Industry goes unregulated as Florida home insurance rates soar, critics say [Orlando Sentinel]

TALLAHASSEE -- Florida hasn't seen a major hurricane make landfall in four years, yet a record number of property insurance companies have gone under and premiums for millions of homeowners are soaring, even after regulators approved repeated requests to raise rates and dump thousands of policyholders.

Some critics argue at least some of the blame falls on the Florida Office of Insurance Regulation, which they say is not doing its job.

"We're not seeing any regulatory action, no fines," said Richie Kidwell, owner of Orlando-based Air Quality Services mold removal company and president of Restoration Association of Florida, an advocacy group for contractors.

"It's in the name ... They're not regulating the insurance companies," Kidwell said. "They might as well be the Office of Insurance Advocacy."

Kidwell has several active lawsuits against the OIR in state and federal court over what he calls "the shell game that's been going around Florida for years."

Ten property and casualty companies are in liquidation, four of which filed for bankruptcy this year, leaving thousands of Floridians scrambling to find new insurance. Some insurance companies are jacking up rates by 100% or more.

"All of a sudden they started raising rates and dropping clients, creating a crisis requiring a special session to bail them out," said John Tolley, a Brooklyn-based lawyer for homeowners who grew up in Orlando and does extensive work in Florida. "Every session they get favorable legislation... yet every session we hear about the insurance crisis. Where's the money going?"

Industry representatives and their allies in the Legislature argue that it's largely a problem caused by greedy policyholders who want free roofs, egged on by contractors and lawyers looking for a payday.

Insurance companies have donated more than $10 million in campaign contributions so far this election cycle to Republicans and Democrats alike in the Legislature, which passed new laws making it harder to sue insurers and more difficult for lawyers to collect a giant payday.

"They created a boogie man, talking about fraud and talking about attorneys," said Rep. Mike Grieco, D-North Bay Village, who filed several amendments during the special session held on the issue in May. He sought to protect consumers and their right to sue, all of which were voted down by the Republican-controlled House.

Critics, a group largely made up of Democrats, contractors and trial lawyers, say the industry manufactured a crisis leading up to the start of hurricane season to skirt the blame for their own problems and get the Legislature to get lawyers off their backs, while offering no relief for policyholders.

"For consumers, this was a big nothing burger," said Grieco, who offered an amendment to lock in rate reductions immediately. "They're not going to see rates go down, maybe never, or two years from now at the soonest."

Sen. Jim Boyd, R-Bradenton, an insurance agent who sponsored the bill that Gov. DeSantis promptly signed into law, acknowledged it fell short of policyholders' expectations, but he said it was an important step to stabilize the insurance market.

They approved $2 billion in reimbursements for reinsurance from the Florida Hurricane Catastrophe Fund due to hurricane losses, which opponents called an industry bail-out. Companies buy reinsurance to protect themselves from catastrophic event and pass the cost onto their customers.

They also eliminated the automatic replacement rule if 25% or more of a roof was damaged and set a 2% deductible on roofing repair costs.

Most reforms were a continuation of last year's legislative efforts to slow down the number of lawsuits filed against insurers over claims disputes, but they didn't address what critics see as a major contributor to all those lawsuits being filed: delaying, denying and underpaying claims.

"Companies ... don't like to talk about their bad faith behavior on claims management or the fact they are under-capitalized and reliant on reinsurance," said Phil Lyons, a Miami insurance agent.

The Office of Insurance Regulation also has failed to take action against companies that don't have enough money to pay off catastrophic claims, or enforce laws that are supposed to protect the consumer and make sure insurance companies are solvent, Tolley said.

"They haven't done anything to help the homeowner and deter the insurance companies," Tolley said.

More recently he filed a lawsuit against United Property and Casualty, one of the largest insurers in Florida, with 180,000 active policies. He claims that United and its adjusters schemed to defraud policyholders by refusing to pay out their claims.

The danger is that when a Category 5 hurricane does make landfall in Florida the insurance companies won't be able to pay off the billions of dollars in damages that will occur, ultimately leaving state taxpayers holding the bag and paying huge assessments.

The property insurance market is constructed like a house of cards, with policyholders on the bottom, several insurance experts said. All policyholders already have been hit with a 2% assessment to cover the losses of two failed insurance companies this year.

Regulation and enforcement

After the Legislature failed to pass any insurance reforms during its regular session, Office of Insurance Regulation Commissioner David Altmaier was asked if the state allowing poorly vetted companies with inadequate capital to do business in Florida was playing a role in driving up costs.

"No," he said, placing the blame on an "excessive amount of litigation."

Yet, Altmaier's predecessor and former boss Kevin McCarty agreed that insurance companies bring a lot of pain on themselves by the way they treat their clients.

"One of the challenges of being insurance commissioner is you wear many hats, either distributing benefit or regulating entities to protect consumers," McCarty said. "But you also have the job of building the markets and still be vigilant to protect consumers from the vagaries of that market."

