Writer: Sara Warden
2 min read October 2022 — When Weston Property & Casualty Insurance Co. was declared insolvent and placed into receivership in August, it was the latest in a series of developments that highlighted the struggles faced by Florida’s property insurance market. Already, according to the Insurance Information Institute, Florida residents pay the highest premiums in the country and the situation is not expected to get any better with fewer insurers on the market.
Real estate in Florida is complex, of course. When providing cover, insurance companies need to consider the changing climate and rising sea levels, which make Florida’s coastal, tropical location highly vulnerable to damage. Just this month, Category 4 Hurricane Ian caused tens of billions of dollars in damage to the state’s infrastructure. In metro Orlando, 470,000 homes were estimated to experience tropical storm-force winds and storm surges, according to property data firm CoreLogic. It is no surprise, then, that insurers are reluctant to provide cover.
But weather is not the only cause of high premiums and insurer insolvency. While Florida accounts for only 9% of homeowner claims in the country, it is responsible for a staggering 79% of homeowner insurance litigation nationwide, says the Insurance Information Institute.
“Let’s be realistic, insurance companies are nervous about Florida because it is fraught with many risks: hurricanes, water damage, flooding, litigation, and Medicare fraud,” Oscar Seikaly, owner and CEO of NSI Insurance Group, told Invest:. “It’s challenging for them to make an underwriting profit.”
One useful barometer for the health of the industry is the insurer of last resort, Citizens Property Insurance Corp, which is run by the state. The insurer is now bursting at the seams, with just under 1.1 million policies in place. For reference, there were 930,000 policies in place as of June 2022, up from 638,000 in June 2021 and 474,000 in June 2020.
In 2020 and 2021, when no major hurricanes made landfall, insurance firms in the state still declared $1 billion in underwriting losses. This pushed up premiums for homeowners as high as $6,700 a year in certain counties. The reason? Mostly fraud and litigation.
Despite appearances, though, Florida residents are not particularly litigious. The lawsuits against insurance firms are caused by a legal tool called “assignment of benefits.” This clause was designed to allow homeowners to quickly have the damage repaired on their homes, with the third-party contractors dealing with the insurance firm for reimbursement. However, in cases when the claim is deemed invalid and the work has already been done, the contractor has to sue the insurance firm to recoup costs.
Given the extent of the damage after Hurricane Ian, prospects do not look great for Florida’s remaining insurers who are sure to be hit with an influx of assignment of benefits claims. Industry experts expect the hurricane’s fallout to tip more insurers over the edge in 2022, causing them to either refuse to cover Florida real estate or go bust completely. It looks increasingly likely that the only real solution is a legislative one.
Already, legislators have taken action over the crumbling real estate insurance market. In May, Gov. Ron DeSantis signed legislation that provides $150 million for the My Safe Florida Home Program. The program offers grants to Florida homeowners for hurricane retrofitting, making homes safer and more resistant to hurricane damage. He also took action against insurers denying coverage, requiring an explanation to be provided and prohibiting denial of coverage based on roofs that are less than 15 years old. On a federal level, the NFIP Reauthorization and Reform Act passed last November caps rate increases at 9% to prevent premium hikes.
While these are positive steps for the customer, they will only serve to squeeze insurance firms further, pushing them out of the state or out of business. Orlando Sen. Val Demings recently called out “short-term patches and band-aids during election years” in regard to the insurance industry and called for state-level reforms that will shore up the insurance market.
Although there isn’t much agreement on what needs to be done, two things seem to have common consensus: that action has to be taken on a state level and it has to be taken now. Given the long timelines associated with legislation, it is reasonable to assume that even if a bill is tabled tomorrow, it likely won’t go into effect until late next year – too late for many insurers hanging on by a thread.
