Can Lawmakers Save the Collapsing Florida Home Insurance Market?

In 2022, Florida’s home insurance market has been heading for a collapse for months, but legislation has been enacted to mitigate the disaster. These laws are intended to make Florida home insurance more affordable while ensuring adequate reserves for catastrophic losses. It may take years to know if these changes will stabilize the market. Bankrate has thoroughly researched Florida’s insurance industry to identify systemic problems and help you understand your options if you receive a cancellation or non-renewal notice for your homeowners insurance.

Florida’s homeowners insurance crisis explained

Florida’s home insurance market has always been complicated. Since 2017, more than 10 property and casualty insurance companies that offered homeowners insurance in Florida have liquidated, including five in 2022 alone. Other insurers have voluntarily withdrawn from the state. Many more have chosen not to renew the majority of their home insurance policies, significantly tightened their eligibility requirements, or demanded significant rate increases.

For Florida homeowners, this has led to fewer home insurance companies and higher premiums. When a company goes bankrupt, the Florida Insurance Guaranty Association (FIGA) takes over any claims that the company still needs to pay. In August 2022, the FIGA Board of Directors and the Florida Office of Insurance Regulation (OIR) approved a 0.7% levy to cover the cost of unresolved claims related to liquidated companies. This is the second levy this year, following a 1.3% levy approved in March 2022. Homeowners will pay these fees regardless of which insurance company they have.

According to Logan McFadyen, vice president of state government relations for the Property Casualty Insurance Association of America,

Florida’s property and casualty insurance market is in crisis as insurers grapple with out-of-control litigation costs and billions of dollars in losses from recent natural disasters.

Tasha Carter of the Florida Insurance Consumer Advocates (ICA) agreed, saying, “Florida homeowners insurance options are becoming increasingly limited, and consumers are facing dire consequences.”

Why are home insurance companies leaving Florida?

Florida insurance companies are canceling policies, withdrawing from the state, or liquidating at a rapid clip. Why? What is behind these companies’ aversion to insuring Florida homes?

Florida has always been a high-risk market for home insurers because of the high threat of widespread weather-related damage, but the current crisis is being caused by several factors reaching a boiling point simultaneously.

Florida Insurance Fraud

One of the biggest problems in Florida is home insurance fraud involving fraudulent roofing claims. According to a statement from Governor Ron DeSantis’ office, while Florida accounts for only 9% of home insurance claims nationwide, 79% of home insurance lawsuits are filed in Florida. Many of these lawsuits are fraudulent. ICA Carter describes a common scheme for fraud:

1. First, roofing contractors will roam neighborhoods offering to inspect unsuspecting homeowners. These contractors will inevitably find “damage” to the roof and often promise the homeowner a “free roof,” claiming they can waive their home insurance deductible.
2. Homeowners are being pressured to sign assignments of benefits that give contractors the right to make claims on their behalf.
3. The insurance company’s loss adjuster will investigate the claimed damage. The adjuster may find no damage at all or much less damage than the contractor found, resulting in a claim value that is less than the contractor requested.
4. The contractor will file a lawsuit against the insurance company and demand payment of the insurance benefit for the contractor’s original estimate. Remember, the contractor does not need the homeowner’s permission to do this because the homeowner paid the insurance benefit to the contractor.
5. The insurance company has the option to fight the case and pay the legal costs, or to settle out of court. Either way, the insurance company will lose money from the lawsuit.

ICA Carter noted that “these scams are real and occur frequently,” putting insurers under increasing financial pressure, particularly in states where claims costs from weather-related events are high.

“Florida property insurers are projected to post cumulative underwriting losses of $1.7 billion in 2021 due to these soaring litigation costs,” according to Mark Friedlander, director of corporate communications for the Insurance Information Institute. The governor’s office reported that this is the second consecutive year that net underwriting losses have exceeded $1 billion. It’s no wonder that many companies file for bankruptcy or leave the state before they reach that stage.

