The Florida Legislature failed last month to weaken incentives for roofing contractors who canvas neighborhoods offering homeowners "free roofs" paid for in full by their insurance companies. According to insurance companies, this practice raises insurance costs for all homeowners.
However, Florida's insurance commissioner, David Altmaier, stated last week that the Office of Insurance Regulation can assist where the Legislature failed — by allowing insurers to offer coverage that does not cover the full cost of roof replacements.
The difference is that the reduced coverage would be voluntary for homeowners, which has some insurance experts skeptical that enough consumers would opt in without significant premium discounts.
Consumer choice and legislative gridlock
Currently, if more than 25% of a roof is damaged, Florida's building code requires a full roof replacement. Proposals to make Florida's generous roof replacement requirements less profitable for opportunistic homeowners, contractors, and attorneys died in the Legislature last month after House Speaker Chris Sprowls stated that he wanted to first see if reforms enacted in 2021 would work as intended.
A bill that passed the Senate this year would have allowed insurance companies to require homeowners to pay a 2% deductible toward the replacement of roofs that are more than ten years old, unless they were destroyed by a hurricane or as part of a total loss, such as a fire. This proposal replaced an earlier one, which would have allowed insurers to provide depreciated value coverage for older roofs rather than full replacement coverage in standard homeowner policies.
While the proposals would save insurers money by reducing incentives for roofing companies, critics pointed out that they would penalize low-income homeowners who would be forced to pay thousands of dollars to replace their roofs.
Florida's insurance commissioner, David Altmaier, told the Florida Cabinet on March 29 that his office could approve insurers' requests to offer the two reduced-coverage proposals as consumer choices rather than coverage limits.
"We can approve [options] that do the same thing as the Senate bill." "The biggest difference," he explained, "is that the consumer must actively choose that."
Making benefit reductions optional for consumers, presumably in exchange for a discount on their policy premiums, is a significant departure from the Senate's proposed mandatory downgrades. Consumers would not have received a discount if the Senate's proposal had become law.
It's unclear whether any insurer has asked Altmaier's office to approve the use of the 2% deductible. On Tuesday, a spokeswoman provided the names of two companies that have been authorized to offer $5,000 roof deductibles in 2020.
Since 2020, numerous insurers have been authorized to offer discounts to customers who accept depreciated value roof coverage rather than full replacement coverage.
What does this mean to you?
So, what does Altmaier's announcement mean for policyholders in Florida? So far, we've discovered the following:
Why do insurance companies want me to accept less coverage?
The home insurance industry in Florida is awash in red ink. Combined net losses have risen in each of the last five years, eventually reaching $1 billion in 2021.
According to insurers, if the industry is to survive and provide the homeowner coverage required by the majority of mortgage lenders, it will need to cut losses by reducing incentives to file claims.
Roof claims are a major reason for insurers' losses to rise and consumers' premiums to rise. Other factors include lingering disputes over Hurricane Irma claims from 2017, as well as continued high litigation rates for issues such as busted pipes and leaking water heaters.
According to state regulators' analysis of data from the National Association of Insurance Commissioners, Florida accounted for 79 percent of all property insurance-related lawsuits in the country in 2020 while filing only 8 percent of claims, according to Altmaier's testimony to the Cabinet.
According to state data presented at Citizens Property Insurance Corp.'s recent rate hearing, the number of lawsuits filed against property insurers in Florida increased from 27,416 in 2014 to 99,519 in 2021. Almost half of the 2021 lawsuits were filed in Broward, Miami-Dade, and Palm Beach counties.
Lawyers benefit more from the legal battles than homeowners. According to a study released in early 2021 by consultant Guy Fraker, only 8% of $15 billion spent on claims that resulted in lawsuits since 2015 was paid out to policyholders. Plaintiffs' attorneys received 71%, while insurers spent 21% on defense attorneys.
When insurers suffer large losses, they rely on their own insurance policies, known as reinsurance, to bail them out. However, just as insurers are being forced to raise homeowner rates, reinsurance companies are raising the rates they charge property insurers. This year, reinsurers are raising rates by as much as 30% to 35% ahead of the start of hurricane season on June 1st. According to industry officials, some companies will not have enough cash on hand to pay for reinsurance and will likely go bankrupt.
Since January 2021, five insurers with significant Florida marketshare have gone bankrupt, and a sixth is likely to be dissolved after losing its financial stability rating from analysis firm Demotech last month.
Why are my insurers attempting to reduce my roof replacement benefit?
Roofers and attorneys, according to insurers, have become so adept at exploiting Florida laws requiring roof replacements that premiums have risen to nearly unaffordable levels. As previously stated, if more than 25% of a roof is damaged, Florida's building code requires a full roof replacement.
