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Legislative action aims to ease problems in the Florida homeowner market

This post is part of a series sponsored by AgentSync.

Florida’s fight to maintain a property and casualty insurance market has made headlines and spurred a special legislative session this year. With a package of regulatory overhauls and an unprecedented move for state-backed reinsurance, it remains to be seen whether the reforms can plug the holes in Florida’s beleaguered system.

General battles in P&C all over the country

As climate change increases the number and severity of natural disasters and their attendant damages, states that are particularly vulnerable to drought or flooding have struggled to maintain coverage options for homeowners.

California has stopgap measures that allow the insurance commissioner to put a moratorium on home insurance cancellations in disaster areas. In the wake of Hurricane Katrina, the largest insurance companies pulled out of home owner insurance in Louisiana. That state now maintains its non-life insurance market through smaller, more localized insurers, to which the state tailors its regulatory culture, as seen in this year’s legislative package.

Overall, a McKinsey report reflects the anecdotal evidence for these conditions: In recent years, casualty insurance has left larger incidents uninsured and tends to outperform smaller carriers interested in local coverage and insurance. Unfortunately, there is still no widespread solution that provides that coverage at a more affordable price for consumers. Fewer insured people often means more expensive coverage for those who still keep it.

By and large, then, Florida is hardly alone in having to deal with a property insurance market that has as many challenges as opportunities. But in a season that has seen relatively few catastrophic incidents so far, why are so many insurance companies leaving Florida?

Why is home owner’s insurance so expensive in Florida?

There’s no single reason why homeowner’s insurance has gone up—although it’s true that the typical Florida homeowner’s insurance premium is three times the national average. Instead, there are a few reasons. First, insurers’ underwriting and premium assessments have not kept pace with rising risk, eating into surplus and causing profitability losses. But some factors unique to Florida have created a snowball effect that goes far beyond the market adjustments we see in other coastal states (more on how these create a perfect storm for carriers later):

  • Roof coverage and replacement rules: Florida law requires homeowners to replace roofs that have suffered 25 percent or more damage. However, carriers may require homeowners to meet a deductible for coverage, or may deny a coverage claim outright.
  • Assignment of Benefits: An Assignment of Benefits, or AOB, allows a homeowner to write over their insurance benefits to a roofing company so that the roofer can directly approach an insurance company about the cost and reimbursement of roof repairs, or hire a public adjuster for support . up its damage assessment.
  • Attorney’s Fee Multiplier: A 2017 court case upheld and strengthened a Florida legal principle that an attorney can collect as much as 250 percent of a typical attorney’s fee if they win a lawsuit on behalf of a homeowner. The rule is based on the understanding that these are usually “contingent” cases, meaning that lawyers only get paid if they win. So homeowner suits may be unattractive compared to other cases where your company is guaranteed compensation for their billable hours. The idea behind the fee multiplier was to encourage attorneys to take on cases on behalf of homeowners.

For an anecdotal perspective on how these factors have played out in recent years, several media outlets have profiled homeowners whose stories share a similar thread:

A property owner in Florida is contacted by a roofing contractor who claims that the property’s roof has sufficient damage to warrant a total replacement. The contractor assures the homeowner that the damage will be fully covered by their insurance; In fact, if the homeowner just signs an AOB, the contractor and their legal team can even handle the insurance end of the roof replacement for them, no hassle!

The Florida property owner signs the AOB and then has to wait months or years while the roofing contractor hires an insurance company. The carrier can dispute that the roof has damage equal to or exceeding 25 percent of its value. The roofing contractor then sues the carrier for the benefits, leading to months of protracted litigation and often resulting in coverage for a brand new roof as well as tens of thousands of dollars in attorneys’ fees, incentivized by these 100 to 250 percent multipliers.

If the carrier wins, it still has to pay its attorneys’ fees.

Taken together, these rules have created a crisis for Florida’s homeowners insurance industry. Consider: Florida has largely avoided a major hurricane season since 2018. Florida homeowners account for 9 percent of annual claims in the United States. However, Florida accounts for 79 percent of the annual lawsuits against homeowners.

The downstream result is premiums that have tripled for some property owners, and insurance companies have become increasingly reluctant to take the risk of insuring roofs over 10 years of age.

Florida claims market in crisis as insurers exit, ratings downgraded

Florida’s homeowners insurance crisis reached a fever pitch in the past year as insurance companies have backed out of the state entirely.

In an announcement calling for a special session of the Legislature in late May 2022, Gov. Ron DeSantis justified the emergency action with statistics such as “Florida’s insurance industry has seen two straight years of net underwriting losses exceeding $1 billion each year.” and “Citizens Property Insurance, the State of Florida’s public insurer of last resort, has seen an increase of 399,822 policies since the beginning of 2020 and is on track to exceed 1 million policies by year’s end.”

