What’s causing Florida’s home insurance rates to
rise? |
Article Courtesy of The Fort Myers Florida Weekly
By Laura Tichy
Published
February 3, 2023
Some Floridians have already received the news in
their mailboxes. Many others will see it arrive in the coming months.
None will welcome it.
“Our homeowner’s insurance went from $2,150 to $6,250,” said Shelly
Salzman of Lee County. “How’s that for an increase?” Ms. Salzman had
been with her insurance company, Kin Interinsurance Network, since she
had moved to Southwest Florida from Palm Beach County three years
earlier. The company provided no explanation for the premium increase.
Now she’s shopping the internet for a new company but hasn’t had much
luck yet in finding a lower premium.
“I just feel bad that we’ve been paying premiums, and now we’re getting
penalized because of Hurricane Ian,” Ms. Salzman said.
According to the Insurance Information Institute, an industry trade
organization, the average cost of a homeowners insurance policy in
Florida last year was $4,231, nearly three times the national average of
$1,544. Local social media has been abuzz about the insurance rate
increases. Many who received hefty premium bills this fall and winter
took to the Nextdoor local social media app and speculated that the
increases must be related to Ian in general or even directly caused by
filing hurricane claims with their insurance companies. But others
replied that they received significant rate increases last summer,
before Ian’s catastrophic landfall, and had never filed any claims,
countermanding the theory that Ian was to blame. Yet others posted that
they have received non-renewal notices instead of premium notices and
were scrambling to find new insurance companies.
Lee County resident Jennifer Wiedmeyer received notice in July that
American Integrity Insurance of Florida was increasing her yearly
homeowner’s insurance premium from $2,100 to $3,800.
“It was a pretty hefty jump — shocking,” Ms. Wiedmeyer said. “We had no
claims, and when we called them, they just said that the rates had gone
up.”
Ms. Wiedmeyer asked her local agent to shop for a better rate, but the
agent’s reply was that the $3,800 was the lowest premium available at
the time. She opted to keep the insurance, and when she had to file a
claim this fall, the company paid promptly.
“We could have reduced our coverage to reduce our premium — like taken
off our shed or increased our deductible — but it turned out to be a
blessing that we didn’t when Ian came,” Ms. Wiedmeyer said. “But I can
only imagine what the next bill will look like this July — I’m terrified
of that next bill.”
While some who receive increased premiums go shopping, that’s not an
option for those in the midst of an open claim. Rita Montano of Lee
County recently saw her Kin Interinsurance Network homeowner’s premium
go from around $2,600 to $7,259 annually. Since she is still having
hurricane damages repaired, she opted to pay her premium quarterly — for
the moment.
“It was a crazy increase, and the hard thing is no other property
insurance company will even give an estimate until our claim is closed,”
Ms. Montano said. “We were between a rock and a hard place, and we
couldn’t afford the annual premium, so we paid three months. We just had
our roof replaced, and I sent the invoice to the adjuster. So, we’re
hoping the claim will be closed before the next payment is due in March,
so we can go with another company.”
When Ms. Montano asked Kin why her premium increased, she said the
company told her that all insurance companies had raised their rates
because recent increases in the construction market would increase the
cost of potential home repairs, and the company also mentioned increased
litigation as a factor. She checked with friends, and while everyone had
seen increases, none had seen a premium jump as dramatically as hers. “I
have an insurance background from my career, and the thing that
surprised me is that there are state insurance departments to approve
rate increases,” Ms. Montano said. “Typically, these departments would
never agree to a rate increase of this size, so I’m amazed that Kin was
able to put it through.”
Ms. Montano called Kin’s customer support department to inquire about
the percentage of premium increase the state had approved for the
company, and she pressed again for that information in a chain of emails
that she shared with Florida Weekly. She also contacted the Florida
Department of Financial Services’ Division of Consumer Services with her
question and received a lengthy but generic-sounding email that mostly
provided homeowners with insurance shopping tips.
