By RON HURTIBISE SOUTH FLORIDA SUN SENTINEL |OCT 10, 2020 AT 3:51 PM
South Florida homeowners are about to get hit with insurance rate increases unlike any other we’ve ever experienced.
We’re talking as much as 30% to 40% over what you are paying now and price hikes of $1,000 or more for your next year of coverage.
Insurers have been warning for years that these increases would hit us hard. And now they’re here, thanks to years of rising claims abuses, court-clogging litigation, spiraling costs from hurricanes Irma and Michael, and one of the most active seasons in memory for severe and destructive weather.
When Weston resident Ruth Bettini opened her insurance renewal notice in September, “I almost died of shock,” she said. The annual premium to insure her $550,000 house with Orlando-based St. Johns Insurance Co. had increased by 28% — from $4,647 last year to $5,946 for the term beginning Oct. 1. That’s $108.25 more per month.
She asked her agent to shop for a lower price. “But everything else that was available cost even more than that, so I went ahead and renewed it.”
Bettini says her house is not what any insurer should consider a bad risk. Hurricane-rated accordion shutters cover all of her windows. All of her doors, including her garage door, are impact resistant. And she had her roof replaced a year ago to meet current windstorm codes. “I’ve done all the upgrades I can do to make it hurricane-proof,” she said.
As a real estate agent, Bettini says she worries about effects of the rising prices on her livelihood. “I’m really getting concerned when I see these insurance rates because I think they’re pricing people out of the market.”
Warnings about rising insurance rates might sound familiar. Prices in South Florida have been rising for the last five years, after a brief era of stability resulting from a 10-year hurricane drought between 2006 and 2016. Afterward, insurers blamed rate hikes on home repair scams and sharp increases in opportunistic lawsuits by a small number of aggressive law firms.
Those problems haven’t gone away. But they’ve been compounded by other factors, such as higher-than-estimated losses from hurricanes Irma in 2017 and Michael in 2018 and a steady march of costly events over the past couple of years in northern and central Florida, including tornadoes, hail, floods, and storms spun off near-miss hurricanes and tropical storms.
Mounting losses compelled the global financial companies that sell reinsurance — which is insurance that insurance companies buy to guarantee they can cover losses after catastrophes — to raise their rates 20% to 30% before this year’s hurricane season. Your insurance company, of course, plans to pass that increase to you. Some analysts see reinsurance rates climbing again in 2021, based on the record of 10 named storms making landfall in the United States this year.
Rising prices reminiscent of 1993 and 2006
All of these pressures are now converging into the most serious threat in more than a decade to Florida homeowners’ ability to obtain affordable coverage. Renters are not immune either. Premiums for apartment buildings are skyrocketing as well, and landlords won’t hesitate to pass along the increases to tenants when their leases come up for renewal.
The current situation, experts say, is comparable to the aftermaths of Hurricane Andrew in 1992 and the two-year run of hurricanes that ended with Wilma bulldozing through South Florida in 2005.
In both cases, insurers increased rates and reduced their exposure by pulling out of the state, forcing hundreds of thousands of homeowners to secure coverage from what’s now called Citizens Property Insurance Co., the state-run insurer of last resort.
Today, many Florida-based companies will no longer sell policies in ZIP codes in Miami-Dade and Broward counties with historically high levels of non-weather-related claims. Others have stopped selling coverage in the South Florida, Orlando and Tampa metro areas.
Deerfield Beach-based People’s Trust Insurance Co. announced in September that it stopped all new sales in the entire state, then laid off about 60 sales and marketing agents.
In South Florida, agents are telling clients who live in older homes without modern windstorm protections, “If your company offers to renew you, take the offer no matter how high the price hike.” If they try to find a new carrier, they will likely find tighter restrictions than their previous insurers. Some companies, for example, are refusing to take on new customers whose roofs are more than 10 years old.
Even companies that specialize in insuring expensive homes or unusual risks that standard insurers won’t cover are telling agents they have no capacity to write new business in Florida, said Dulce Suarez-Resnick, vice president of NCF Insurance Associates in Miami. Those companies include Lexington Insurance, Lloyd’s of London and Scottsdale Insurance, she said.
Thousands flock back to Citizens
Meanwhile, state-run Citizens Insurance is adding customers at an alarming rate.
State law requires Citizens to offer coverage to homeowners unable to get insurance from a private-market company, or if the only available private-market coverage costs more than 15% above what they can buy from Citizens. Because Citizens is prohibited from increasing its rates more than an average of 10% a year as other companies have imposed increases exceeding that limit, Citizens is becoming a more affordable option.
