Insurance Crisis

It's difficult to wrap your head around the staggering magnitude of the property insurance crisis in Florida.

The total estimated insured losses from Hurricane Ian are $17.27 billion. But Ian didn't put our insurance industry in crisis. The Category 5 storm that hit Southwest Florida one year ago and cut a swath of destruction across the state just exacerbated it.

The real causes were years in the making and include excessive lawsuits, the cost of reinsurance (the insurance that insurance companies rely on to back them up in case of excessive claims), risk from climate change, inflation, the high cost of labor and materials to replace and repair homes, supply chain woes and others.

But experts differ on what the principal culprits and how much they contribute to the crisis. "It's a very treacherous marketplace here in Florida for both consumers and insurers," said Mark Friedlander, a spokesman for the industry association Insurance Information Institute. "Florida still stands out for being in the worst overall condition of a market right now."

Meanwhile, homeowners still recovering from Ian have endured an achingly long time to receive reimbursement on their claims, exhausted from the numerous hoops to jump through, the seemingly endless paperwork they must provide, delays in finding contractors and the materials to do the work to rebuild. On the first anniversary of Hurricane Ian, the sight of blue tarps still intermittently dotting the landscape are like a poorly stitched-together patchwork quilt of loss, uncertainty and need.

There were 521,819 residential property claims for Ian, according to information reported by insurers to the Florida Office of Insurance Regulation, which has primary responsibility for regulation, compliance and enforcement of laws related to the insurance business and monitors statewide industry markets.

Lee County was No. 1, with 262,865 claims, or just over half. Charlotte County had 103,654 claims. Collier County had 44,047 claims.

"The crisis is really a crisis of affordability and availability," said Birny Birnbaum, executive director of the consumer advocacy nonprofit Center for Economic Justice. Birnbaum is a national expert who previously served as chief economist at the Texas Department of Insurance and member of the consumer board of trustees of the National Association of Insurance Commissioners. Homeowners are left with "Swiss cheese" policies, hollowed out with exclusions for wind and flood, while premiums skyrocket for a product providing less and less coverage for more and more money, Birnbaum said. People buying a property are making a long-term investment, he said. When a company offers coverage, a person has reason to believe the company understands the risk and is in there for the long haul for them, Birnbaum said. "What we find out is not at all. The company that wrote the risk doesn't want the risk."

Contractor Marc Arnett, CEO of Sunset Builders & Maintenance in Fort Myers, says he has worked for 50 or 60 customers in the wake of Ian, including his parents. "I think there just needs to be a little more transparency between insurance companies and people they serve," he said.

He's seen the back and forth between homeowners and insurance on claims estimates, the delays and requests for more and more paperwork. "They want monthly premiums paid in a timely fashion, but the customer can wait five to 10 months," he said of insurers.

His parents live in Fort Myers, lost their pool cage and needed some signifi- cant paint and remodeling work. He did the job in November. His parents did not get final reimbursement from their insurance company until June, Arnett said.

"I can tell you insurance has been an absolute nightmare," said Char Seuffert, a real estate broker who owns RE/MAX Sunshine realty on Pine Island.

"I feel people are re-traumatized. They can't sell their homes, they can't buy a home. They're fighting the insurance company and it can take two years to settle a claim," she said. "The home is held hostage. They're held hostage. It's a nightmare on every level." She has seen clients who are not willing to buy because of the high cost of insurance. It's more of a concern than the high interest rates, she said. "It's absolutely affecting the ability to close homes."

She can see the issue from both sides because her husband, Eric, owns Brightway Insurance, a Seuffert Agency, in Cape Coral. "We're there to help clients, not hurt them," she said. "It's hard to watch, hard to see people's mental state, because it's bad."

Insurance reform

The Florida Legislature and Gov. Ron DeSantis have been scrambling to get the insurance crisis under control. The new legislation crafted in two special sessions held by the Legislature in 2022 and three new bills passed in legislative session 2023 are positive steps, but how great the impact will be and how quickly it will be realized is uncertain.

"Let's put it this way. If the laws that were passed in those sessions did not occur, we could have pretty much lost the entire regional insurance market here in Florida," Friedlander said. "It could have been a complete collapse of what is roughly 80% of all the writing in Florida, 80% of all property insurance, as written by the small regional companies," he said. "We were we were heading in that direction. That's how bad things got."

Homeowners in Florida are paying annual premiums that are three to four times higher than the national average, according to experts. What that average is appears to depend on who you ask.