In addition, Florida also previously had a “ex parte attorney fee” system, meaning that if the court ruled in favor of the plaintiff (in this case the home insurance policyholder or the third-party contractor who filed the claim), the defendant (in this case the insurance company) was responsible for paying the plaintiff’s attorney fees. So, the insurance company was not only paying the fraudulent litigation fees, but also paying the fraudster’s litigation fees. Friedlander points out that the insurance reform bill passed in December 2022 “addresses two root causes of Florida’s home insurance crisis: litigation abuse and assignment of benefits (AOB) abuse… Eliminating both is necessary to slow down the flood of lawsuits being filed against Florida insurance companies.” Going forward, assignment of benefits forms for home insurance losses will be prohibited and Florida will no longer operate an ex parte attorney fee system.

Age of the roof

Instead of exiting altogether, some insurers are tightening underwriting regulations to reduce the risk of such fraud, which may be why several companies, including Southern Fidelity, Progressive and Universal, have chosen not to renew tens of thousands of policies while continuing to operate in Florida.

However, insurers are now prohibited from denying coverage solely based on the age of a roof if the roof is less than 15 years old at the time the policy is issued and has a useful life of 5 years. That said, insurers must decide whether they are comfortable with these limitations or whether they will cease doing business in Florida.

Storm risk

Risk is a constant consideration for Florida home insurance companies. The state’s shape and geographic location mean it can be hit by hurricanes from either side, and because the peninsula is so narrow, even homes in inland counties are not completely protected.

To make matters worse, fraudulent claims may become more common after storms, which are not uncommon in the state. Hurricane Ian made landfall on September 28, 2022, as a powerful Category 4 storm, causing widespread damage. This damage and economic impact could disrupt an already shaky home insurance market due to increased home repair costs, including potential fraudulent roofing claims.

But while the risk of hurricane damage complicates things, it’s not what’s pushing the market to the brink of collapse. After all, other high-risk states don’t have this problem. A higher chance of damage generally means paying higher premiums to offset that risk, but coverage is still typically available. For example, Oklahoma has historically had a higher average cost of home insurance because of its higher chance of tornado damage, but homeowners there haven’t had as much trouble finding coverage as Florida residents.

How many home insurance companies have withdrawn from Florida?

On July 13, 2023, AAA announced it would limit its exposure in the state by not renewing bundled auto, home and comprehensive policies. The company writes new policies for both auto and home in Florida, but in areas with lower risk. In early July, Farmers Insurance announced it would stop writing new policies and renewals for auto, home and comprehensive policies in Florida.

In mid-2022, Bankers Insurance Company announced its exit from Florida, followed by AIG and AIG subsidiary Lexington Insurance, a surplus insurer specializing in high-value homes with replacement values ​​over $1 million, with an estimated 8,000 policyholders seeking specialized coverage in a limited market.

In three years, Florida has lost more than 30 insurers, or some form of insurance from those companies, as home insurers went bankrupt, limited their exposure, or left the state altogether.

Is anything being done to curb the crisis?

Yes, but the full effect of the measures is yet to be seen. Senate Bill 76 will take effect in July 2021 and includes several provisions to curb fraudulent claims that have placed a huge burden on insurance companies. One such provision aims to reduce the solicitation tactics that dishonest contractors often use when initiating fraudulent activities. While this legal measure could help solve the problem, Kin Insurance CEO Sean Harper warns that “additional steps need to be taken to bring the market back to health.”

The Florida Legislature passed an insurance reform bill in May 2022, which includes several provisions to mitigate market scourge. The provisions include the establishment of the My Safe Florida Home Program, which provides subsidies to Florida homeowners to protect their homes from damage. In addition, home insurance companies will no longer be able to deny insurance to homes solely based on the age of the roof if the roof is less than 15 years old and has five years of remaining useful life (older roofs may still be denied due to their higher risk of damage). Finally, lawyers will be limited in the fees they can charge in property insurance claims cases, which is expected to curb fraudulent lawsuits and reduce litigation costs.

Promising reform bill passed in special session

An additional bill was signed into law on December 16, 2022: Senate Bill 2-A. The bill has many provisions, but focuses on ex parte attorney fees and benefit transfer fraud. Friedlander told Bankrate:

“This is the strongest insurance reform bill ever passed in Florida. It shows that Florida’s new legislative leaders understand the gravity of the state’s property insurance crisis and are taking decisive action to create a path toward market stability.”

