Florida’s property insurance crisis continues to worsen, despite recent legislative changes focused on stabilizing the rapidly collapsing home insurance market. Many property insurance companies continue to liquidate or no longer write new business in Florida, and many of the remaining carriers are requesting rate increases. What’s worse, potential financial strength rating downgrades could cause issues for millions of homeowners. Bankrate dug deep into the Florida insurance industry to discover the cause of this problem. We can help you understand why the Florida home insurance crisis is happening and your options if you receive a cancellation or nonrenewal notice on your homeowners insurance policy.
- Florida’s home insurance crisis is picking up speed as rates potentially increase and financial strength ratings worsen.
- Florida accounts for only 9% of the country’s home insurance claims but 79% of its home insurance lawsuits, many of them fraudulent.
- Because of the fraudulent lawsuits and the high overall claim risk in Florida, insurance companies have faced two consecutive years with net underwriting losses over $1 billion.
The crisis in the Florida insurance market
Florida has always been a complex home insurance market, but recent issues are pushing the state’s market to the point of collapse. Since 2017, six property and casualty companies that offered homeowners insurance in Florida liquidated. Four more are in the liquidation process in 2022. Other insurance companies are voluntarily leaving the state. Still, more are choosing to nonrenew swaths of home insurance policies, drastically tighten their policy eligibility requirements or request substantial rate increases.
According to Logan McFaddin, Vice President of State Government Relations at the American Property Casualty Insurance Association,
Florida’s property insurance market is in crisis as insurers grapple with out-of-control litigation costs and billions in losses from recent natural disasters.
Florida’s Insurance Consumer Advocate (ICA) Tasha Carter agrees, saying, “Homeowners insurance options in Florida have become more and more limited, and consumers are facing dire consequences.”
Why are home insurance companies leaving Florida?
Florida insurers are canceling policies, leaving the state or liquidating at a rapid pace. Why? What is behind these companies’ aversion to insuring Florida homes?
Florida has always presented a risky market to home insurance companies due to the high threat of widespread weather-related damage, but the current crisis is caused by a number of factors reaching a boiling point at the same time.
Insurance fraud in Florida
The biggest issue right now in Florida is home insurance fraud, driven by fraudulent roofing claims. A proclamation from the office of Governor Ron DeSantis notes that, although Florida only accounts for 9% of the country’s home insurance claims, it is home to 79% of the country’s home insurance lawsuits. Many of these lawsuits are fraudulent. ICA Carter explains how the scams work:
- First, roofers canvas neighborhoods and offer inspections to unsuspecting homeowners. These contractors inevitably “find damage” on the roof and often promise a “free roof” to the homeowner, claiming they can have the home insurance deductible waived.
- Homeowners are pressured to sign an assignment of benefits form, giving contractors the right to file an insurance claim on their behalf.
- A claims adjuster from the insurance company inspects the alleged damage. The adjuster either finds no damage or far more minimal damage than the contractor found, and the claim payout is less than what the contractor demanded.
- The contractor brings legal action against the insurance company, demanding a claim payout for the contractor’s original quote. Remember, the homeowner signed the benefits of the policy to the contractor, so the contractor doesn’t need the homeowner’s permission to do this.
- The insurance company now has a choice: it can pay the legal costs to fight the lawsuit or pay the costs to settle out of court. Either way, the insurance company loses money due to the legal action.
ICA Carter notes that “these schemes are real and are happening more frequently,” which puts more and more financial pressure on insurance companies, especially in a state with high claims costs due to weather-related events.
According to Mark Friedlander, Director of Corporate Communications at the Insurance Information Institute, “Florida property insurers are projected to post a cumulative underwriting loss of $1.7 billion for 2021” due to these runaway litigation costs. The governor’s office reports that, for two consecutive years, net underwriting losses have exceeded $1 billion. It’s no wonder that so many companies are going insolvent or leaving the state before they reach that point.
Instead of leaving altogether, some companies are tightening their underwriting restrictions to lessen the risk of these scams. This may be the reason why several companies — including Southern Fidelity, Progressive and Universal — have chosen to continue operations in Florida but have nonrenewed tens of thousands of policies.
However, companies are now prohibited from denying coverage solely based on roof age if the roof is fewer than 15 years old and has a life expectancy of five years at the time the policy is issued. That said, insurers will have to decide if they are comfortable with these restrictions or if they will continue leaving Florida.
