The home insurance crisis continues with no immediate relief in sight. Just this year, two home insurers have gone belly up, bringing to a total six home insurance companies that have failed since 2017. And according to an official with the Insurance Information Institute that list could grow by the start of hurricane season.
This is by definition a crisis, and one calling for immediate action, but the legislative response so far has been a tepid tinkering around the edges rather that a full-blown re-examination of the issues and a forceful legislative response that can make a difference.
For example, during the 2021 session there was minor legislation attempting to deal with one of the big cost drivers for insurance companies: increased roof claims, but these were only minor tweaks, not fundamental change.
And yet, nothing substantive regarding insurance reform was originally planned for the upcoming special session until St. Petersburg Sen. Jeff Brandes led the charge and began gathering support from other legislators to add the issue to the session agenda. This effort has now been given at least nominal support from Gov. Ron DeSantis, and it looks like it may well be part of the session.
While hurricane damage was the primary driver for the instability of the insurance industry that began after the disastrous Hurricane Andrew in 1992, the more recent instability appears to be more related to the behavior of people rather than acts of nature.
Current Florida building code requires full roof replacement if more than 25% of the roof is damaged. This provision has led opportunistic roofing companies and compliant consumers to look for damage, however slight, to roofs, and then demand full replacement. Often, if the insurance company refuses, a suit is filed and the insurance company has to either replace the roof or incur litigation expense.
This has led to an explosion in litigation, and litigation-related costs. For example, in 2020 Florida accounted for 79% of all property insurance-related lawsuits, while only 8% of total claims were filed in Florida. And in 2021 nearly half of the lawsuits were filed in Broward, Miami-Dade and Palm Beach counties.
And these lawsuits benefited lawyers far more than homeowners. A consultant study released last year concluded that of the $15 billion spent on claims, only 8% was paid to policyholders. Plaintiff attorneys got 71% and insurers spent 21% on defense attorneys.
There are other expenses that have contributed to the financial instability of property insurers, but litigation and litigation expenses top the list and are considered the top reason some insurers are closing their doors and/or leaving the state.
If insurers continue to go out of business, it will become increasingly difficult and expensive to obtain property insurance, which is required for mortgages. This threatens to do damage to the overall housing market for homeowners and renters.
This is a crisis that threatens all Floridians. It is incumbent on the legislature to take actions that will help resolve this issue. A healthy property insurance industry is important to the overall economy of the state, and our property insurance industry is not healthy. Our legislators need to take note and act in the interest of everyone in the state.