Nothing demonstrates why Florida is in this crisis more than looking at how Florida stacks up against the nation in the number of homeowners insurance claims in 2019 versus the sheer number of homeowners lawsuits filed. While Florida only generated 8.16% of homeowners claims across the country, Florida was responsible for generating 76.45% of lawsuits filed, according to the National Association of Insurance Commissioners’ Market Conduct Annual Statement data call.
Last month, Citizens Property Insurance Corporation President and CEO Barry Gilway made the following blunt assessment to members of the Florida Senate Banking and Insurance Committee: “I would say the industry is on life support.”
During his committee presentation, Mr. Gilway gave a stark overview of market conditions in Florida. In 2020, only a handful of Florida’s 52 private insurance companies made a profit. Net losses for the group exceeded $828 million. Many of those companies haven’t seen a positive net income for the past four or five years. There have been a couple of insolvencies and this is bad news for homeowners.
To combat those losses, private insurers basically have three options: They can find new capital, reduce risk or raise rates. We are seeing all of this going on in Florida. Some companies are receiving influxes of capital by investors hoping to ride out the storm. Other insurers are reducing their exposure by leaving particular regions of Florida or making their requirements more stringent. For example, some carriers will only insure a property with a roof less than 10 years old or have placed caps on water or roofing losses.
And other insurers have received multiple double digit increases over the past few years. Because Citizens’ rate increases are capped at 10% for any individual policy, this premium gap has grown. The fact is, Citizens, which doesn’t have to have actuarially sound rates or make a profit, is the cheapest option 91% of the time.
The result of this turmoil is readily apparent. Homeowners’ insurance rates are going through the roof even while insurers lose money. Policyholders are flocking to the insurer of last resort known as Citizens. For the past several months, Citizens is seeing an average of 4,500-5,000 new policies each week coming from policyholders no longer able to find comparable coverage in the private market.
In January 2020, Florida’s insurer of last resort covered 444,000 policies with $112 billion in insured exposure. Citizens now covers about 715,000 policies with $200 billion in exposure and is expected to top 1 million policies by the end of 2022.
This is concerning for Florida’s residents and businesses. The risk, of course, is that as Citizens grows, the risk of assessments on Floridians increases if a major storm hits and Citizens exhausts its surplus. This means we all pay a “hurricane tax” on other lines of insurance than just homeowners’ insurance.
Last year, the Florida Legislature passed a significant piece of legislation to bolster the market. Senate Bill 76 provided a number of remedies to hopefully address major cost drivers in the Florida insurance market. Though it’s still early, it appears those reforms may be having a positive effect and we are seeing some encouraging trends as it relates to first notice of loss and litigation. However, there still remains a lot of work to be done.
Affordable and available property insurance is the backbone of residential and commercial development, two of our major economic drivers in Florida. As such, the health of the insurance market has an immediate impact on economic development, jobs and revenues for Florida.
The Florida Chamber Foundation’s Florida 2030 Blueprint lays out 39 goals to secure Florida’s future. Two of those goals include actuarially sound property insurance rates based on actual risk and competition and improving Florida’s legal climate to the top quartile in the nation. Florida is in the bottom 5 with California and Illinois.
The Florida Chamber is working to raise awareness about our lawsuit crisis and present solutions that help consumers. Join our movement as we work to secure Florida’s future by contacting Carolyn Johnson at cjohnson@flchamber.com.