According to insurers, adjusters working for roofing contractors can find 25% damage on nearly any roof. Full roof requirements may also be triggered if the type of roof tile used by your builders is no longer available. All materials must match according to building codes.
Insurance companies argue that eliminating full roof replacement coverage would reduce incentives for contractors to canvass neighborhoods for roof damage and for attorneys to sue insurers for the full replacement cost. They argue that Florida is the only state with the 25% replacement threshold and one of the few that requires full-replacement coverage in standard all-perils homeowner policies.
How much would my insurance premium be reduced if I accepted one of the two reduced roof coverage options?
State insurance regulators must approve this based on their analysis of whether proposed discounts are consistent with accepted insurance practices.
Security First Insurance, based in Ormond Beach, offers a discount equal to 5% of a policyholder's hurricane coverage premium for the depreciated value option.
According to Melissa Burt DeVriese, the company's president, the owner of a nine-year-old $407,000 house in Miami would save $161 on their annual premium, or 2.05 percent. Owners of older homes with older roofs would save more money, but their overall insurance costs would be higher, according to DeVriesse.
"Depending on other factors, we find that choosing this endorsement saves our customers anywhere from 1.5 percent to 3.5 percent overall," she said.
The Office of Insurance Regulation cited two companies, U.S. Coastal and Safe Harbor, that offer $5,000 roof deductibles. The amount of the discounts was not disclosed in the companies' 2020 rate filings, and insurance sources interviewed for this story said they were unaware of any companies that recently sought approval for roof deductibles and discounts.
Will the elimination of optional roof coverage aid in the stabilization of Florida's insurance industry?
That is dependent on how many people choose it. And that figure will be determined by how much money people can save on their insurance premiums.
According to Ron Assise, president of The Horton Group, an Orland Park, Illinois-based insurance agency licensed to do business in Florida, unless the discount is too large to refuse, few consumers will opt for it.
"I'd say the adoption rate will be low to none unless the carriers offer significant discounts," he predicted. And, he added, discounting premiums too much "would defeat the purpose" of assisting the industry in regaining financial stability. "They require premiums to remain constant or increase."
According to Assise, most consumers will not take the risk of foregoing full replacement coverage in exchange for a minor discount.
Is a 2% deductible equivalent to a 2% contribution to the cost of my roof replacement?
No. As with hurricane windstorm coverage, the 2% is multiplied by the replacement cost of your home. That is, if the replacement cost of your home is $400,000, your deductible would be 2% of that amount ($8,000), not 2% of the roof replacement cost. It makes no difference how much the replacement costs; you'll still have to pay $8,000 before your insurance kicks in.
Would that be such a bad thing?
Both yes and no. No, if you can afford the $8,000 and you're already facing a much larger roof replacement project. Yes, if your roof is still nine or ten years old and you don't have $8,000 to spend.
Isn't there already a deductible on my policy for non-hurricane claims?
Yes, but the deductible for a new roof would most likely be higher. Non-hurricane deductibles are set amounts that typically range between $500 and $2,500. That is what you would pay for a roof replacement under current homeowner policies.
Can I be forced to accept reduced coverage as a condition of renewal if my insurer is authorized to do so?
No, Altmaier stated unequivocally that it would have to be made available as a consumer choice. The opposite would be true if the Legislature and governor passed reduced-coverage legislation. Then it would be up to your insurer to offer the same full replacement coverage that they are currently required to provide.
Homeowners who do not want their roof coverage to be reduced should exercise caution before signing a new or renewed policy. Agents may include the endorsement in a quote in order to reduce the cost of the policy as much as possible.
"My concern is that some consumers will choose it without considering the consequences," says Paul Handerhan, president of the Fort Lauderdale-based watchdog group Federal Association for Insurance Reform, "and they won't realize what they signed until they find out they have to spend a lot of money."
In addition, some companies may make the endorsement the default option in policy quotes, as Progressive Insurance announced last December for new and renewing Florida customers with roofs older than ten years. Progressive is the parent company of several Florida insurers, including American Strategic, ASI Preferred, ASI Assurance, Progressive Property Insurance, and ASI Home Insurance.
Is it likely that insurers will push for reduced roof coverage that I won't be able to refuse again?
Yes. Insurers have called for a special legislative session to address an insurance crisis that they say is threatening Florida's housing market. While Gov. Ron DeSantis has stated that a special session will not be held until after the November elections, insurers want one sooner.
Sen. Jeff Brandes, a Republican from Pinellas County, threatened legislators on Wednesday with a vote to authorize a special session on insurance if House and Senate leaders refused to schedule one.
When the Legislature decides to revisit insurance reforms, mandatory roof coverage reductions are likely to be on the agenda.