A 'perfect storm' of problems plagues Florida's home insurance market
The home insurance market is broken with companies collapsing or leaving — raising costs and risks for homeowners.
Jason Pizzo expects to move into a 4-bedroom condominium home this summer in northeast Miami-Dade County. He''s already paid the condo insurance premium for the next year — almost $26,000.
That's almost all of the salary Pizzo receives serving as a state senator.
Pizzo has the financial resources to pay his insurance premium, but Florida homeowner budgets are increasingly being squeezed with fewer insurance choices, surging costs and in some cases, less coverage.
He and his fellow legislators are back in Tallahassee this week to tackle what Pizzo and tens of thousands of Florida home and condo owners are experiencing — the sharply escalating price of home insurance.
In the past three month, three insurance companies have been declared insolvent. Another company, FedNat and its sister companies, is canceling more than 68,000 insurance policies. The Florida Office of Insurance Regulation approved the drastic move because of the financial fallout if the company was forced to protect those homes.
Just last week, state insurance regulators heard from three more insurance companies asking to increase their rates between 23 to 48%.
"It's a perfect storm. It's not just one thing. It's a variety of things," said Nancy Dominguez, managing director of the Florida Association of Public Insurance Adjusters.
Lawsuits, attorney fees, fraud, roofs, reinsurance and financial opacity are all mentioned by lawmakers, regulators and industry experts for why the state's home insurance market "is collapsing," as Insurance Information Institute Director of Communications Mark Friedlander described it.
Florida Association of Insurance Agents Director of Government Affairs BG Murphy put it more bleakly: "We're not headed towards a collapse. We're in the midst of one."
On Friday, less than 72 hours before the Legislature's special session begins, two Republican bills were filed, revealing the majority's priorities. The special session is expected to last three to five days, allowing lawmakers to try to reform the home insurance market in hopes of at least slowing down the accelerating price hikes.
The GOP bills come from the chairman of the Senate Banking and Insurance Committee. One bill would put new limits on attorney fees, allow insurers to offer homeowners a separate deductible for roofs, and ban an insurance company from turning down a homeowner just because their roof is less than 15 years old.
A second bill creates a new insurance fund for insurance companies, essentially using state taxpayer money to provide reinsurance in hopes of bringing down the cost for insurance companies.
These bills come after the state’s Chief Financial Officer Jimmy Patronis — the top financial regulator in Florida — announced a series of efforts to crack down on insurance fraud.
Before these efforts were announced, Chris Draghi called the Florida property insurance market “troubled.” That may sound like an understatement to homeowners facing huge premium increases or getting dropped by their insurance carrier, but it is a strong statement in Draghi’s line of work. He is an analyst with A-M Best, a credit rating agency for insurance companies.
In early May, Draghi wrote a report about Florida with headlines like “Market Conditions Remain Difficult,” “Insurer Casualties Continue” and “Legislative Efforts Have Stalled.”
"With so many different interested parties and different calls for solutions, it's hard to say where (state lawmakers) land," he said. "It's a complex issue. And there are several factors that play into it. "
"Interested parties that operate within the insurance environment have varying interests. And it's hard to put something forward that satisfies everyone."Chris Draghi, Analyst
For years, Florida lawmakers chased after sinkholes. Then it was water damage from leaks. Then rules on homeowners signing over their insurance claims to contractors — so called assignment of benefits.
Each of these issues have been blamed in years past for driving up property insurance in Florida.
A familiar culprit lately, according to regulators, is Florida's unique method of calculating and reward attorney fees when a policyholder sues an insurance company.
State law requires an insurance company to pay for plaintiff attorney fees if they lose a lawsuit or settle a claims lawsuit for more than the original offer. And a state Supreme Court ruling allows attorney fee multipliers of up to three times the cost.
"If objectively, the data points that the increase in premiums are almost entirely or substantively associated with litigation costs, then then we need to act," Pizzo said.
Data from the Florida Office of Insurance Regulation found while about 10% of all homeowner property insurance claims in the nation are in Florida, the state accounts for over 75% of homeowner lawsuits. The national data did not include New York and North Dakota.
"If insurance companies are praying for some sort of relief from litigation, and we give that to them, and there isn't a substantive reduction in premiums, then shame on us," Pizzo said.
Jansen Pennock moved to South Florida in 2011 and has lived in Coconut Grove since 2016. He owns two condominiums in a small 4-unit association. He lives in one and rents the second. The building's insurance with the state-backed insurance company Citizens jumped 26% in a year.
"It's significant," he said.
Citizens is the insurance company of last resort. Under state law, it is limited to raising its rates by no more than 11%. But that doesn’t include the impact of inflation on replacement costs. That’s why Pennock’s condo building insurance jumped 26% in one year.
"It's not such a gigantic material increase, but if you do that year over year, it's going to catch up for sure," he said.