Risk will always be a consideration for home insurance companies in Florida. The state’s shape and geographic location mean that it could get hit from either side by a hurricane. Because the peninsula is so thin, even homes in the interior counties aren’t entirely protected.
To make matters worse, fraudulent claims may be more common after severe storms — and storms may be coming. Colorado State University predicts that the 2022 hurricane season will be more severe than usual, with 18 named storms, including eight hurricanes, four of which are predicted to be “major.” If any of those storms hit Florida — which is likely, considering that Florida has been hit by more hurricanes than any other state — it could push the already-teetering home insurance market into collapse due to increased home repair expenses, including the potential of fraudulent roof claims.
However, although the risk of hurricane damage complicates things, it isn’t what’s driving the market to the brink of collapse. After all, other risky states don’t have this problem. A high likelihood of damage generally means paying a higher premium to offset that risk, but coverage is usually still available. Oklahoma, for example, has the highest average cost of home insurance in the nation at $3,593 per year due to the likelihood of tornado damage, but homeowners in the state don’t face the same difficulty finding coverage that Floridians do.
Is anything being done to curb the crisis?
Yes, although the full effects of the measures have yet to be seen. Senate Bill 76 went into effect in July 2021 and included several provisions to curb fraudulent claims causing insurers so much strain. One such provision is aimed at reducing the solicitation tactics that fraudulent contractors often use at the start of a scam. While this legal measure may help solve the problem, Sean Harper, CEO of Kin Insurance, warns that “there will need to be additional action taken to restore the market to health.”
Florida lawmakers met for a special session from May 23 through May 27. The Legislature passed an insurance reform bill that includes several provisions to help slow the spiral of the market. The provisions included setting up the My Safe Florida Home Program, which provides grants to help Florida homeowners strengthen their homes against damage. Additionally, home insurance companies will not be able to deny coverage for homes solely based on roof age if a roof is less than 15 years old and still has five years of useful life left (older roofs may still be denied as they present a high risk of damage). Finally, lawyers will be restricted in the rates they can charge for property insurance claims cases, hopefully discouraging fraudulent lawsuits and decreasing litigation costs.
Recent developments: Demotech responds to potential rating downgrades
Because many home insurance companies have been hit hard by the rampant and fraudulent litigation, they may no longer be as financially stable as they were. In late July 2022, financial strength rating company Demotech announced it was considering downgrading the financial strength ratings of 27 property insurance companies.
The situation is complex. While these carriers may no longer have the financial strength they used to, downgrading also causes issues. Downgrading financial ratings impacts homeowners with federally-backed mortgages — those from Fannie Mae and Freddie Mac — because these lenders require home insurance companies with Demotech ratings to maintain at least an ‘A’ level. Demotech has not released the names of the companies it is considering downgrading.
“Preliminary evaluations are just that — preliminary,” Demotech President Joe Petrelli told Bankrate. Some of the 27 could retain an ‘A’ or higher rating. But if these downgrades happen, homeowners whose coverage is with an affected company may need to find another insurance carrier in a market where options are already limited or expensive.
While a rating downgrade may present challenges for a company and its insureds, that hardship cannot, and does not, factor into our ratings, which are based on specific data and the objective application of our rating methodology.
— Joe PetrelliPresident of Demotech
The Florida Office of Insurance Regulation (OIR) established a reinsurance fund through its last-resort insurer, Citizens. This means that if an insurance company’s financial strength rating is downgraded below the ‘A’ level, the downgraded company could purchase coverage from Citizens to back it, similar to a co-signer backing a loan. Reinsurance through Citizens would allow the downgraded insurance company to meet Fannie Mae and Freddie Mac’s requirements. This is important because it would prevent policyholders from being required to find a new property insurer. However, a reinsurance solution further strains Citizens, which is already taking on substantial risk by insuring more policyholders in the state as other insurance companies exit Florida.
How to lessen your risk of nonrenewal
If you live in Florida, having a plan could help you lessen your risk of receiving an insurance nonrenewal. There’s nothing you can do to prevent your company from pulling out of the state, but there are steps you can take to make your home as insurable as possible:
- Keep your roof updated and in good shape: Inspect your roof regularly and repair minor damage as it happens. If you can afford to, replace your roof before it reaches 15 years of age to lessen the risk of being nonrenewed.
- Install wind mitigation features: State law requires Florida home insurance companies to offer discounts for certain wind protection features, such as hurricane straps and other roof-bracing measures. These features lessen the risk of severe damage to your home, thus making your property more attractive to insurers.
