Insurance agents who sell property and casualty policies have a warning for their current and potential clients:
“The Florida homeowners insurance market is currently in crisis and has been for years due to fraud and frivolous litigation,” said Kyle Ulrich, Florida Association of Insurance Agents president and CEO.
In an April 2, 2021, letter to state Rep. Blaise Ingoglia, chair of the House Commerce Committee, state Insurance Commissioner David Altmaier wrote that in 2019, Florida accounted for 8.16% of homeowners insurance claims filed in the U.S., but the state accounts for 76.45% of the lawsuits filed in the U.S. against insurance providers.
“Florida’s ratio of suits opened to claims closed without payment is eight times higher than the next highest state at 27.75%,” Altmaier wrote.
“The state of Connecticut has the second highest ratio of suits opened to claims closed without payment at 3.4%. The next highest three states are New Jersey (2.45%), Rhode Island (2.23%), and Pennsylvania (1.82%).”
Roof claims lead list
The trend began several years ago when most of the disputes were related to water damage claims. Now, roof replacement is leading the litigation, said Danny Sands, president of Brightway Insurance – The Sands Agency.
“Roofing companies have become storm chasers. When there is a bad storm in an area, the next day they canvass the area with salespeople,” Sands said.
Florida insurance regulations allow policyholders to assign their benefits to a contractor, who then can make repairs and send the bill directly to the insurance carrier.
“The contractor will repair the roof and the homeowner thinks that’s great. On the back end, the fair market value for the repair might be $20,000 but the contractor bills the insurance company $40,000. The insurance company denies the claim, so the contractor sues,” Sands said.
“At that point, the insurance company makes a decision to pay the inflated price or go to court and maybe pay the inflated price plus attorney fees.”
Insurers are in business to stay in business and pay claims, so the cost of claims and litigation must be passed along to policyholders. The increased cost is causing premiums to rise from one year to the next.
“Insurance companies did not build this into their rate structures, but you want your insurance company to make money so they can be there when you make a claim,” said Tim Irish, president of J.P. Perry Insurance.
He said homeowners should expect an increase of at least 30% to 40% when they renew their policies this year. Some of his clients in Northeast Florida are seeing their annual premium more than double compared with last year.
The increased cost of doing business has driven some insurance carriers to stop writing policies in Florida, reducing options for consumers.
Sands said several years ago, there were more than 50 companies offering homeowners insurance, but that has dropped to about 10 options.
“In 2014, it was a soft market because a lot of companies wanted to enter the market, especially in North Florida because we miss the big storms. They were all lowering rates to be super competitive and get market share. I’ve never seen such a hard market like we’re in today,” Sands said.
Citizens grows
The inflation in premiums is driving many property owners to Citizens Property Insurance Corp.
It was created by the state Legislature in 2002 as a not-for-profit, tax-exempt government entity to provide casualty insurance to property owners unable to find coverage in the private market.
Policyholders pay smaller premiums when they are insured by Citizens.
In Duval County, the average premium is 10% to 20% less; in Clay County, 20% to 30% less; and in St. Johns County, 30% to 40% less, according to public rate hearing data submitted to the state by Citizens.
Pricing premiums below the private sector market rate means that if Florida were to be hit by a major catastrophe, Citizens could run out of money to pay all of its claims, a possibility the Legislature considered when it established the insurer.
Citizens is funded by policyholder premiums; however, Florida law requires that Citizens levy assessments on most Florida policyholders if it experiences a deficit in the wake of a particularly devastating storm or series of storms.
With private sector companies leaving the market, the state-run insurer has gone from being a safety net to being the insurer of choice for many homeowners.
“We write more Citizens than any other company. It’s about 50% of our business,” Sands said.
“Citizens has grown a lot, but long term, it’s not the solution. It needs to be the insurer of last resort,” Irish said.
“Citizens is expected to surpass 1 million policies in 2022 and will be the least expensive or only option for many Floridians as private companies continue to sustain losses and cut policyholders,” Citizens said in a Dec. 15 news release.
“In November, Citizens’ policies were found to be cheaper than private market options 97% of the time. Since January, Citizens’ policy count has grown from 541,000 to 745,000, a 37.7% increase,” it said.
The growth raised concern among Citizens’ board members, who voted in December to recommend the maximum 12% rate increase allowed by law for 2022
Citizens Chairman Carlos Beruff said in the release the widening premium gap, coupled with high litigation rates, is making it nearly impossible for Citizens to shrink and return to its role as Florida’s residual insurer.
He also said the recommendation to apply the maximum allowable rate increase is necessary to stem the flood of policies to Citizens.
“We need to take a look at all our options to stop this unsustainable trajectory. Any solution is going to require legislative action to provide Citizens with the tools and flexibility to return to its role as an insurer of last resort,” Beruff said.
Legislative changes
Now in session, the Legislature is considering changes that could improve the market for private sector property and casualty insurance providers.
Under the proposed bills, SB 1728 and HB 1307, customers would not be allowed to renew their policy with Citizens if a private insurer offers a premium that is within 20% of what Citizens would charge for the same coverage.
In addition, the Senate bill also would reduce coverage for roof damage and allow insurance companies to sell policies that would not offer replacement coverage for a roof that is at least 10 years old, a move that could help control the annual premium increase trend.
“The Legislature has been debating changes to roof coverage and the Florida Hurricane Catastrophe Fund that could have a more immediate premium impact. However, it remains to be seen whether anything will pass,” Ulrich said.
Insurance agents say homeowners need to understand the real purpose of casualty insurance.
“It’s an education issue. We have to help people understand that a property policy is not a warranty plan. It is not the insurance company’s responsibility when someone doesn’t put a roof on their home for 30 years,” said Veronica Della Porta, president of The Della Porta Group.
Irish said homeowners facing premium increases – or their insurance company declining to provide coverage for an older roof – might consider replacing the roof themselves to save money on insurance costs or qualify for coverage.
“You have to maintain your house. A roof has a reasonable life. If it’s 15 years plus, you might look at the cost of replacement. You could recoup some of the cost,” Irish said.