Eliminating ex parte attorney fees and assignment of benefits forms would remove enormous financial pressure on insurance companies and potentially reduce the number of fraudulent lawsuits. The combination of these measures contained in Senate Bill 2-A is expected to help lift insurance companies that have been declining rapidly in the Florida market.

However, Friedlander points out that change won’t happen overnight: “…the positive impacts of the legislative reforms will take time to materialize. We expect Florida homeowners insurance premiums to remain high in 2023 due to expenses related to ongoing litigation, rising reinsurance rates, and double-digit replacement cost increases due to rising prices for construction materials and labor.”

New legislation affecting homeowners will be introduced in the 2023 legislative session

Of the seven Florida bills passed in the first half of 2023, Senate Bill 1102 updated claims procedures for auto glass damage. The remaining six bills focus on insurance company liability, restructuring claims procedures regarding certified adjusters, and several changes to property insurance. Some of the changes are clarifications to bills passed in the December session.

House Bill 799 on property insurance changes the assessment factors and flood coverage requirements for various property types. Citizens policyholders who insure second homes are exempt from the rate cap and will be allowed to increase rates by up to 50%. The changes will affect new Citizens policyholders whose policies begin after November 1, 2023.

Currently, all properties covered by Citizens are required to have flood coverage, except for policies without wind damage coverage and condominium policies. The state sets enrollment deadlines based on the cost of rebuilding a property. Homes costing more than $600,000, which have the highest rebuild costs, have until Jan. 1, 2027 to secure flood coverage.

House Bill 881 expands the My Safe Florida Home program to include more properties and waives requirements for areas susceptible to wind, while also increasing the amount of insurance coverage for eligible homes to $700,000 and increasing the grant amount for low-income residents to $10,000.

Most of the changes from these laws are effective for policy renewals in early June and early July 2023. Reinsurers will hopefully find these measures sufficient to continue extending coverage to insurers remaining in Florida. If not, we may see even more insurers announcing their withdrawal from Florida in the near future. In other words, relief may be coming, but it could be a while before it is felt by homeowners and insurers.

Demotech reacts to possible downgrade

Many home insurance companies have been hit hard by rampant fraudulent lawsuits and may not be as financially stable as they were before. In late July 2022, financial strength rating company Demotec announced that it was considering downgrading the financial strength ratings of 27 property insurance companies.

The situation is complicated. These insurers may no longer have the financial strength they once did, but a downgrade would also cause problems. A downgrade in financial ratings would affect homeowners with federally insured mortgages (such as Fannie Mae and Freddie Mac) because these lenders require Demotech-rated home insurers to maintain at least an “A” rating. Demotech does not disclose the names of the companies it is considering downgrading.

“Preliminary ratings are just that, preliminary ratings,” Demotech president Joe Petrelli told Bankrate. It’s possible that some of the 27 companies will maintain their “A” ratings or higher. But such downgrades could force homeowners with affected insurers to seek alternative insurers in a market where options are already limited and expensive.

Although a downgrade in ratings could create hardship for the company and its insureds, such hardship is not taken into account in our ratings, which are based on specific data and the objective application of our rating methodology.

—Joe Petrelli
Demotech President

Florida OIR established a reinsurance fund through Citizens, an insurer of last resort. This means that if an insurer’s financial strength rating is downgraded below an “A” level, the downgraded company can purchase insurance from Citizens to help them out, just like a cosigner on a loan. Purchasing reinsurance through Citizens allows the downgraded insurer to meet Fannie Mae and Freddie Mac requirements. This is important because it prevents policyholders from having to find a new property insurer. However, the reinsurance solution puts even more strain on Citizens, which is already taking on a lot of risk by insuring more policyholders in the state as other insurers pull out of Florida.

learn more: Demotech’s downgrade and its impact on the Florida property insurance market

Florida seeks alternatives to Demotech

On September 9, 2022, the Florida Legislature approved a $1.5 million plan to find a financial strength rating firm to replace Demotech. The state hired consultants to explore alternatives, including finding another firm or creating a state-sponsored financial strength rating agency. Petrelli issued a statement in response.

