Homeowners in Florida's tropical paradise are paying more for their homes and finding homeowner insurance increasingly harder to buy at higher rates than ever. A recent study from the Insurance Information Institute indicates Florida homeowners, with an average premium of more than $4,200 for insurance, face a nearly threefold premium rate over the average cost across the U.S. of $1,500.
In the past few years, insurers have begun offering policies to protect against hurricane damage. These plans typically include windstorm protection but not flood protection. In addition, they may provide some coverage for water damage caused by flooding, but they do not pay for repairs if the home floods due to heavy rains. This continuing crisis is a cause for concern for Florida property owners.
Why Is the Florida Property Insurance Market So Troubling?
The Florida property insurance market has become so unstable that it now ranks among the most volatile markets in the country. In fact, according to the National Association of Insurance Commissioners (NAIC), the average annual increase in claims between 2013 and 2017 was nearly double the national average. However, recent claims increased by $1 billion, almost twice the amount of the previous year's claim increases.
Florida's insurance industry is facing an unprecedented number of lawsuits. According to the NAIC, 1,922 property-related civil actions were filed in a recent year, representing a 20 percent increase over the prior year. Of these cases, 1,814 were filed in Florida courts by homeowners suing their insurance companies after suffering losses due to natural disasters.
There are several other factors contributing to the crisis, including:
- Hurricane Irma and Maria – Hurricanes Irma and Maria devastated parts of Florida in September 2017. Both storms caused massive damage to buildings and infrastructure, including power lines, roads, bridges, and even schools; as a result, many Floridians lost everything in the storm.
- Rising Costs – The cost of living continues to increase in Florida. Home prices have risen by more than 30 percent since 2010. Meanwhile, wages have remained stagnant.
- Flooding – Heavy rainfall can lead to devastating flooding. In 2016 alone, Florida experienced eight major rainstorms that resulted in widespread flooding.
- Poor Regulation – Florida does not regulate the insurance industry like other states. For example, Florida does not require insurance companies to file financial statements with regulators.
- High Premiums – The average price for a Florida homeowner policy continues to rise by double-digit annual percentages in recent years.
How Did Florida Get into Its Current Problems?
The answer lies in part in the state's history of property insurance. In the early 20th century, Florida was one of the first states to adopt "no-fault" auto insurance policies. This scenario meant that if someone had car insurance, they didn't have to worry about paying out claims if another driver injured them. However, no-fault auto insurance did not extend to homeowners' insurance.
This development led to situations where people could buy car insurance without having homeowner's insurance. Consumers often had to choose between car or homeowner's insurance because they couldn't afford both. As a result, most Floridians bought car insurance rather than homeowner's insurance, even though they lived in homes that were at risk of being damaged by storms.
The insurance industry lobbied to change Florida's laws to cover damage from hurricanes. The legislature passed a bill in 2005 requiring insurers to write policies that covered damage from hurricanes. However, the state did not require insurers to ensure their customers had those policies.
What Happened Next?
In 2006, Hurricane Wilma hit Florida. Although the hurricane caused minor damage to cars, it destroyed thousands of houses. Unfortunately, the insurance companies did not have enough money to cover the losses from the hurricane and asked the state to bail them out.
The state agreed to do so, but only on certain conditions that required insurance carriers to do the following:
- Increase their rates.
- Give discounts to customers to flood insurance customers.
- Provide free credit reports to customers who want to purchase new policies.
- Ensure their customers have adequate insurance coverage.
Unfortunately, none of these conditions worked as intended. Insurance companies raised their rates too much, which made many customers unhappy. Customers with poor credit scores could not get loans to buy new policies. And because the insurance companies no longer offer discounts, some customers decided not to renew their policies. As a result, the number of policies sold dropped dramatically.
The Problems Continued to Exacerbate.
The insurance companies also failed to confirm that their customers had adequate coverage. For example, the state allowed carriers to offer discounts to customers who purchased more expensive policies. But the insurance companies did not carefully communicate with customers about how much extra they would need to pay for additional coverage. As a result, some customers bought less coverage than they needed.
The insurance companies were slow to respond to changes in the law. They often took months to update their computer systems to reflect new requirements. This created problems for customers trying to file claims after a hurricane. It also left the insurance companies unable to assess their customers' insurance coverage.
Finally, the insurance companies were not allowed to raise prices based on the storm's severity. As a result, they could not charge higher premiums to customers whose homes suffered more significant damage. This rule meant that the insurance companies were forced to absorb all of the costs associated with the storm, which, in turn, put more pressure on carriers to leave the state.
What Can Be Done to Fix Florida's Property Insurance Mess?
The state has spent $1 billion since 2012 trying to fix its insurance mess. But it hasn't worked. Things got worse after the state passed these laws. Why?
First, the state should allow insurance companies to charge higher rates in high-risk areas and encourage more people to purchase insurance to help reduce the risk of an insurer going bankrupt.
Second, insureds should not face choices encouraging them to insure their property for less than its worth.
Third, the state needs to improve how it collects data about the number of claims filed by each company. Then it should use that information to determine which companies are providing good service.
Fourth, the state needs to change how it regulates the insurance industry. For example, it should require insurance companies to disclose any changes in their premium prices. And it should limit the ability of insurance companies to cancel policies when there is no longer adequate coverage.
Fifth, the state should create a public database that allows residents to compare insurance quotes. Residents can easily see what kind of policy will work best for them.
In conclusion, the state should allow insurers to charge higher rates in hurricane-prone areas. It should stop forcing insurance companies to give away free discounts. Finally, it should improve how it collects data and regulate the insurance industry.
Finding Property Insurance in Florida.
Program Business is a national organization doing business with agents in 50 states and helping them connect with their best options among top carriers, MGAs, wholesalers, and program administrators. As such, we stay abreast of trends and development across the nation, intending to share our information.
The point of the Program Business Market Directory is to create a conduit for connections between agents and the unique markets they wish to serve. For example, finding adequate insurance coverage for condo associations in Florida is usually tricky. Agents using our Market Directory to search for such coverage will find Alliant Underwriting Solutions' specialized program for community associations from coast-to-coast.
Coastal Advantage by Community Association Underwriters (CAU) provides a reliable protection barrier for community associations. It is the most comprehensive policy of its kind. Coastal Advantage delivers invaluable peace of mind that the community is protected from a broad array of coastal exposures. In addition, Coastal Advantage offers stability and strength for any storm in a volatile risk climate.
CAU is a managing general agency and national leader in community association insurance and risk management. Founded in 1989, CAU services community associations, residential and office condominiums, cooperative apartments, and homeowners associations. CAU is based in Newtown, PA, and offers property, casualty, fidelity, D&O, general liability, and ancillary products to a nationwide client base.