Florida Home Insurance Costs on the Rise
Florida Office of Insurance Regulation (FOIR) announced that insurance rate increases up to 33% would be approved in 2021 because of the market hardening statewide. Carriers have requested significant hikes in home insurance premiums in the double digits to help them recoup further spiking costs from increased litigation expenses, delayed storm claims, and reinsurance costs.
This action caused FOIR to review the financials of state providers, which revealed that property claim losses for insurers statewide would reach $1.3 billion in 2020. Insurance Information Institute representative, Mark Friedlander, cautions that this is only a projected number, and it could exceed it once final totals are realized later this year. 2020 losses for Florida's domestic property insurers are projected at about $1.3 billion, according to Mark Friedlander, Florida representative for the Insurance Information Institute.
How Fraudulent Claims Have Put Insurers on Defense
Many market analysts monitoring the state's property insurance crisis believe the premium increases are just a response to the fraudulent repair work and the subsequent litigation nightmare resulting from a Florida Supreme Court ruling in 2016.
The high court hobbled insurers when agreeing that a roof that suffered 25% or more damage by a policy-covered incident must be replaced entirely paid for by the owner's insurance carrier. This enabled unscrupulous roofers and contractors to begin going door to door and convince homeowners to file a claim. Some would even include incentives by giving customers a gift card or other present to do so. The repair company would then exaggerate the level of damage to the roof to meet the minimum threshold and work with a law firm to pursue the full amount for the replacement.
This practice has led to attorneys taking advantage of Florida's "one-way attorney's fees," where the insurer would have to pay legal fees for the contractor's attorney if they could receive a penny or more of the initial settlement offer made by the insurance carrier. This creates an almost symbiotic relationship between roofing fraudsters and the attorneys that pursue full compensation for unnecessary roof replacements.
While Florida homeowners only account for 8% of the nation's property claims, a whopping 76% of those claims are litigated. This reality brings a significant impact when insurers determine property insurance rates for their customers. As things stand, any dispute an insurance company might have with a roof repair could mean additional legal costs that their consumers must absorb.
Squeezed Company Surpluses
During periods where weather and other environmental factors are challenging, coverage availability declines, and prices go up. Florida experienced a very active hurricane and storm season in 2020, and those recent losses highlight how squeezed insurers' company surpluses have become.
Usually, insurance carriers use their surplus money from policyholders to pay claims. State regulators typically have a minimum amount that insurers must maintain. While there wasn't any shortfall last year, many companies reported significantly smaller surplus availability than years past. While keeping surpluses minimal is often a business strategy used for years without significant weather events to pay investors and other affiliates a little more, when a season ends up with numerous damage claims, it is harder to soften the impact.
Florida is especially problematic with this trend. As other companies around the nation grow their surpluses, insurers in The Sunshine State have been shrinking these cushions for years. Because many property insurance providers in the state receive infusions from their parent companies to maintain regulated surplus minimums, it's impossible to know how many reported surpluses actually belong to policyholders.
Legislation Aimed at Changing Homeowner's Insurance Policy in Florida
For the 2021 session, Florida legislators have several bills to consider that would focus on the underlying issues that are crippling the state's homeowner's insurance industry.
Lawyer Fee Multipliers
One of the primary drivers behind skyrocketing insurance premiums is ballooning litigation around damage claims. Litigation is costly because of the fee multiplier used by the state. If a lawyer representing a property claim can convince the court that the case's complexity required them to go beyond their standard costs, they may be awarded double or triple in fees. The intention behind this fee structure was to make access to quality legal representation in these matters more accessible to Floridians.
SB 212 would instead strongly presume that standard fee models are appropriate for most property insurance claim suits and would only consider increased legal costs under certain circumstances. It should be noted what constitutes a "certain circumstance" is not defined in this legislation.
Residential Roof Replacement Claims
It's been a long-time issue for Florida insurers being sued for water damage not related to storms. While recent legislation helped to curb this issue, new problems have arisen—specifically, the aforementioned roof replacement ruling by the Florida Supreme Court.
SB 76 would instead seek to change the reimbursement amount an insurer would pay to the policyholder instead of automatically the full cost of damage exceeds 25%. Instead, the age and materials of the roof would be considered. In addition to this issue, this bill also seeks to drop the three-year claim filing deadline to two years and aims to reduce the fee multiplier for attorneys representing property claim suits.
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