He said the legislation just approved is a good first step because you've got to "stop the bleeding."

A search of OIR's market reports and consent orders shows only one instance where Altmaier has issued a fine against a company over failure to pay claims or meet its other obligations to policyholders. It was a $35,000 fine to Universal Property and Casualty Insurance Company in December 2016, eight months after he was appointed commissioner by then-Gov. Rick Scott.

Universal failed to indicate specific reasons for canceling policies, did not give 20 days notice prior to canceling policies within the first 90 days, failed to file underwriting guidelines or rules for homeowners insurance, and violated rules regarding complaints, including not responding in a timely manner.

Meanwhile, some of the same companies struggling with solvency in Florida face six-figure fines in other states for the same violations they've been cited for here, including FedNat, Maison and United.

Two views about lawsuits

Nobody is disputing there is an increase in litigation, but there are two views on how legitimate those lawsuits are. The insurance industry and their allies say lawyers are exploiting a legal loophole to sue and lawmakers are trying to shut those loopholes down.

But the trial lawyers and contractors dispute that, saying while there are some bad characters, most lawsuits are based on legitimate grievances that aren't addressed by the OIR, so policyholders have no other option than to go to court.

"Contrary to popular belief, insurance companies continue to avoid their contractual and statutory obligations despite their incessant concerns about defending 'rampant' lawsuits," said Anthony Orlando of the Merlin Law Group in his blog. "If legislative efforts are going to be targeted towards holding the bad policyholder actors accountable for 'fraud,' then the same efforts need to be targeted at combatting the unspoken immunity that is insurer fraud."

Out of the roughly 8 million Florida policyholders, 82,883 have filed complaints against insurance companies since October 2016, according to the OIR's Civil Remedy database. An additional 12,953 complaints were filed by third parties. There has been a steady uptick each year through 2020 but that number has been on the decline since it peaked.

Lawsuits have dropped since the passage last year of a law that requires policyholders to file a notice of intent to litigate and shortened the deadline for filing claims.

"If they paid in the first place ... you'd have fewer lawsuits," McCarty said. "Companies should want to promptly respond to claims."

30 years of trouble

Florida's property insurance crisis didn't happen overnight, and it was going to take more than a special session to fix it.

It was created by a perfect storm of circumstances, causes born by Mother Nature and human bureaucracy going all the way back to Hurricane Andrew in 1992.

After two really bad hurricane seasons in 2004 and 2005, the industry was reeling from all the claims it had to pay, as Paige St. John documented in her Pulitzer-winning series for the Sarasota Herald-Tribune in 2010.

"It is the Florida Ponzi Scheme," said Phil Lyons, a Miami agent who was secretary of the Independent Insurance Agents of South Florida at the time and a current member of the Legislative Council for the Florida Association of Insurance Agents.

Several insurance experts established benchmarks of financial weakness for the Herald-Tribune, including "low levels of savings, comparatively high amounts of risk, an over-reliance on reinsurance and a heavy concentration of customers in one geographic area."

Forty-two of the more than 70 companies reviewed by the paper failed at least one of those benchmarks.

In a 2010 report published by Patricia Born, a Florida State University Professor who specializes in hurricane risk analysis, regulator efforts to keep the state's insurance rates artificially low had resulted in undercapitalized companies, which put the state's insurance market "in great peril."

In 2013, Born and a co-researcher noted that insurers have a hard time providing stable coverage following major hurricanes and that regulations may act to block "an insurer's willingness to provide coverage following such events."

For 10 years, from 2006 to 2015, no hurricane made landfall in Florida. Reinsurance became competitive and insurers could buy it at reasonable rates.

But then hurricanes walloped the state three years in a row, causing nearly $20 billion in insured residential property losses.

If anything, Lyons said, the market has gotten worse since then.

"The market has dried up. Ten years back there was a lot of investment dollars out there and people thinking they could start up an insurance company."

Monitoring and enforcement

The OIR "closely and consistently monitors the financial condition and operational results of insurers to protect consumers," said Samantha Bequer, communications director for OIR. The agency requires "corrective actions when necessary," enforces compliance with statutory market conduct requirements and collects and analyzes insurance market data, she said.

OIR is charged with examining the companies' financial books "to determine the quality of assets and liabilities," Bequer said. The agency is supposed to examine each new domestic insurer each of the first three years they are in business in Florida and every five years after that.

But a search of financial examination reports shows that several companies that have recently been dissolved or have asked for a huge reduction in policies have not been examined in years, including:

The agency also is supposed to conduct postmortems on companies that become insolvent but so far only one has been made available to the public a 2015 audit on Sunshine State going out of business the year before.

Not all insurers are meant to succeed, McCarty said. Companies don't have enough reserves, they make mistakes or concentrate their risk in one place.

Regulators can't have "zero tolerance for failure," McCarty said.