So, very clearly, the market is losing money, and more people are forced into the state-backed insurer after their insurers leave the market.

And to be clear, insurance companies are indeed leaving the market.

In July 2022, Bankers Insurance Group became the thirteenth insurance company to start liquidating or stop offering new policies this year alone. For perspective, the Tampa Bay Times noted that there were 63 property and casualty insurers required to report financials in the state at the end of 2020 (a list that included companies that were in the liquidation process even then). That same year, the Times said, an analysis of the market showed that only four companies had shown profitability at all.

And, lest you think Florida condo owners are better off… After a tragic building collapse that killed 98 people in Surfside, Fla., in 2021, a $1 billion insurance settlement has driven casualty insurers away from insuring Florida condos. For carriers who choose to remain in the Florida condo market, there is so little competition that prices can double, triple or more and consumers have no choice to shop elsewhere.

Florida Special Session Casualty Insurance Legislation

With the available pool of insurers facing contractions of more than 10 percent, DeSantis and the Legislature went back to the table after the regular session to address some of the underlying factors that have driven the market’s collapse over the past five years.

On May 24, 2022, the legislature passed sweeping legislation aimed at reforming the market, and Florida’s governor signed it into law two days later.

The provisions of the Act include:

  • $2 billion allocated to a Reinsurance Assistance Program, which provides insurance companies with assistance in setting reinsurance contracts for coverage
  • $150 million in “home hardening” grants to Florida homeowners, aimed at making homes more resilient to storm damage
  • Requirement that carriers cover roofs that are less than 15 years old, or roofs that “have at least five years of life remaining”
  • New Standards for Attorneys’ Fee Multipliers and Awarding of Attorneys’ Fees, “Deterring Frivolous Claims”

Some Florida lawmakers sought to prevent policyholders from challenging claim denials in court altogether, while others defended the lawsuits, saying they are an important enforcement mechanism that encourages carriers to pay claims in the first place.

Other critics argued that the laws do not go far enough to protect consumers, who are unlikely to see reduced or even reduced premium costs for years after the law’s implementation. A property insurance law group criticized the law as one-sided and acknowledged that policyholder and contractor fraud has played a role, but said:

“The F-word is not a one-way street…Contrary to popular belief, insurance companies continue to shirk their contractual and statutory obligations despite their constant concern about defending ‘runaway’ lawsuits. Actually dealing with the truly frivolous the litigation is step one in beginning to solve the problem with our property insurance market, but why stop there? … The same efforts must be directed at combating the unspoken immunity that is insurance company fraud …”

Downgrade of Demotech homeowner’s non-life insurance rating

While Florida lawmakers hope the new law will prevent more turbulence in the P&C market, there are still choppy waters ahead.

First, Florida’s insurance companies rely heavily on Demotech, a credit rating agency, to provide assessments of the solvency of the carriers in the state. In July, Demotech’s plans to downgrade the ratings of 17 property and casualty insurers quickly drew the ire of the Florida Association of Insurance Agents (FAIA) and state regulators. By downgrading these carriers, Demotech would signal to consumers that these carriers are not pricing and underwriting their contracts satisfactorily, and caution against signing contracts with them.

A downgrade can also have secondary repercussions, as many lenders require homeowners to have insurance with companies that meet certain solvency standards.

The FAIA and state regulators did not name which carriers Demotech planned to downgrade, but seven were made public in early August.

With the number of active P&C companies willing to provide new homeowner policies in the state hovering below 50, at this point having 17 downgraded could be devastating to the overall viability of the market.

In an effort to keep the market afloat, the Florida Office of Insurance Regulation (OIR) took a truly unprecedented step, offering temporary reinsurance agreements with the full support of the state’s insurer, Citizens Property Insurance, and, further, the state’s guaranty association. A news release from Commissioner David Altmaier’s office said the arrangement should meet the requirements for mortgages backed by Fannie Mae and Freddie Mac.

The future of Florida’s homeowners insurance market remains uncertain

Florida OIR and the Legislature are apparently making efforts to prop up the market, harden homes and maintain a profitable environment that is safe for consumers. Yet, just as these extreme conditions did not arise overnight, real solutions will take time.

It remains to be seen how effective this year’s measures will be, as well as what the Legislature may propose in next year’s session to further strengthen Florida’s tort market. In the meantime, we hope that Florida will see clear skies, smooth water and sunshine.

At AgentSync, there is little we can do to directly affect claims and market conditions in Florida. However, for operators, MGAs and agencies, we can help streamline licensing, verification and appointment of manufacturers and adjusters. For more on how, check out our solutions.

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