Kin was among seven property insurance companies for which the Florida
Office of Insurance Regulation held public hearings in 2022 regarding
their rate increase petitions.
These petitions requested increases ranging from 10.7% to as high as the
request for an 84.5% increase by Southern Fidelity Insurance Company,
with most companies asking for around the 25.1% increase that the
regulatory office approved for Kin.
How approval of a 25.1% increase resulted in the dollar amount of the
increases that Ms. Montano and Ms. Salzman saw when they received their
Kin premium notices is not clear. Rate increase documents for Kin and
for American Integrity Insurance that the Office of Insurance Regulation
sent in response to Florida Weekly’s records request did not provide any
further insights into the amount of any of these residents’ premium
increases. Since people have been receiving premium increases both
before and after Hurricane Ian and regardless of whether or not they
filed claims, the commonly held beliefs about rate increases have been
shown to be urban legends. So, what are the myths, and how are insurance
premiums actually calculated?
“The insurance industry can’t react that fast,” said Brian Chapman, CEO
of Chapman Insurance Group, an independent insurance agency with offices
in Charlotte and Lee counties. “Your Ian claim, if there is going to be
an impact, it’s going to be on the totality of Florida and not just
Southwest Florida because a storm could hit the other coast next year.
Ian’s impact won’t be felt for a couple of years because the insurance
industry doesn’t know how big the losses are going to be — it’s just a
guess at this point. So, those myths (that individuals’ rates increased
because of Ian or because of filing a claim) can be dispelled.”
Another common myth has to do with the corporate structure of insurance
companies.
“What is probably the biggest misunderstood thing on the planet as it
relates to the insurance industry is this — insurance is for profit —
these are not non-profit companies,” said Deborah Sewell, a Bonita
Springs retiree who worked multiple positions in insurance brokerage and
national accounts risk management for four decades, to include writing
the policy manuscripts that some insurance companies use for issuing
insurance policies. “And most of us, through our 401(k)s or IRAs, have
some type of investment in the insurance industry.”
Ms. Sewell pointed out, as for-profit businesses, that insurance
companies have a couple of ways to make money, and these income streams
affect the premium rates that people pay.
“Insurance companies don’t make most of their money from premiums,” Ms.
Sewell said. “They try to underwrite policies to a profitable
combined-loss ratio, which is the ratio of premiums against the losses
they pay, but they might pay loss ratios in excess of 100% (of the
premiums). So, where they made their money was by investing the cash
that they set aside to pay future claims. When the interest rates were
high, that was great, and they were making money. But when the interest
rates dropped to nothing, and the loss ratios exceeded 100% because of
combined windstorms in Florida over five years, you can see insurance
companies were losing money. And the money has to come from somewhere,
so that’s part of why rates have increased.”
Like any business, insurance companies have operating costs, such as
administrative costs, commissions to agents and brokers, claims
management and loss control expenses. Ms. Sewell said these overhead
expenses can easily run between 30% and 35% of the premium income. But a
major influence upon premium rates is the cost of reinsurance, which is
the insurance that insurance companies purchase as coverage to cap their
own losses. In one of the documents that the Office of Insurance
Regulation sent to Florida Weekly, Kin listed that it was paying 65% of
premiums for its reinsurance coverage. Ms. Sewell said the reinsurance
companies take on a significant portion of possible losses in exchange
for being paid a significant percentage of the premiums, but reinsurance
companies also have a cap for their capacity to risk losses. Once an
insurance company reaches that cap with their reinsurance company, they
cannot write any more insurance policies. Since the insurance company
cannot seek new customers to increase income once they have reached
their cap, they must turn to raising rates for existing customers if
they need more income.
Risk management models also influence premium rates. Insurance companies
model what they expect to happen as well as the worst-case scenario that
could happen, based upon both the scale of a disaster as well as the
location of large population centers that could be hit. Between
windstorms, floods and sinkholes, Florida has become a high-risk state
for the insurance industry.
