Are Property Insurance Companies Failing Florida Consumers?


WRITTEN BY: Mark Romero

UPDATED: SEPTEMBER 23, 2022 | 1 MIN READ

The Sunshine State doesn’t look so sunny right now as experts say Florida’s property insurance market sits on the brink of collapse. A combination of rising repair costs, inflation, and massive roofing fraud find agencies for property insurance failing Florida homeowners. The precarious situation, plus the news of pending downgrades for many insurers, has experts worried about the future, especially as Floridians see home insurance increase.

What’s Going On with Florida Homeowners Insurance?

According to the Insurance Information Institute, Florida may have an underwriting loss of over $1.6 billion for 2021 alone. The property insurance crisis for Florida has been in the making for years. Hurricane Andrew exposed the cracks in the Florida home insurance industry. Now, 30 years later, the dam is breaking. The first crack began in 1992 when the devastating Cat 5 hurricane caused $27.3 billion in damage and made several insurers insolvent.

In the aftermath of Andrew’s financial analysis and rating firm, Demotech began rating Florida’s home insurance companies. This was part of the state’s effort to keep property insurance from failing Florida homeowners. Demotech ratings indicate an insurer’s financial stability and ability to withstand insurance claims from hurricane damage.

  • A”” (Unsurpassed, A Double Prime)
  • A’ (Unsurpassed, A Prime)
  • A (Exceptional)
  • S (Substantial)
  • M (Moderate)
  • L (Licensed)

Insurers not rated receive an “NR,” and those without enough financial data receive a “N/A.” The proposed downgrades take insurers’ ratings from Exceptional to Substantial or Moderate. These downgrades may mean financial chaos for homeowners and indicate the market for property insurance is failing Florida homeowners.

Fannie Mae or Freddie Mac doesn’t approve insurers with an S rating. This discrepancy poses trouble to Florida homeowners who may be forced to choose a more expensive home insurance company at their mortgage holder’s request.

According to the Insurance Information Institute, a forced switch is ill-timed, as Florida’s average home insurance premium now costs $4,321 a year.

Florida homeowners already have fewer insurers than ever. In July, Bankers Insurance Group exited the state, which made it the 16th company to do so.

Insurers are dropping homeowners, refusing to write new policies, or ceasing business altogether. Hundreds of thousands of homeowners will soon scramble to find a decent policy.

Some insurance agencies are demanding homeowners replace roofs, water heaters, and other home elements before they renew a policy, and those replacements are coming out of the homeowners pocket.

This summer, Demotech informed 17 Florida home insurers they would downgrade their financial strength ratings. The news comes after the agency saw 2022 Florida hurricane season reinsurance plans. In all, 27 insurers may face downgrades.

Florida Office of Insurance Regulation maintains a watch list of 27 insurance agencies with “financial issues.” No carriers were named, so neither list is public.

In response, the Florida Office of Insurance Regulation (OIR) announced that state-run Citizens Property Insurance Corp would provide reinsurance to the downgraded companies.

This move addresses Fannie Mae and Freddie Mac’s exception to the financial rating requirement as they accept a reinsurer who assumed 100% of the insurer’s liability for paying claims.

Who is Citizens Property Insurance?

Florida created a state-backed insurer, Citizens Property Insurance, as an insurer of last resort in 2002. The rapidly-diminishing field of insurance companies in Florida leads to frustrated homeowners immediately seeking new options for property insurance, namely Citizens.

Insurance experts predict Citizens may have 1.2 million customers by 2022. It’s also unlikely that Citizens can sustain that many customers. Citizens’ insurance is also costly for homeowners, as Mark Friedlander of the Insurance Institute notes, “53% higher than the next highest insurer.”

Another problem with Citizens is the agency’s cap of $700,000 for home value. Tampa homeowners and others in South Florida over that limit are forced to shop elsewhere at a higher price. It’s a terrible environment for homeowners, especially as the field of eligible insurers narrows.

What Increased Floridians’ Insurance Policy Rates?

Hurricane Michael in 2018 led to a $7 billion payout in insurance claims for Florida homeowners. The high payouts naturally lead to rate increases, but that’s just the beginning of the mounting crisis. As Florida sees more severe weather and hurricanes, the potential for damage increases.

It’s the perfect storm of bad timing as North America deals with inflation, and rising material costs put a hefty price tag on home repair. Since the pandemic’s start, building materials, including steel, concrete, and lumber, rose 35.6%.

Severe weather isn’t the only force that affects homeowners insurance policies. Florida’s home insurance market weathers a sea of fraudulent roofing claims. After storms, unscrupulous contractors roam neighborhoods and knock on doors.

Then they offer to examine the homeowners’ roof for storm damage. After finding “damage,” the contractors promise roof replacement covered by the insurance and then ask a homeowner to sign an Assignment of Benefits (AOB), giving up their right to file a claim.

Once they have the power to pursue the insurer, the contractors then file fraudulent claims, and if an insurance agency objects, they take the company to court. The result is typically a settled lawsuit worth more than the original claim.

In 2019, the Florida legislature passed HB 7065: Insurance Assignment Agreements to curb this practice. Yet, in 2021 alone, Florida courts saw over 116,000 lawsuits with this scheme. Insurance companies in the Sunshine State feel the pressure, either liquidating due to financial issues or pulling out of the state because of mounting expenses. Some homeowners have a nonrenewal letter due to their roof’s age.

In May 2022, Florida Gov. Ron DeSantis called a special legislative session to stave off the crisis. Florida lawmakers created a fund of $2 billion for insurers to pay hurricane damage claims and deal with the litigation against companies, plus place more responsibility on homeowners for roof replacement.

Whether this quick fix holds is anyone’s guess, but insurance experts believe lawmakers need to do more regarding property insurance companies failing Florida.

FAQs

Are insurance companies losing money in Florida?

Yes. Rising material costs and inflation make a home replacement or repair more expensive. Rampant roof replacement scams and lawsuits by unethical contractors also take their toll on insurance companies, causing them to pull out of the state or refuse policies.

Is Citizens insurance dropping customers in Florida?

Yes. Nearly 3,000 Citizen customers in South Florida received nonrenewal notices for their policies. In addition, the company denies potential customers with homes valued at more than $700,000.

Does the state of Florida back Citizens Insurance?

Yes. Citizens is a state-run insurance agency. It was founded as an agency of last resort but is now the primary choice for many frustrated homeowners.

What is the average cost of homeowners insurance in Florida?

According to the Insurance Information Institute, the average cost of homeowners insurance in Florida is $4,321 annually.

Finding Property Insurance In Florida

If you’re a Florida homeowner and need to find a new home insurance company quickly, use our tool to compare rates and see how much you can save on your policy.