The Insurance Information Institute estimates an average premium of $6,000 per year vs. a national average of $1,700.

Insurify, an insurance comparison website, has two figures for average insurance premiums for Florida in its 2023 study "Insuring the American Homeowner." One is $7,788. In another part of the study, the average premium is listed at $4,416 per year, based on 2022 rates. Tanveen Vohra, communications manager for Insurify, explained the apparent discrepancy by saying Insurify found average prices were closer to $2,000 to $3,000 per year or less in the northern, inland parts of Florida, while "prices could skyrocket to more than $10,000 per year in southern coastal cities like Miami. This state average reflects the fact that a huge portion of the state's residents live in these southern coastal areas that see incredibly high average home insurance premiums."

The other $4,416 figure is from a previous study Insurify did earlier this year and is an average from across the state, regardless of population distribution, she said.

"Every organization has different ways to calculate premiums," Friedlander said. "So there's not necessarily a right or wrong answer." But according to the institute's research, premiums are 102% higher over the past three years cumulatively, he said.

According to the State Office of Insurance Regulation's July 2023 Property Insurance Stability report, average insurance premiums for homes in Florida's 67 counties range from $1,651 in Sumter County to $7,584 in Monroe County.

Lee had an average homeowner's premium of $3,021; Charlotte had an average of $2,619; and Collier an average of $4,610. Palm Beach County is $5,710, No. 2 in the state.

"We've had two manmade factors that have driven the Florida property insurance market into a crisis situation," Friedlander said. "And this is over the course of many years. It was primarily legal system abuse and claim fraud."

State Office of Insurance Regulation statistics show that in 2021, Florida had 7% of homeowners' insurance claims opened nationwide, but 76% of lawsuits.

"That just shows you we have a problem," Friedlander said. "Let's just look back a year. In 2022, we had six Florida residential insurers be declared insolvent, and that was all before the hurricane," he said. People were saying "Well, Florida has a lot of hurricane damage. They must put companies out of business," he said. "Well, no, that's not why." They were all "litigated out of business," Friedlander said. "That's how we label it. They were all hit with literally thousands of lawsuits and, being smaller regional companies that only operate primarily in Florida, they did not have the capital position to withstand those type of heavy expenses, you know, meaning legal defense costs."

Claim fraud

Much of the litigation is driven by the claim fraud, he said. "They work hand in hand. For example, we've had roof replacement fraud schemes for many years in Florida, where unscrupulous contractors go door to door in neighborhoods across the state, indicating that there's been storm damage when there really hasn't." They talk homeowners into replacing the roof, promising them a free roof and the homeowner signs over their insurance claim, which is called assignment of benefits, he said. Many times the contractor will send the bill to the insurance company and it's rejected because it's a fraudulent claim with excessive costs, he said. "And when these get rejected, they sue. And even if even if they may not have a legitimate lawsuit, sometimes in many cases it's less expensive to settle that dispute than to go to court," he said.

Birnbaum disputes the excessive litigation theory as the main cause of the insurance crisis. "Countrywide, insurers paid 9.5 cents of the premium dollar to settle homeowners insurance claims in 2021," he said. "In Florida, insurers paid 13.1 cents of the premium dollar. While insurers, their trade associations and top elected officials attribute this to litigation, it could also be the result of slower claims payouts by Florida insurers and more complex catastrophe claims."

"So, the difference of 3.6 cents cannot be attributed to 'litigation,''' he said. "But even if we assume that all the difference — the entire 3.6 cents of the premium dollar — was attributable to litigation, then getting rid of that litigation would lower costs by 3.6%." Yet insurers keep requesting and receiving approval for massive rate increases, he said. "The insurers' own data and financial reports show that the driving factors are increased expectations of future claims" and massively increased reinsurance costs, he said. "Yet the elected officials are focusing their efforts on a factor that impacts a few pennies of the insurance premium dollar and doing little — compared to the assault on consumer access to the courts — on the real cost drivers."

Part of the problem is excessive litigation isn't universal, Birnbaum said. There is a small number of companies responsible for the majority of litigation. "They are bleeding cash, so they deny claims or slow them down."

The state also recognized the problem of unregulated reinsurance long ago, Birnbaum said. With more and more big national insurers opting not to write policies in Florida, smaller, more regional companies fill the gaps. Reinsurance is purchased by insurers as a backup to spread out their risk and help pay their claims. Reinsurance rates have risen by double digits in recent years, mostly due to hurricane claims, he said. The insurers in turn pass the cost of the reinsurance increase on to their policy holders.