“Since 1996, Demotech has provided neutral, unbiased ratings to property insurers in Florida. This is one of nearly 50,000 we have produced nationwide. Our review and analysis process has been consistent throughout that time. There are currently at least four rating agencies operating in Florida and across the nation that are acceptable to government-sponsored mortgage companies, and research into rating alternatives can be done at no cost to taxpayers by reviewing existing Freddie Mac and Fannie Mae seller or servicer guides. Today’s action is an unnecessary response to a problem that does not exist. The reality is that nearly 30 years ago, when Hurricane Andrew devastated Florida, Demotech was the only rating agency involved in Florida to back out.”

It remains to be seen whether finding another rating agency will produce meaningful results toward correcting Florida’s home insurance crisis. These major changes to insurance law came into effect after Florida’s decision to replace Demotech. But Demotech’s president praised the changes, calling them an “impressive set of meaningful reforms.” As always, Bankrate continues to monitor the situation.

How to mitigate the risk of non-renewal

If you live in Florida, having an insurance plan in place can help reduce the risk of your insurance being denied renewal. While you can’t stop insurance companies from withdrawing from the state, there are steps you can take to ensure your home remains as insurable as possible.

• Keep your roof up to date and in good condition. Inspect your roof regularly and repair any minor damage, and if you can afford it, replace your roof before it’s 15 years old to reduce the risk of it not being renewed.
• Installing Wind Mitigation: Florida law requires Florida home insurance companies to offer discounts for certain wind protection features, such as hurricane strapping and other roof strengthening measures, that reduce the risk of significant damage to your home, making it more attractive to insurance companies.
• Maintaining your assets: In general, maintaining your property will make it easier to find insurance coverage. In addition to inspecting your roof, you should also regularly inspect other parts of your home’s exterior for damage. Also, make sure there are no large tree branches or other potential hazards overhanging your home that could damage your roof during a storm.

Preventing abuse of the legal system

What’s more, there are ways to mitigate the impact of home insurance fraud and abuse of the legal system and prevent companies being forced into liquidation, with ICA Carter pointing out that “consumers have the power to stop contractor fraud by becoming informed and reporting it.”

• Know the signs and arm yourself with knowledge: ICA Carter has created an educational resource called “Demolition contractor scams: steps to avoid becoming a victim” which can help homeowners recognise the signs of scams and prevent and report fraud before it happens.
• Beware of solicitations: While sales practices are not illegal, contractors who go around neighborhoods after a storm may be scamming you, especially those offering incentives or discounts for inspections. If you’re concerned about damage to your home after a storm, contact your insurance company.
• Do not sign the Transfer of Interest Form: Although these forms are prohibited by Senate Bill 2-A, it is still useful to be aware of them when working with contractors. Having control over your insurance policies can determine whether or not you will sue and can significantly reduce fraudulent lawsuits. Be careful of these forms, as they are often buried inside seemingly legitimate contracts. Once you sign them, the forms become legally binding, so it is important that you read everything you are asked to sign. Don’t just have your contractor point out the signature line on the document or scroll through the details on a tablet screen. Read the entire document carefully.
• Keep in mind that some companies now offer discounts if you agree to make your policies non-transferable — Kin is one such company, and Harper points out that by holding a large number of non-transferable policies, it protects the company from many of the litigation nightmares that engulf other insurers.
• Know who you are filing your claim against: Groups attempting to increase litigation with insurance companies are targeting Florida homeowners who are likely to have extreme weather damage claims. These groups impersonate insurance company websites or send fraudulent text messages to your phone offering help with claims, but with the goal of using your personal information to litigate your case. To avoid this, contact your insurance company’s claims department directly using the information on your policy or through the insurance company’s app. Do not do a web search for this contact information.

What to do if your home insurance is cancelled

If you’ve received a notice of termination on your Florida homeowners insurance, act quickly. With hurricane season approaching and the insurance market in turmoil, it may be difficult to get another policy, but it’s not impossible.

McFadyen recommends “working closely with your insurer or insurance agent to review the options available to you,” and advice from ICA Carter is similar, advising that “consumers should contact their insurance agent immediately to review their homeowners insurance options.”

If you’re struggling to find home insurance in Florida, there are several companies that may be able to help.

