Why are Florida Home Insurance Rates Getting so high?
Can I buy a vowel for Why are Flor_da Home _nsurance Prem_ums so H_gh?
This is the number one question we’re asked all the time and probably the hottest topic in the Insurance World right now.
So, who or what is to blame for these skyrocketing home insurance premiums? And more importantly, is anything being done or going to change in the near future? Aside from inflation, these are the key factors in the increase of home insurance premiums in Florida.
Ten years ago premiums were stable and saw relatively no increase due to the ten preceding years of absent major storms. Fast forward to 2023 and Florida has seen the worst and most expensive losses from Hurricanes in some of recorded history. In the span of eight years we have seen three major Hurricanes, Irma in 2017, Michael in 2018, and Ian in 2022. Each one surpassing the claims reserves that were budgeted for the year. Irma cost 50 billion in damages, category 5 Michael reach 25 billion, and record-breaking Ian saw 112 billion in damages.
In 2001 the Florida Building Code took a pro-active stand against catastrophic storms by creating guidelines that make roofs and homes stronger and more capable of withstanding a major storm. Hurricane Ian showed the importance of the better grade of construction when entire neighborhoods were decimated and only the homes build to the newer code were left standing. We can’t do much if our current home was built pre 2001 but with time, as home receive enhancements that are up to code, less homes will be a total loss.
Extra Roofing claims
On top of the excessive claims that insurance companies are paying out, roofers were searching for old roofs that might have had damage and submitting these additional claims to companies. Of course, legitimate claims should be taken to the insurance company. But from personal experience, many times these roofers would say that could use a date from the past that had high wind speeds and blame any potential damage on that incident, regardless of the truth. There’s no such thing as a truly free lunch (or roof) and policyholders are now paying that once hidden price.
Florida has laid the hammer down on roofers pursuing these “potential claim damages” and make it illegal to solicit a claim for a new roof with an insurance company.
The recent 2023 legislation has also put a cap on filing a claim to two years rather than the previous four years in hopes of cutting down on this fraudulent behavior.
When losses are more than expected, including claims and legal expenses, it could mean losses that exceed their reserves. This will cause insurance companies to dip into their reinsurance. Reinsurance is essentially insurance for insurance companies and access to additional funds when the company does not have enough to pay out claims for a large disaster. Reinsurance is a big expense for insurance companies and when this cost increases, that increase is passed on to policy holders. Carriers have reported that costs spiked again this year, meaning the cost of reinsurance has more than doubled for many insurers in the last three years (Rabb, 2022).They will increase rates until they are confident they can meet all their short and long term obligations.
The 2023, the Florida legislature created a state-backed reinsurance program that the Florida Insurance Companies can purchase at a much lower rate than the limited past market. Theoretically, this discount should be passed along to the customer’s premium eventually.
When claims aren’t being resolved quickly enough, people sometimes feel that involving an attorney will help push a payout through with their insurance company. But in reality, the cost of paying the two sides legal fees is another reason rates are being pushed up. Anyone paid by the hour has an incentive to take as many hours as possible to accomplish something. “In 2021, Florida’s domestic property insurers spent more than $3 billion on legal defense costs and containment – double the figure reported in 2016.” (Rabb, 2022) In one recent article, it’s argued that the cause of the financial crisis is not due the hurricane claim amounts, but the litigation that comes from them. “Florida is home to off-the-charts lawsuit abuse, so much so that 79 percent of the homeowner insurance-related lawsuits in the entire country take place in Florida.” (Theodorou, 2022)
This is another law created in the 2023 Florida Insurance Legislation. Now, there will be only one legal representative looking to arbitrate the dispute between both the insurance company and the claimant. And if the suit is fraudulent, the claimant will be required to pay the attorney fees.
Decrease in Competition
With all the recent increased expenditures, many insurance companies could not stay financially viable and have become insolvent and filing for bankruptcy. Since 2022, twelve companies have gone into receivership (Recent Company Actions, n.d.) not being able to survive after the payouts from Hurricane Ian. Decreasing the number of competitors increases the demand, so the remaining companies can increase price.
With the many changes now in the works in the Florida Insurance Market, we’re looking forward to seeing some relief soon. It will take some time for the companies to feel the financial relief that this legislation brings, and we’ll all need to say a prayer that the next few years will spare us a major hurricane. But we’re hopeful that more companies will re-enter the market and lower premiums to an affordable level.
Why We Have Hope
There’s hope on the horizon. Aside from the recent legislation that’s been passed, the long-standing agents carry with them the perspective to weather this market storm. Agencies like our own that have been around for forty years have access and contracts to some of the best, most stable insurance companies in the state. These A rated companies aren’t going anywhere, and they aren’t handing out contracts to the newer pop-up agents. We share your frustration with the increases and the lack of competition, but really believe this new legislation will be the game-changer in the next few years.