Companies come and go

Four new insurance companies have come into the Florida fold this year, but another one went insolvent in February. In addition, Farmers Insurance announced in July it is withdrawing from the state. AAA insurance then announced it will curtail the number of its policies.

The state Office of Insurance Regulation currently lists 14 insurance companies in liquidation. Overall, the state lists 326 insurance companies that formerly operated in the state as closed.

Citizens Property Insurance Company, the state-backed, so-called insurance of last resort, is top-heavy with policy holders and resorting to a program called "depopulation" or takeout, to lessen the load. At a June public rate hearing held by the Office of Insurance Regulation on a recommended 14% rate hike (which was approved), Citizens said it had doubled its policy holder count from 610,000 to 1.2 million in two years and is expected to top out at 1.7 million policies at the end of this year. As of 2022, they were adding 49,000 policies per month. Hurricane coverage has resulted in a 33% reduction in Citizens' reserve, from $6.5 billion in 2021 to $4.3 billion in 2022. Citizens warned that "should a moderately size storm hit this season," there would likely be an emergency assessment of up to 45% for Citizens policy holders. A separate assessment could be applied to residents who have policies with other companies.

To reduce the number of policies, the state Legislature created the depopulation or takeout program, which allows new and existing insurance companies to assume policies currently covered by Citizens in an attempt to transfer them back to the private insurance market.

Nine companies have so far opted to participate in the depopulation and assume some policies from Citizens, said Samantha Bequer, communications director for the state Office of Insurance Regulation. "To date, the state had approved a total of 482,399 policies for takeout in 2023," she said.

However, if a Citizens policyholder is offered a policy from one of the private insurers participating in the depopulation program that is within 20% of the cost of the Citizens premium, the policyholder can't remain a Citizens customer. They must take the offer from the private insurer, seek private insurance on their own — or opt for no insurance.

Birnbaum said another issue that insurers have failed to deal with is climate change. "They're supposed to be experts on risk. They ignored climate risk for three decades." They knew of the risk but did not respond to it because trade associations objected and fought it, he said. "Now insurance companies are looking for an excuse to leave the markets because of climate change."

After Hurricane Andrew in 1992, computer models and industry research showed the risk, Birnbaum said. "Yet every time there is an event, it's 'surprise, surprise."'

Acknowledging climate change is also antithetical to the current political climate in the state, he said. So, the solution is "let's blame legislation," he said.

The state is taking steps with new litigation, but there is no quid pro quo for the insurance companies, he said. If there are new laws providing relief for the insurance industry, the industry should be required to provide something in return, as for example, a promise to remain in the market for the next five or 10 years, he said.

The only meaningful way to tackle the insurance crisis is through a massive investment in loss prevention and loss mitigation, with the industry, federal and state governments and residents working together, Birnbaum said. "The technology is available, feasible and affordable," he said. e

Th governor signed three new insurance related bills in May, passed by the Legislature. These, combined with laws passed in two special legislative sessions held last year, are aimed at providing more accountability, protection and mitigation programs for consumers.

The bills signed in May, among other elements, include provisions like requiring liability insurers to follow proper claims handling practices on behalf of their policy holders and increasing penalties for insurers who don't; prohibiting any altering or amending of an adjuster's report without providing a detailed explanation for any reduction of the estimate of the loss; prohibits officers and directors of impaired or insolvent insurers from receiving a bonus; expands eligibility for the My Safe Florida Home Program, which provides grants to homeowners for hurricane retrofitting. The governor also added $100 million to the program in the 2023-24 General Appropriations Act, which brings the state's total investment so far to $250 million.

The previous two special sessions resulted in creation of a new $1 billion reinsurance fund, paid for by taxpayers. Also, "one-way" attorney fees were removed.

That stops the practice in which property insurers must pay the attorney fees of policyholders who successfully sue over claims, while protecting policyholders from having to pay the insurer's attorney fees if they lose.

The state's "assignment of benefits" laws were eliminated, which allowed property owners to sign over their claims to contractors who then deal with the insurance companies.

But none of these measures will "fix" the property insurance crisis and you definitely won't see a rollback of premiums anytime soon.

"We get that question often, when is the market really going to be stable?" Friedlander said. "We don't have the answer." However, these are stepping stones to stability, he said. "So we're seeing positive outcomes from the legislation, but we certainly can't make the statement that we're stable yet." ¦