By RON HURTIBISE SOUTH FLORIDA SUN SENTINEL | OCT 24, 2021 AT 8:00 AM
Homeowners hoping for an end to steep property insurance rate increases next year might as well start looking for other expenses to trim.
It’s not happening.
Costs won’t be stabilizing or going down anytime soon, multiple officials told state lawmakers during committee hearings in Tallahassee over the past few weeks. Insurance rates will continue to rise into next year and the foreseeable future as insurers continue to deal with mounting losses from fraudulent claims and litigation, they said. Whether reforms enacted last spring will help turn the tide remains be seen.
“There’s no quick fix. It’s going to be a painful period of time for our marketplace and for our consumers,” said Insurance Commissioner David Altmaier during a recent hearing of the Senate Banking and Insurance Committee.
What’s more, industry experts say there’s little chance that lawmakers will have an appetite for bold proposals aimed at bringing down costs during the upcoming legislative session that begins in January.
Lawmakers will be more focused on redistricting and getting re-elected next fall, said Dulce Suarez-Resnick, vice president of the Miami-based agency Accentria Insurance. “I don’t think they’re going to do anything that could lose them votes or support.”
Instead, legislators are expected to take a wait-and-see approach for financial data that will reveal whether reforms that took effect on July 1 are beginning to quell what state-owned Citizens Property Insurance Corp. president and CEO Barry Gilway called “a sea of red ink” among 52 private-market insurers that oversee 79% of policies in the state.
Total combined losses reported by those 52 companies have increased each of the past four years — from $88.7 million in 2017 to $828.6 million in 2020 — and are on track this year to exceed $1 billion, according to data from S&P Global Market Intelligence that Gilway presented to the committee.
Homeowner insurance rates in Florida have been steadily rising since Hurricane Irma barreled through the state in 2017. Damages from Irma, estimated a few months after the storm as totaling $9.7 billion, nearly doubled to $17.4 billion by January 2020, thanks to protracted litigation and late filing of claims, insurers said. Costs from Irma continue to mount, Gilway said.
As damage costs increased, so did the cost of reinsurance — which is insurance that insurers have to pay to make sure they can cover claims after future storms. Those cost increases, of course, are passed along to consumers.
Customers of Fort Lauderdale-based Universal Property & Casualty, the state’s largest private market insurer, are paying 31% more for coverage than they were two years ago. Heritage Property & Casualty customers saw their rates increase 24% since 2020, while FedNat customers are paying 25% more.
Florida has the nation’s third-highest property insurance rates in the U.S., with an average annual premium of more than $3,600, said Tasha Carter, the state’s insurance consumer advocate, in a hearing Wednesday of the House Subcommittee on Insurance and Banking.
Lucky to have insurance?
Still, some insurers say homeowners who still have private market insurance should consider themselves lucky despite the steep rate increases. At least some company is willing to insure them. Thousands of homeowners have seen their policies canceled or non-renewed even if they haven’t filed a single claim.
Others are being told to replace their roofs if they want their insurer to renew their policies. Several companies are refusing to insure homeowners with older homes or roofs older than 10 years, Gilway said.
Florida’s insurance industry, he said, is “on life support.” Insurers have only three options to stay alive:
- Find capital investors to pump more money into their companies. Gilway said investment capital is “almost impossible” to secure right now.
- Reduce the number of policies they write to ensure they don’t carry more risk than they can pay for after a catastrophe.
- Raise rates to try to stay ahead of mounting costs from claims and litigation.
Two companies went out of business over the past year and four others were required by state insurance regulators to drop thousands of policies to remain solvent.
The Office of Insurance Regulation is currently requiring 12 companies to submit monthly financial reports so regulators can quickly recognize signs that they may be approaching insolvency, Altmaier said. One or two of them are receiving “extra close” scrutiny. He did not name the troubled companies.
Citizens Property Insurance Corp., the so-called insurer of last resort, is averaging 5,000 new policies a week and is expected to top 1 million next year. Currently, property owners can qualify for Citizens insurance if no private market insurer is willing to cover them, or if the only offers they get exceed Citizens’ price by 20% or more.
Waiting for reforms to take effect
Still, Altmaier, Gilway and others say they are hopeful that costs of claims and litigation have started to level off since reforms enacted last spring took effect.
That might be already happening. After increasing in July, the number of lawsuits filed against all property insurers declined in August and September.
Typically, it takes 18 months to 24 months to notice effects of changes to state insurance laws, officials say. That’s because consumers’ policies are updated to reflect changes only when they renew their policies each year.
