According to an Issues Brief published by the Insurance Information Institute (Triple-I), the turmoil in Florida’s homeowners insurance market is primarily caused by the state’s excessive number of lawsuits and commonplace fraud schemes.
“Floridians’ homeowners’ insurance is becoming more expensive and scarce because the state has been the site of too much litigation and too many fraudulent roof-replacement schemes for years,” said Sean Kevelighan, CEO of Triple-I. “These two factors contributed significantly to the net underwriting losses incurred by Florida’s homeowners’ insurers between 2017 and 2021.” Florida’s homeowners pay the highest average property insurance premium in the country, at $4,231, nearly three times the national average of $1,544.
According to the Triple-I, net underwriting losses for Florida domestic property companies exceeded $1 billion in both 2020 and 2021, resulting in insurer insolvency and rating downgrades. Some insurers that have been able to weather these adverse financial trends have reduced their exposure to Florida’s homeowners market by issuing non-renewal notices to existing policyholders or restricting new business writing in the state.
In 2017 (Category 4 Irma) and 2018, the state was hit by two major hurricanes (Category 5 Michael). However, the last three hurricane seasons (2019-2021) have been relatively quiet in Florida. According to the National Association of Insurance Commissioners, insurers are experiencing net underwriting losses in large part because Florida is the site of 79 percent of all homeowners insurance lawsuits over claims filed nationwide, while Florida’s homeowners insurers receive only 9 percent of all U.S. homeowners property insurance claims. According to Floridians For Lawsuit Reform, 130,000 property claim lawsuits will be filed in 2022, owing largely to Florida’s favorable litigation environment.
“Florida has one of the most generous attorney-fee mechanisms in the country,” the Triple-I Issues Brief explained, “sometimes resulting in insurer payment of plaintiff attorney fees far greater than the damage awards given to the policyholders who are the plaintiffs themselves.” “When courts rule in favor of policyholders, a 2017 state Supreme Court decision allows courts to award plaintiffs’ attorneys 2-2.5 times their hourly billing rate.” These “contingency fee multipliers” can net attorneys hundreds of thousands of dollars for a simple lawsuit.” In the event of a court ruling in favor of the policyholder, the homeowners insurer pays the plaintiff’s attorney fees as well as damages to the plaintiff.
The steps taken by unethical roofing contractors, who ask homeowners insurance policyholders to sign assignment of benefits (AOB) forms or direction to pay agreements, giving the contractor the right to collect claim payments directly from the insurer and file a lawsuit without the policyholder’s knowledge or consent, are also highlighted in Triple-I’s Issues Brief. These lawsuits necessitate insurers allocating resources to defend themselves in court, with the policyholder frequently unaware that the signed AOB form has triggered potential litigation.
“As insurers fail or leave, Citizens Property Insurance Corp., the state-run last-resort home insurer, is seeing an increase in business.” As of June 30, 2022, citizens had 931,357 policies in force, up from 638,263 policies in June 2021 and 474,630 policies in June 2020. Citizens could spend up to $100 million on legal fees this year, according to the Triple-I’s Issues Brief.