Florida legislature seeking relief for tough home insurance market
Review the steps politicians in the Sunshine State are looking at in an attempt to correct course for the home insurance sector.
The Florida homeowners market is in full crisis mode. Access to homeowners insurance is quickly slipping from the grasp of many Florida residents who are now finding insurance impossible to secure or afford. Insurers in the state have pulled back on providing coverage; seven have completely pulled out of the state, many others have requested significant premium increases, two have become insolvent with several others in dire financial straits and possibly facing regulatory action against them.
Legislative attempts to fix this “perfect” storm have not been successful to date, although several bills have recently passed a key Senate Subcommittee that would help to address some of the issues. Senate Bill 1728 would make several changes, most notably allowing insurers to pay roof claims based upon actual cash value of the roof instead of full replacement value except for damage due to hurricanes. Senate Bill 186 is designed to help shore up the insurer of last resort, Citizens Property Insurance Company, by making it harder for seasonal or secondary home owners in the state to qualify for continued coverage under Citizens if another insurer will write the property at slightly or moderately higher premiums.
Much of Florida’s homeowners insurance woes can be traced back to 1992 when Hurricane Andrew blew through the state causing over $26.5 billion in damages that dwarfed damages from any previous hurricane. Andrew left behind not only a trail of destruction in Florida, but also lasting effects on the Florida insurance industry, as more than half of those properties damaged were insured to the tune of $15.5 billion. Prior to Andrew the worst case scenarios for a hurricane striking Florida were in the $7 billion range, although one study had predicted claims could reach up to $60 billion, but insurers in the state didn’t pay much attention to the scenarios until after Andrew. In addition, insurance companies at the time failed to factor in the increase in coastal property values, and the increase in costs to rebuild and replace those properties. In the wake of Andrew, eight companies became insolvent which triggered the Florida Insurance Guaranty Association (FIGA) to step in, take over and pay outstanding claims. Many of the insolvencies were companies writing only in Florida or regional carriers, as the larger national carriers were able to ride out the storm.
Andrew:
- Destroyed approximately 63,000 homes
- Damaged just over 101,000 homes
- Damage or destroyed approximately 82,000 businesses
- Approximately 33,000 acres of farmland damaged
- 31 Public Schools damaged or destroyed
- 59 Hospitals or Healthcare facilities damaged or destroyed
- 44 lives lost
Had Andrew hit 20 miles more to the north, the heavily populated cities of Miami and Fort Lauderdale would have been hit head on, and the damage, injuries and deaths would have been far worse.
Andrew was a wake up call for Florida in many ways, including the call for stronger building codes and construction that can withstand major hurricanes. The implementation of hurricane deductibles, which are based upon a percentage of the home’s value, became an important part of providing insurance coverage. Many insureds were forced to find coverage under NFIP flood insurance plans. However, with the new Risk 2.0 regulations in place, some private insurers are dipping their toes into Florida’s private flood insurance market again.
In 1992 the Florida Residential Property and Casualty Joint Underwriting Association (FRPCJUA) was created to cover the claims of homeowners affected by hurricanes in those areas not already served by the Florida Windstorm Underwriting Association (FWUA). The FWUA was created in 1972 as the insurer of last resort to provide wind-only coverage in Monroe County. The wind-only territories of the FWUA were expanded over time to include most coastal regions.
Citizens Property Insurance Corporation (Citizens) was created in 2002 from the merger of (FRPCJUA) and (FWUA) to provide both windstorm coverage and general property insurance for homeowners who could not obtain insurance elsewhere. It was established by the Florida Legislature in Chapter 627.351(6) Florida Statutes as a not-for-profit insurer of last resort. Citizens quickly became the largest insurer in the state. Private insurers were encouraged to take blocks of policies from Citizens in order to reduce the number of insureds covered by this insurer of last resort.
Senate Bill 186 proposes allowing qualified surplus lines insurers to help to depopulate, take out and keep out policies from Citizens, and sets the thresholds for surplus lines insurers. Private property insurers take blocks of policies from Citizens to help to shore up not only Citizens but the Florida property insurance market. Previously allowing other private insurers to take policies from Citizens, the insurance market had worked reasonably well in Florida, but changes to the program have been needed for some time.
Assignment of benefits litigation
Then in 2017 Hurricane Irma caused over $6 billion in property damage further disrupting the fragile homeowners market. Subsequent storms have also contributed to the crisis. Not only did Irma and subsequent storms result in significant claims payouts by Florida property insurers, but unscrupulous contractors, public adjusters and lawyers started filing en masse what is known as “Assignment of Benefit” (AOB) claims against insurance companies and filing suits against the insurers. Often these claims and suits were filed without the insureds’ knowledge in order to increase payouts from the insurers to these bad actors. AOB litigation has been rampant in Florida and accounts for over 90% of all litigation insurance claims in the United States. The costs to defend and settle these AOB claims have hit the insurers hard, and are cited as a factor leading several insurers into insolvency and others into dire financial straits.
For a brief period in December, the passage of legislation to rein in the AOB litigation crisis appeared to be working with the number of lawsuits filed dropping. However, in January 2022 an increase of 37% in the number of new lawsuits occurred. Clearly, more action will be needed to rein in the AOB situation, along with trying to fix the other areas of concern in Florida’s homeowners insurance market.
As of this writing, three insurers have been declared insolvent and ordered into liquidation triggering the Florida Insurance Guaranty Association. When an insurer is liquidated the policies of that insolvent carrier are canceled by court order 30 days post-liquidation, and the claims incurred prior to that date then fall under the FIGA statute. For the insured, this means that they must seek other coverage with the remaining property insurers in the state with many of them ending up at Citizens. On occasion, another insurance company may be willing to pick up the policies of the insolvent insurer, including some start-up or fintech carriers who have been moving into the state. While FIGA provides statutory protection for the unpaid claims of the insolvent carrier, including unearned premium claims, it does little to help insureds find new coverage in a state where the entire property insurance market is in chaos.
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