“It used to be just the southern tip, the Panhandle and certain areas of
the east coast of Florida that were deemed windstorm-prone areas, but
it’s expanded to the entire state being deemed windstorm sensitive,” Ms.
Sewell said. “So, the overall catastrophe risk of loss to an insurance
company in the event of a Category 5 hurricane hitting Florida, it’s the
same concept as earthquakes in California. The state of Florida over a
five-year period, you’ve had major, major hurricane losses, so Florida
is viewed very differently than the rest of the country (by insurance
companies) based on the hurricane risk.”
Litigious state
Beyond the actual damages caused by hurricanes, Mr. Chapman and Ms.
Sewell both cited another factor that makes insurance companies wary of
writing policies in Florida: litigation. Mr. Chapman said that, in the
years following Hurricane Irma, new unscrupulous roofing companies
sprung up that specialized in approaching homeowners with older roofs,
since there was a three-year window for filing hurricane claims. He said
that they manipulated assessments and estimates to attribute normal wear
and tear instead to hurricane damage. He said that often the papers they
presented homeowners to sign would include an assignment of benefits
document, which signed the homeowner’s rights and control of their
insurance claim over to the contractor. Since the contractor now
controlled the claim, they would present an inflated repair bill to the
homeowner’s insurance company. When the insurance company objected to
the price and to the assessment that the entirety of the roof ’s
problems was caused by a hurricane, the contractor then retained an
attorney and sued, often without the homeowner’s knowledge because they
had assigned their benefits to the contractor. Mr. Chapman said this
scenario was repeated many times over by multiple contractors and
attorneys against multiple insurance companies in Florida.
“The carrier has a responsibility to get you back to where it was the
day before the storm,” Mr. Chapman said, “but the life expectancy of a
shingle roof in Florida is 15 years. Insurance is not a warranty program
to pay for wear and tear, and it never has been designed to do that. The
worst part is that the insurance industry is now using a depreciation
schedule, so that as the roof ages, they’ll only pay the value of the
life that’s left and not the whole roof, so it dilutes the insurance
product bought by most consumers. Then some companies that were willing
to write policies on homes with 20-yearold roofs will now only write if
the roof is 10 years or newer, so it’s giving less options for people to
buy insurance.”
According to the Office of Insurance Regulation, Florida accounted for
9% of homeowners insurance claims filed nationwide, yet 79% of lawsuits
filed over homeowners insurance claims nationally were filed in Florida.
The office also reported that, over the last 10 years, insurers paid out
$51 billion, with 8% going to claimants and 71% going to attorneys and
public adjusters.
“What these firms relied on was that it was cheaper for insurance
companies to settle in lieu of having to pay for defense litigation
costs, so insurance companies paid way more than they should have for
losses as a result of roof damage,” Ms. Sewell said. “How do you risk
control for roofers pulling scams and attorneys?”
Florida Weekly reached out to two law practices, one in Palm Beach
County and one in Lee County, that advertise that they handle insurance
claim cases to request their viewpoints for this story. Neither replied
by deadline. A large insurance brokerage firm in Lee County also didn’t
respond to Florida Weekly’s interview request.
Mr. Chapman said that there were also some companies
that he would call bad actors among the insurance carriers, so his own
industry wasn’t entirely clean. He said they had done awful jobs when
they had to handle claims and needed to be held accountable.
State of the insurance business
Between the hurricane risks and the potential for lawsuits, many of the
big-name insurance companies familiar from national advertising
campaigns write few to no homeowners’ insurance policies in Florida. Mr.
Chapman said that most of the companies providing homeowners’ insurance
in Florida are small companies located in-state that typically write
between 50,000 and 100,000 policies. He said most are so small that his
agency actually has more employees than many of the insurance companies
he does business with.