Reforms enacted last spring included:
- A change in how attorneys get paid meant to reduce incentives for some law firms to file hundreds of suits.
- Insurers must get a 10-day notice of intention to file suit. This is meant to give insurers an incentive to resolve disagreements before they go to court.
- Deadlines for filing claims after hurricanes were reduced from three years to two years.
- Policyholders have 10 days to cancel public adjuster contracts. This also gives insurers time to resolve conflicts. Insurers claim some crooked public adjusters lead insurers to sign contracts with costly contractors and attorneys.
The reforms also included language barring roofing contractors from using “prohibited advertisements” to solicit homeowners to file damage claims, or acting as public adjusters by inspecting damage to determine whether it could be covered by insurance.
But a federal judge in July struck down the ban on “prohibited advertisements” — which could include door hangars, flyers, or pamphlets. That part of the ban violated free commercial speech rights, the judge said.
Insurers sought the ban to quell what they call out-of-control solicitations by roofing companies that include offering cash bonuses to homeowners willing to let them inspect their roofs. Once up there, shady roofers “find” damage, then look back through old news reports to find severe storms to blame, insurers say.
If the roofer can demonstrate that at least 25% of a roof is damaged, state building codes require full roof replacement. Roofers have extracted millions of dollars from insurance companies using billboards, websites and other ads to woo homeowners with promises of new “free” roofs, insurers say.
Senate Banking and Insurance Committee chairman Sen. Jim Boyd, a Tampa-area Republican, said he’s open to finding new language that would restrict fraudulent solicitations while withstanding a legal challenge.
“There’s got to be a way that we [create a law] that keeps fraudulent actors from fraudulently acting,” he said.
Closing loopholes
Even if no major reforms are expected this year, lawmakers will likely consider smaller measures intended to strengthen the industry’s financial health, experts said.
To quell the growth of Citizens and coax its policies back into the private market, the company might ask for a bill that would restrict customers’ ability to veto efforts by private-market insurers to remove or “take out” the policy from Citizens.
Currently, “take-out” targets can veto the move. Citizens proposes limiting that veto power only to policyholders whose rates would increase under the new company by 15% or 20%.
Another possibility to downsize Citizens would be to simply allow the company to raise its rates close to what private insurers charge. A 10% annual rate-hike cap, enacted after the 2004-05 hurricane seasons, has kept the state-run company’s rates too attractive compared to private-market companies.
Lawmakers last year allowed that 10% cap to increase by 1% over each of the next five years. Steeper rate hikes might be necessary to chase consumers out of Citizens but now is not the time to do it, Gilway said, because many homeowners would have no other insurance options.
Federal Association of Insurance Reform, a Fort Lauderdale-based watchdog group, is asking lawmakers to support a bill that would make it easier for companies to tap into the $15 billion Florida Hurricane Catastrophe Fund if necessary.
Reducing the amount of losses — from $8.8 billion to $4.5 billion — that the insurance industry must suffer before being allowed to tap into the fund would reduce the amount of reinsurance companies must buy. Insurers could then pass those savings onto their policyholders, association president Paul Handerhan said in an interview.
Lawmakers might also be willing to revise language in a reform bill enacted in 2019 restricting use of third-party claims assignments, also known as assignment of benefits.
Those reforms followed years of complaints about contractors who convinced policyholders to sign over their rights to bill their insurers as a condition of commencing needed repairs.
Now, contractors are taking control of claims with similar language inserted into other documents, called “Direction to Pay” or “Work Authorization” agreements, said insurance consumer advocate Carter.
Handerhan would like to see lawmakers close that loophole by making assignment-of-benefits restrictions applicable to all documents that contractors ask policyholders to sign.
Attorneys who represent policyholders in disputes with insurance companies, however, say that any reforms should be focused on making insurers pay claims more quickly, and not on restricting policyholders’ abilities to sue.
Although no bills have been filed that would further restrict attorneys fees, Any Boggs, property insurance chair for the Florida Justice Association, warned in an emailed statement that further fee restrictions will not fix Florida’s “broken” insurance system.
Boggs called on lawmakers to “require accountability” from insurers, including “disclosing data that impact rate-making decisions” and requiring insurers to “promptly and efficiently settle legitimate claims.”
Saying that rates “have not and will not go down with attorney fee reform,” Boggs wrote, “Year after year we see an endless stream of big insurance companies consistently being slow to pay or flat out denying legitimate claims.” Efforts to limit attorney fees “are nothing more than an attempt by big corporations with deep pockets to protect their bottom line and limit consumers’ access to the courts.”
Florida’s 2022 legislative season is scheduled to begin on Jan. 11 and conclude on March 11.