In early June, Farmers Insurance Group announced it would stop issuing new homeowners insurance in Florida for the foreseeable future. Explaining the decision, a Farmers spokesperson said, “[w]With disaster costs at historically high levels and rebuilding costs continuing to rise, we implemented a pause in writing new homeowner policies to more effectively manage our risk exposure.”1 The announcement comes after an influx of insurance claims following Hurricane Ian’s widespread devastation in the state.
While this blog has covered the fairly extensive issues policyholder advocates have had with farmers ( here , here , here , here , here , and here , to name a few), the move could have some ramifications. Economics 101 tells us that competition in the Florida insurance market is decreasing by limiting the options available to policyholders, which could drive up already rising costs of coverage. With fewer carriers to choose from, property owners may face challenges in securing affordable coverage or finding policies that meet their specific needs. Furthermore, while existing policyholders may not be immediately affected by farmers’ decisions, this development could lead to increased scrutiny from insurers when it comes time for policy renewal. As insurance companies reassess their risk exposure, their underwriting practices may become more stringent. This can lead to policyholders being faced with stricter requirements, higher premiums or their existing policies not being renewed.
Of course, there is also the potential that Farmers policyholders could experience an increase in claim denials. With the company aiming to manage its risk exposure and reduce losses, it is possible that its claims management process will receive a facelift – calls McKinsey and Co. a clock? – aims to save money. Unfortunately, as we’ve seen before, when insurance companies want to save, they tend to do so at the expense of the policyholder.
On the other hand, it’s not all bad. The farmers’ decision can be seen as a responsible approach to avoid overextending their financial capacity and thereby protect the policyholders they already have. In addition, Farmers’ withdrawal from the market opens opportunities for other insurance companies to step into the gaps Farmers leaves. This creates space for new and existing insurers that are better equipped to deal with the challenges of the region’s unique risks. The change in the market landscape leaves room for insurers who do not do it place profits over the policyholders (and some exist!) to do the right thing.
Perhaps most importantly, Farmers said exactly what every insurance company is thinking: the increasing frequency and severity of catastrophic events combined with the steady increase in material and labor costs is cutting into the industry’s profits. The incentives for insurance companies to delay and deny claims have never been higher. Policyholders in Florida and around the country should be aware of this potential risk and be prepared to navigate the claims process carefully. And, as always, should an unfair delay or denial happen to you or someone you represent, the lawyers at Merlin Law Group are always here to help.
1 Kane, Libby and Sarah Silbert. Where to get new home insurance in Florida now that farmers don’t offer it. June 14, 2023. Available online at www.businessinsider.com/personal-finance/farmers-homeowners-insurance-florida-alternatives-2023-6.