Get ready to pay more as risks for home insurers
rise in Florida
Article Courtesy of The Sun Sentinel
By Ron Hurtibise
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
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,
“Florida has more billboards encouraging people to sue you than any
country on the planet,” said Mark Wilson, Florida Chamber’s president
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
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
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
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%.