Insurance

Florida is undergoing an insurance crisis

Here's what you need to know

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When it comes to homeowners' insurance, Floridians are all too familiar with the term "crisis." In recent years, rates have skyrocketed, leaving many property owners scrambling to find affordable coverage. Many insurance companies are leaving the state entirely or staying and revoking policies, limiting coverage and raising premiums by double digits. The Florida homeowners insurance market is on the brink of a collapse. As thousands of homeowners are in the lurch, the situation is highly problematic, especially in the midst of the Atlantic hurricane season

But what is behind this crisis? The Zebra investigated the reasons behind this meltdown and shares what Florida homeowners can do if their policy is cancelled. 

Why are insurance companies leaving Florida?

Home insurance companies have always been wary of the Florida market due to the dangers of weather-related damage on a large scale. However, the current crisis is caused by several man-made factors that have all come to a head simultaneously.

 

Roofing scams and plentiful lawsuits

In recent years, Floridians have seen the cost of homeowners insurance increase while the availability of coverage has decreased. This is due, in part, to the state's history of high levels of litigation and fraudulent roof replacement schemes. Such scams follow a similar trend: 

  1. The contractor will offer a free inspection and claim to find damage, even if there is none. 
  2. They will then try to convince the homeowner to sign the form, allowing the contractor to file an insurance claim. 
  3. However, when the insurance company inspects the property, they will often find no damage. 
  4. The contractor will then sue the insurance company without the homeowner's permission. 
  5. The insurance company has two choices: fight the legal battle or settle. In either case, the insurer has to pay up.

According to data from the Florida Office of Insurance Regulation, Florida sees a disproportionate number of homeowner lawsuits compared to other states. In fact, in 2019, nearly three-quarters of all such lawsuits filed across the country were in Florida! This has resulted in immense financial strain on resident consumers. The annual cost of a Florida home insurance policy is slated to skyrocket to $4,231 in 2022, nearly three times the US yearly average of $1,406

Some insurance companies are pointing the finger at a 2017 state Supreme Court opinion for causing a recent increase in litigation. The opinion in question allowed attorneys to collect bigger fees when they won lawsuits against insurance companies, and some insurers believe this has created an incentive for more people to file suit.

 

Storm hazards 

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Florida's geographic location makes it highly vulnerable to hurricanes and storms. Since the peninsula is relatively thin, even the homes near the interior are not fully protected. According to research by Colorado State University, weather trends suggest that the current hurricane season is expected to be much more severe than in previous years. Considering that more hurricanes have hit Florida than any other state, this could propel the already rumbling homeowners insurance market into a crash.

What other factors are contributing to the Florida insurance crisis?

It must be noted that though the potential for hurricane damage is a dire hazard, it is not a major driving factor for the Florida insurance crisis. Here are some associated factors contributing to the crisis:

 

Refusal to insure older roofs 

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As scams hit more and more insurance companies, many are choosing to leave altogether. But, there are still some that are instead tightening their underwriting restrictions to reduce the chances of being scammed. As part of this, many insurers no longer want to cover homeowners with older roofs. This seems to be why ProgressiveSouthern Fidelity and Universal are continuing their operations in Florida, but have nonrenewed tens of thousands of policies. 

To counter this, a recent law passed by state legislators aims at reducing roofing-related price hikes in Florida. The law is clear: insurance companies cannot deny coverage to a home solely based on the roof's age, as long as it is less than 15 years old. Similarly, insurers cannot refuse to issue a policy if the roof has at least five years of life remaining. This protects homeowners from being discriminated against based on the age of their roof. Despite the law, insurance prices aren't anticipated to decrease for another 12 to 18 months, and householders can anticipate further cost increases and problems with obtaining coverage.

 

Sluggish claims handling processes

In the aftermath of 2018's Hurricane Michael, thousands of Floridians struggled with insurance companies to pay their claims. Some claims were denied outright, while others were delayed for months. Addressing fraudulent scams doubly pressured insurance companies, with many unable to adhere to the state law requiring a 90-day timeframe within which the claims had to be paid or denied. 

Currently, many trial lawyers are working to reduce the timeline of handling claims to 30 days, and The Office of Insurance Regulation is considering adopting a set of industry-wide "best practices" for handling claims. This would standardize the way that insurers handle claims and could help to improve the overall quality of customer service.

 

Affiliated insurance companies charging high fees

The state of Florida, like many others, permits insurance companies to be charged for services by their parent and sister companies. An insurer's parent company can charge the insurer for commissions or can charge fees for handling claims. For instance, if an insurer's parent company charges a commission, the insurer may have to pay a percentage of premiums to the parent company.

The murky relationships between insurers and their affiliates have been a source of frustration for regulators. For years, questions have been raised about whether the fees charged by affiliates are for legitimate services or if they are just a way to siphon money from the insurer.

As insurance companies continue to fail in Florida, state officials are trying to pinpoint the root of the problem. After reviewing five failure reports, financial auditors find a common issue: affiliated companies are charging high, unnecessary fees draining the host companies dry. This is causing a significant financial burden and ultimately leading to the downfall of these insurers.

Though the potential for hurricane damage is a dire hazard, it is not a major driving factor for the Florida insurance crisis.

What to do if your home insurance is canceled

If your homeowner's insurance has been canceled or non-renewed, you must act quickly. We suggest:

  1. Contact your insurance provider and discuss possible options for homeowners insurance.
  2. Self-research on a few companies still operating in Florida despite the crisis.
  3. Contact the Florida FAIR program. Citizens Property Insurance Corporation is a state-run initiative that provides insurance for those who cannot get a policy from the private market. This program ensures everyone has access to quality insurance, regardless of their circumstances.

The road ahead

The insurance market in Florida is teetering on the brink of collapse due to a combination of roofing scams, sluggish claims handling processes and high fees charged by affiliated insurance companies. While there are laws to defend and mitigate the situation, how soon the chaos can be managed remains to be seen. Only time will tell.

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Marria Qibtia Sikandar photo
Marria Qibtia Sikandar

Marria has a decade of experience delivering professional content across a number of industries. Her writing expertise extends to insurance, technology, marketing, e-commerce, SaaS and fintech. Her pieces on insurance and technology are regularly featured in FinTech Magazine and InsurTech Digital