“They’re smaller companies because the large companies don’t want to
write business here because of the litigious environment and the bad
actors (doing roofing scams) are so strong,” Mr. Chapman said. “It’s not
worth their risk — not because of storms and normal losses — but because
of the manipulation that takes place after the storm. They don’t want to
fight that fight, and they don’t have to write in Florida, so they’ve
shrunk their portfolios to become really small players in our market.”
The homeowners’ insurance market has become so unstable that 11 property
and casualty insurance companies are currently in receivership with the
state for liquidation, which is a number that Mr. Chapman said was
unusual to the point of being historic. The Florida Department of
Financial Services shows that seven of those insolvencies took place in
the last two years, and another three took place between 2017 and 2019.
Southern Fidelity Insurance, the company that petitioned the state for
an 84.5% premium increase in 2022, went into receivership later in the
year.
Given the Florida insurance industry saw net underwriting losses
exceeding $1 billion per year in 2020 and 2021, the number of insolvent
companies is not surprising. When the state puts an insurance company
into receivership, policy holders have 30 days to find another insurance
carrier — in a tightening market with higher rates. And policy holders
must wait for the state to complete its accounting of policy records to
send to the Florida Insurance Guaranty Association before they receive
any premium refunds. The liquidations have forced hundreds of thousands
of homeowners to seek new policies. Many have scrambled to Citizens
Property Insurance Corporation, a not-for-profit insurer established by
the state legislature to serve as an insurer of last resort for those
who cannot find policies elsewhere.
Insurance reforms
To remedy the insurance market crisis, Gov. Ron DeSantis called the
state legislature into a special session last May to work on legislation
for the property insurance market. Senate Bill 2A passed during a second
special session in December, and the governor signed it into law.
Among the reforms, the new law eliminates assignment of benefits to a
third party, such as a contractor. It also eliminates one-way attorney
fees, so insurance companies will no longer be required to pay a
homeowner’s lawyer in addition to the claims settlement if the insurer
loses the case; each party will now pay their own legal fees.
Additionally, it creates and funds a new $1 billion reinsurance option
for insurance companies; reduces the time insurance companies have to
pay or deny a claim; reduces the time policy holders have to file a
claim; adds additional restrictions for obtaining insurance from
Citizens Property Insurance; and provides the Office of Insurance
Regulation more ability to examine insurance companies’ conduct
following hurricanes, among other provisions. Aspects of the law began
to be phased into place starting in January.
“I think this law will bring more competition and interest to our
marketplace,” Mr. Chapman said. “We may see some of the bigger carriers
creep back in slowly. There will be a first run of investor capital
that’s interested in trying to make a few quick bucks by capturing the
right timing, but that’s a good thing because it means it’s a healthy
marketplace that people will want to be a part of. They’ll show up, put
money behind it and write insurance, and that competition will drive
pricing down because, right now, availability is the number one issue we
face.”
Ian’s impacts upon insurance premiums are due to hit in two to three
years, and the impacts of the new law will likely manifest around the
same time. Meanwhile, Mr. Chapman offered advice to homeowners to
prepare them to shop for better rates. He said that, once repairs are
completed to fix Hurricane Ian damage, homeowners should double-check to
be certain that their claim is closed, but he said to be absolutely
certain that all repairs and paperwork were completed first because
nothing can be added to a closed claim.
He said to consider projects to harden the home against hurricanes, such
as a new roof or windows, to reduce premium rates and make the home more
attractive to new insurers. (A state program offers grant possibilities
to help pay for the upgrades.) He said to retain receipts for all types
of home repairs (not just hurricane repairs) to prove to insurers that
you have maintained and improved your home, which lowers their risk for
insuring you. And he suggested working with a local independent
insurance agent because they have the flexibility to shop multiple
insurers to find the best coverage and rate for you.
“I know it’s complicated because, with increased insurance rates, you’re
strapped just paying for insurance,” Mr. Chapman said. “But if you can
harden your home, as competition comes into the marketplace, they’re
going to want to write good business, and you’ll be first on their
list.” ¦
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