- Maintain your property: Generally, maintaining your property will make finding insurance coverage easier. Along with checking your roof, also regularly check the rest of the exterior features of your home for damage. You should also make sure no large tree branches or other potential hazards overhang your home, as these could put you at risk of roof damage in a windstorm.
Additionally, there are ways you can lessen the impact of home insurance fraud and help keep companies from having to liquidate. ICA Carter points out that “consumers have the power to help stop contractor fraud by being informed and reporting fraud.”
- Know the signs and stay educated: ICA Carter created educational resources called “Demolish Contractor Fraud: Steps to Avoid Falling Victim” that may help homeowners recognize the signs of fraud, stop it before it happens and report it.
- Be wary of solicitation: Soliciting business isn’t against the law, but contractors who canvas neighborhoods after storms — and especially those who offer incentives and rebates for an inspection — may be part of a scam. Instead, contact your insurance company if you are concerned your home sustained damage after a storm.
- Do not sign an assignment of benefits form: By keeping control of your policy, you decide if a lawsuit is filed, which vastly cuts down on fraudulent litigation. It’s worth noting that these forms are often buried within otherwise legitimate-looking contracts. Once you’ve signed, the form is legally binding, so it’s important to read everything you are asked to sign. Do not let a contractor simply point out a signature section on paperwork or scroll past the details on a tablet screen. Read the entire document carefully.
Additionally, some companies now offer a discount if you agree to make your policy unassignable. Kin is one such company, and Harper notes that having a high number of unassignable policies has shielded the company from much of the litigation nightmare ensnaring other carriers.
What to do if your home insurance has been canceled
If you’ve received a Florida homeowners insurance cancellation, act quickly. With hurricane season approaching and the insurance market in turmoil, getting another policy could be difficult, but it is possible.
McFaddin recommends that you “work closely with your insurer or insurance agent to see what options may be available to you.” ICA Carter’s advice was similar, advising that “consumers should contact their insurance agency immediately to determine what their options are for homeowners insurance.”
If you’re struggling to find home insurance coverage in Florida, there are still a few companies that may be able to help.
No home insurance company in Florida is immune to the ripping effects of raging litigation, but Harper notes that his company has “some things that we’re doing that allow us to stay open in Florida when other folks aren’t or are going out of business.” In addition to the bulk of the company’s policies being unassignable, the company also employs a unique system for assessing claim damage.
Harper explains that Kin uses software that monitors weather systems and accurately pinpoints which houses may be damaged. The company can then proactively reach out to homeowners to determine if a claim needs to be filed, thereby cutting out potentially predatory contractors.
It sounds crazy, right, to be an insurance company that is asking our customers for claims? But it actually pays off.
— Sean HarperCEO of Kin Insurance
Citizens Property Insurance Corporation
Citizens is often one of the only options for homeowners in many areas of the state. The company has experienced rapid growth due to other carriers leaving the market. In 2018, the company had only 414,000 active policies; by August 2022, that number had ballooned to over 1,000,000. Michael Peltier, the spokesperson for Citizens, told Bankrate that the company is writing 5,000 to 6,000 new policies per week, and that in many parts of the state, Citizens is “the only game in town right now.”
Even so, Peltier says that “we do have underwriting guidelines,” so it may not be an option for all homeowners. Citizens is also affected by the same issues that are plaguing other insurance carriers and have recently raised their rates. Although the company requested a 10.7 percent increase on standard home insurance policies, the Florida OIR approved a 6.4 percent increase. While 6.4 percent is certainly better than 10.7 percent, it’s likely that many Citizens policyholders will still feel the strain of a larger bill. The rate increase will go into effect on September 1.
Additionally, Friedlander warns that, because Citizens is insuring so many of the high-risk homes that other carriers have walked away from, “a major hurricane striking Florida could have devastating effects” on the company and the industry. Offering reinsurance to companies if Demotech does downgrade ratings will add more risk to Citizens if a disaster strikes.
The bottom line
Florida home insurance has always been complex due to the state’s high risk of storm damage, but the incidence of fraudulent roofing claims has pushed the market to the brink of collapse. The problem may not stay in Florida, either; if other high-risk states like Louisiana and California see an increase in insurance fraud, those markets could begin to degrade. There is hope, though, as measures are put into place to protect companies and policyholders from financial strength rating downgrades, laws are passed that could help curb scams and carriers take a different approach to insuring homes in the Sunshine State. But will these measures be enough to save a market in turmoil?