Get ready to pay more as risks for home insurers rise in Florida

Article Courtesy of The Sun Sentinel

By Ron Hurtibise

Published December 10, 2021


Insurance experts presented a gloomy forecast for anyone hoping that the cost to insure homes and businesses in Florida might stabilize or even fall anytime soon.

Already reeling from skyrocketing rate increases, nonrenewals and withdrawals by insurers from high-risk markets like South Florida, homeowners can expect to pay even more in premiums over the next decade if losses cannot be significantly reduced, several speakers said at the Florida Chamber’s annual insurance summit in Tampa on Thursday.

The Florida Chamber represents private business interests in the state and has historically supported changes to state laws aimed at reducing incentives for repair contractors and plaintiffs’ attorneys to sue insurance companies.

Florida-based insurance companies have been hemorrhaging red ink over the past five years, thanks to aggressive advertising by plaintiffs’ attorneys that convinces homeowners to sue their insurance companies, participants said.

“Florida has more billboards encouraging people to sue you than any country on the planet,” said Mark Wilson, Florida Chamber’s president and CEO.

In 2019, Florida generated 8% of all property insurance claims and 76% of lawsuits in the U.S., according to an analysis by the Florida Office of Insurance Regulation cited by Wilson. Of the $12 billion in insurance premiums paid by Florida property owners each year, 35% — or about $645 per policy — goes to attorneys, a study released by analyst Guy Fraker found last year.

Plaintiffs’ attorneys did not participate in the summit. The Florida Justice Association, a trade group that represents plaintiffs’ attorneys in issues before the state Legislature, typically says that litigation wouldn’t be necessary if insurance companies didn’t routinely deny, underpay, and delay timely payment of legitimate claims.

Unless costs from high rates of claims-related litigation are reduced, consumers in the state will either have to pay more for insurance or accept lower coverage, said Suzanne Williams-Charles, director of policy and regulation for the Association of Bermuda Insurers and Reinsurers. Reinsurance is insurance that insurance companies buy each year to guarantee they’ll be able to pay claims after catastrophes such as hurricanes.

Whether reforms enacted by the state Legislature last spring will succeed by reducing losses and stemming rising premiums won’t be known for about two years, said Christine Ashburn, chief of communications, legislative and external affairs for state-owned Citizens Property Insurance Corp.

Another reason insurance costs remain high is that Florida is home to half of the world’s properties most vulnerable to catastrophe, said John Seo, co-founder and managing director of Fermat Capital Management, which sells insurance-linked securities to global investors.

Currently, the insurance industry expects to pay out $250 billion if a major Category 4 or Category 5 hurricane strikes a major urban part of the state, he said. That total would increase to $1 trillion if the state adds four million more residents and two million more jobs by 2030 as expected by the Florida Chamber.

Insuring that increased risk will require higher premiums, he said.

Climate change will drive up insurance rates by generating more storms and more losses, Williams-Charles said. If rates fail to cover increased risks, properties will be left without needed coverage, she said.

The Bermuda association is working with insurance regulators across the country to develop pricing models that reflect increased risks from climate change, she said.

Availability of capital to cover increased risks isn’t a problem, Seo said. About $20 trillion in investment capital is floating around the world in search of useful opportunities, he said. But the Florida-based insurance industry’s overall lack of profitability is seen by investors as a bad bet that offers “a negative return,” he said.

Paul Schriefer, director of risk management education and research at the Florida State University College of Business, said interests of insurers and plaintiffs’ attorneys will always conflict. Yet, he said, “I think the majority of people on both sides want the same thing — what’s better for consumers.”

Stronger efforts to prosecute criminals who engage in outright insurance fraud could help reduce costs by convincing would-be lawbreakers not to take the risk, he said.

Jimmy Patronis, Florida’s chief financial officer, announced that his office has formed two teams of insurance fraud detectives with funds approved by the Legislature last spring. The teams, with five detectives each, are based in the Orlando and Tampa areas, he said. Patronis said he might request funding for other areas if the new teams prove to be effective.

Dennis Burke, senior vice president of the Reinsurance Association of America, said one way to bring insurance costs to levels appropriate to risk is to reduce risk. This can be done by improving building codes to ensure homes better withstand destructive hurricane winds, he said.

Mounting financial losses put two Florida-based insurers out of business this year and have prompted many others to drop customers or stop selling coverage in southern and central Florida — areas with the highest volumes of contractor fraud. As a result, thousands of homeowners were left with no choice but state-owned Citizens Property Insurance Corp., the so-called insurer of last resort.

Citizens’ policy count has increased from about 420,000 in 2019 to 724,000 at the end of October and is projected to reach 1 million by early 2022. Lawmakers are wary of allowing Citizens to cover too much risk. Two catastrophic storms could quickly wipe out the company’s $6.4 million surplus and force all Florida insurance customers to pay surcharges to cover unpaid claims.

Christine Ashburn said the company favors amending state law to make it more difficult for Citizens customers to reject “takeout” offers from private companies. Currently, state law allows customers selected for takeouts to reject offers for any reason and stay with Citizens.

Just 20% of targeted customers agree to takeout offers, Ashburn said. That dissuades investors from forming new insurance companies seeded with Citizens takeout customers, she said.

Citizens’ proposal would enable customers to reject takeout offers only if the new company’s premium exceeded Citizens’ by more than 20%.