Hurricane season finds homeowners insurance blowing in the wind

The Florida home insurance market remains volatile in 2023 for insurance companies and consumers alike.

According to Jennifer Gimbel, senior managing editor and home insurance expert at Policygenius, “costly hurricane losses, expensive lawsuits stemming from fraudulent roof damage claims, and high inflation have put increased financial strain on insurance carriers in Florida.”

This has caused multiple insurance companies to go insolvent or leave the state in the past year.

“The ones still left have become pickier about what types of homes they’ll insure and how they price risk, such as a roof’s age or condition,” she added. “These stricter underwriting criteria, along with the dwindling number of options in the state, has made homeowners insurance in Florida significantly pricier and difficult to find in 2023.”

Many Florida homeowners are left to secure their coverage through Citizens Property Insurance, Florida’s last-resort home insurance for homeowners who cannot find coverage on the private market.

State-backed Citizens added more than 12,000 policies during the first half of June as the hurricane season started. Citizens had 1,316,782 policies as of Friday, according to its website. Citizens has seen dramatic growth during the past two years as private property insurers have dropped customers and raised rates because of financial troubles.

But due to the vast number of home insurance policies Citizens wrote in 2022, it has offboarded many of its policyholders to private insurers “as long as the quotes are no more than 20% higher than their rate with Citizens,” said Ms. Gimbel.

“In turn, thousands of Florida homeowners have received letters detailing that their Citizens policy has been assumed by a private insurance company,” she said. “This has caused even more confusion for homeowners who are left struggling to understand their new policy and the claims process with their new insurer.”

This comes on top of claims filed last year due to damage caused by Hurricane Ian. Many homeowners are still struggling to get their claim settlements. There have also been investigations, brought on by the Washington Post, into whether insurance companies have lowered, and in some cases erased, the loss estimates given to them by their insurance adjusters, said Ms. Gimbel.

The Florida Department of Financial Services said it is still investigating these allegations and that it has interviewed witnesses and collected documents of evidence.

To mitigate some of these issues, Gov. Ron DeSantis signed in May legislation to hold property insurance companies accountable for claims-handling practices, increasing fines for violating laws, and giving the state additional regulatory powers to investigate allegations of bad behavior in the market. The legislation, the Insurers Accountability Act, is to take effect July 1.

Sen. Travis Hutson, who sponsored the bill, said it would bring more balance and oversight to Florida’s insurance industry. The law would prevent carriers from altering policyholders’ estimates without detailing the changes.

The legislation also includes strengthened requirements for the practices of claim handling and forbids financially failing or insolvent companies from soliciting or accepting new policies or give bonuses to their executives.

R. Hugh Lumpkin, partner in Reed Smith’s Insurance Recovery Group, said however that this legislation is not giving enough enforcement ability to the state or to entities who have the best interest of the homeowners in mind.

“Administrative remedies for insurer misbehavior generally fail nationally,” he said. “Many states have administrative remedies for insurers who misbehave in the claims process. Experience has proven over decades that those administrative remedies don’t work because the people tasked with the enforcement of those remedies don’t have an incentive to assure that the insurance company are behaving properly.”

“There is more to be done,” said Oscar Seikaly, CEO of Miami-based NSI Insurance Group. “The biggest issues have always been the same. Most of the houses are grossly under insured.”

There are still many homeowners in the state that are under-evaluating the value of their homes, using software that is 20 years old, and not accounting for the rise in property values that most areas have experienced. “So, insurance companies are not getting the right premium for that risk,” he said, “which means they have to keep raising their premiums to compensate for that.”

In addition, with global warming, storms are getting a lot more severe and frequent, something that insurance companies did not account for in the past, he said.

“All of the sudden, they see these loses that were not predicted and they panic, and say, ‘We need to increase premiums’.”

Late last year, the governor signed two bills to address the property insurance crisis. Senate Bill 4-A, the Disaster Relief bill, provided $750 million for additional disaster relief, particularly for those affected by hurricanes Ian and Nicole in the form of tax relief for homes damaged. Of that money, $350 million is to support local governments for FEMA Public Assistance for hurricane recovery and mitigation projects; $150 million would fund Florida Department of Environmental Projection’s support for local beach renourishment projects and a new Hurricane Restoration Reimbursement Grant Program; $100 million to repair and reconstruct community stormwater and wastewater structure; and $150 million to support the Hurricane Housing Program and Rental Recovery Loan Program.

Senate Bill 2-A, the Property Insurance bill, eliminates one-way attorney fees for property insurance claims, aimed at disincentivizing fraudulent lawsuits. It also directs the Office of Insurance Regulations to enhance its ability to oversee property insurers as they conduct their appraisal process. The bill would shorten timelines to send payouts to homeowners and grant additional funding for temporary reinsurance support.

“Unfortunately, in resolving what the legislature felt would be a disincentive for those types of [bad] actions, it prevented people who represent policyholders in good faith to help those who cannot afford lawyers,” said Mr. Lumpkin.

“I used to routinely take cases for people who could not afford counsel,” he said. “If I obtained payment of benefits to my client, I’d be able to secure my attorney’s fees from the insurance company, or I could petition a court to get those fees. By removing that ability, [lawyers] who cannot afford to represent homeowners on smaller claims are going to spend a disproportionate amount of time dealing with the insurance company to the point where it’s no longer profitable.”

The idea that litigation is what is causing policy premiums to rise exorbitantly is a false narrative, he said. “Certainly, litigation is one of the drivers. About 30% of every premium dollar goes to pay lawyers. The main driver behind the high premiums has very little to do with litigation, and a lot to do with the global financial market and the cost of reinsurance. This was a problem of longstanding making.”

The Insurers Accountability Act is going to help reduce premiums by a small percentage, Mr. Seikaly said. “What the legislation did is 20% of the problem. Other things have to be resolved differently.”

Some of those solutions include more capital flow into the state to account for the additional capacity. “Over time, insurance companies have been pulling out of the state,” he said. “We have fewer companies, [and many] reaching their maximum capacity. We need other insurers to come in and pick up some of that to keep the prices down. Competition is needed.”

The state should also incentivize homeowners to make their homes more durable through tax breaks and low-cost financing, he said. “If you make homes more durable, the likelihood that those homeowners will need to file claims is reduced. That’s a first step.”