumers the option to retrofit their homes for hurricanes and receive subsequent premium discounts.

Also, under the bill, insurance companies are no longer allowed to deny coverage based solely on the age of a policyholder’s roof if it is less than 15 years old or determined to have only five years of life left. Furthermore, the bill requires annual reporting of the average premium discounts for participating Floridians by the Department of Financial Services.

Senate Bill 2B also restricts insurance companies from denying claims without communicating sufficient reasoning to policyholders. In other words, insurance companies will have to provide ample reasoning whenever they deny or partially deny a claim going forward. This change will help consumers have better access to valuable information throughout claims process. In addition, the bill requires insurance companies to provide policyholders with adjuster reports in a timely manner.

Senate Bill 2B also is intended to disincentivize frivolous lawsuits. In particular, the bill limits attorney fees for property insurance claims and insurance-related cases; such fees are one reason insurance companies have had to increase their rates. Litigation costs have increased and, therefore, insurance companies’ expenses for claims involving lawsuits have risen. By limiting attorney fees, the bill seeks to minimize overall litigation costs for insurance companies and, in turn, help lower rates for policyholders.

Making sure that you have the right insurance coverage in place is paramount for your safety and security. Also, ensuring that the carrier that provides your policy is financially sound is critical. Contact Marshall & Sterling today for a free review of your policy to make sure you are properly protected.