Kin

Florida home insurers are nowhere near immune to the impact of aggressive litigation, but Harper notes his company “has taken several steps to ensure that it can continue to operate in Florida when others are not operating or have gone out of business. In addition to the fact that most of its policies are non-transferable, the company also has its own system for assessing claims.

Harper explains that Kin uses software that monitors weather systems to pinpoint homes that may be at risk of damage. The company can then proactively contact homeowners to determine whether a claim is warranted, weeding out potentially rogue contractors.

Doesn’t it seem crazy that insurance companies would ask their customers to file claims? But it actually pays off.

Sean Harper
CEO of Kin Insurance

Citizens Property Insurance Corporation

Citizens is often one of the only options for homeowners in many parts of the state. The company has grown rapidly as other insurers have exited the market. In 2018, the company had just 414,000 active policies, but by August 2022, that number had ballooned to more than 1 million. Citizens spokesman Michael Pelletier told Bankrate that the company is signing between 5,000 and 6,000 new policies. Per weekand in many parts of the state, Citizens is “the only option right now.”

Still, Pelletier said, “there are underwriting guidelines,” and it may not be an option for all homeowners. Citizens is plagued by the same issues that plague other insurers, and it recently raised its rates. The company requested a 10.7 percent increase on its standard home insurance, but Florida OIR approved a 6.4 percent increase. While 6.4 percent is certainly better than 10.7 percent, many Citizens policyholders will likely feel the strain of higher bills. The rate increases take effect Sept. 1.

Moreover, Friedlander warned, because Citizens insures many of the high-risk homes that other insurers have abandoned, “a major hurricane hitting Florida could have a devastating effect on the company and the industry.” Providing reinsurance to companies if Demotech downgrades its ratings would add even more risk to Citizens if a disaster occurs.

But Citizens may get some relief from the reform bill. Policyholders would have to accept private insurance quotes if they are not at least 20 percent higher than Citizens’ quotes. Additionally, Citizens’ premiums would have to be actuarially reasonable but not competitive with the private insurance market. Finally, Citizens policyholders would be required to buy flood insurance. Premiums for last resort would likely be higher going forward, but in theory that should help curb an influx of insurance that could completely drown Citizens.

Slide Insurance

Tampa-based Slide Insurance Co. has taken on client lists from bankrupt Florida home insurance companies since it was founded in 2021.

In February 2022, Florida OIR announced that Slide would absorb approximately 147,000 policyholders from St. John’s Insurance Company when the company reported bankruptcy. In a similar move, approximately 72,000 UPC Insurance policyholders were transferred to Slide when UPC filed for bankruptcy in February 2023.

So what is Slide Insurance? Founded by former Heritage Insurance CEO Bruce Lucas, Slide is an insurtech company that leverages AI and large datasets in its underwriting models. The company claims this is the edge it needs to succeed in the tough Florida homeowners insurance market. Slide is rated A (Excellent) by Demotech.

If you’re one of the many homeowners who’ve been transferred to SLIDE, you may be wondering what happens next. According to the company, policyholders don’t need to do anything. As long as you keep paying your premiums, your insurance won’t lapse. Additionally, SLIDE will notify your mortgage company for escrow purposes (if applicable).

It is important to note that Slide will not process any open UPC claims that arose before February 1, 2023. Instead, if you need assistance with an existing UPC claim, please contact the UPC Claims Center directly.

Taillow Insurance Company

In April 2023, the Florida OIR announced it had approved Tailrow Insurance Company’s application to bring a new insurance company into the state.

Though Tailrow hasn’t yet been incorporated (the company must meet regulations before the OIR issues a business license), this could be a promising first step toward stabilizing the market. Bankate experts are committed to staying on top of this news and updating readers as developments occur.

Conclusion

Home insurance in Florida has always been complicated because of the state’s high risk of storm damage, but a wave of fraudulent roofing claims has brought the market to the brink of collapse. The problem may not be limited to Florida; if insurance fraud increases in other high-risk states, such as Louisiana and California, those markets could also begin to deteriorate. But there is hope, with measures being taken to protect companies and policyholders from downgrades to financial strength ratings, laws being passed that can curb fraud, and insurance companies taking a different approach to home insurance in Florida. But will these measures be enough to save the troubled market?