Citizens, which covered nearly 1.5 million properties in 2012, gradually reduced its customer count to 420,000 by the middle of the decade. Now, the company is adding 2,500 to 3,000 new policies a week, Citizens CEO Barry Gilway said at the company’s Board of Governors meeting in September. Of them, 85% are from Broward, Palm Beach and Miami-Dade counties. Gilway told the board that he expects Citizens to regrow to 625,000 policies by the end of 2020.
While it might be more affordable, Citizens by design is not a preferable insurance choice. State lawmakers don’t want to be in the insurance business and developed its product to provide fewer options, such as capping personal liability coverage at $100,000, capping mold coverage at $10,000, and excluding coverage for animal liability, sump pump overflows and hurricane-related damage to screen enclosures.
Combined, 46 Florida-based companies reported net losses averaging $400 million a year from 2016 and 2019. In the first six months of 2020, those companies have already lost $454 million, according to data submitted to the Florida Office of Insurance Regulation. Their combined rate of return has steadily declined from 17.8% net profit in 2015 to an 11.1% net loss in 2020.
“The underwriting loss of $454 million in the first six months of 2020 is not sustainable,” said Locke Burt, president and CEO of Security First Insurance. Third-quarter results have not yet been released. But they are expected to bring more bad news, reflecting claims from Tropical Storm Isaias, which brought winds and storm surge to Florida’s northeastern coast in early August and Hurricane Sally’s record-setting rain that caused flooding in Pensacola.
Recent storms have triggered claims that insurance companies must pay out of their own reserves because they don’t reach levels that trigger compensation from their reinsurance coverage, said Kevin Mitchell, president of Tampa-based TypTap Insurance, a subsidiary of HCI Group Inc., which also owns Homeowners Choice Insurance. “It’s like death of 1,000 cuts,” he said.
HCI Group is the only one of five publicly traded Florida-based insurers that hasn’t seen its share price erode this year. Mitchell said that’s likely a result of investor confidence about multistate expansion plans for TypTap, which specializes in coverage sold directly through its website.
Plummeting stock prices of the other four reveal how investors’ attitudes about Florida’s insurance market have evolved over the past year. Share prices of St. Petersburg-based United Insurance Holdings Corp. declined from $13 a year ago to $5.88 on Oct. 8. Over the same period, Fort Lauderdale-based Universal Property & Casualty’s share price declined from $28.46 to $14.29. Heritage Insurance Holdings dropped from $13.95 to $10.26. FedNat Holding Co., based in Sunrise, dropped from $14.10 to $6.
What you can do
Unfortunately for consumers, strategies for dealing with the coming rate increases are limited.
- South Florida residents can move north or west. Homes are much cheaper north of Palm Beach County, and so is insurance. Rates are higher here because South Florida is seen as more vulnerable to hurricanes, although the past few years of increased activity in north and central Florida could change that equation. Also, homeowners here file more claims, repair contractors charge higher prices, and attorneys are more likely to file costly lawsuits. Across Alligator Alley, insurance costs are about 25% less in Southwest Florida communities like Fort Myers and Port Charlotte.
- Homeowners can maximize their discounts for windstorm coverage by investing in as many storm-hardening improvements as they can afford, including impact resistant windows and doors and stronger roofs. Those improvements will enhance their property values, even if the investments take several years to recoup through insurance discounts. But as Bettini of Weston found out, storm hardening doesn’t immunize homeowners from rate hikes.
- There’s no harm in asking your agent to shop around for a lower rate. Insurance companies don’t always rate risks the same way throughout the various territories where they sell coverage. Neighborhoods and types of homes shunned by some companies as unacceptable might be welcomed by other companies eager to diversify their portfolios.
- You can look for ways to trim costs. Options to consider include raising your deductible or lowering some of your coverages. Suarez-Resnick suggests checking your policy to make sure that automatic increases in replacement value, meant to ensure your coverage levels keep pace with inflation, don’t have you paying for more insurance than you need.
- You can become politically active. As the 2021 legislative session nears, insurers are renewing their annual push to change state insurance laws. In the upcoming legislative session, they want to reduce incentives for attorneys to claim legal fees worth multiple times the actual repair costs in dispute. They also want to reduce the amount of time property owners have to file claims after hurricanes. Three years, they say, is too long and invites abuse.
Beyond those options, we can keep our fingers crossed or pray to our preferred deities that the pace of hurricanes, tornadoes, hail and floods slow down so homeowners have fewer claims to file, insurers have fewer payments to make, reinsurance rate hikes subside, and companies can once again compete for our business by lowering prices.