No Place Like Home

Some Floridians have already received the news in their mailboxes. Many others will see it arrive in the coming months. None will welcome it.

"Our homeowner's insurance went from $2,150 to $6,250," said Shelly Salzman of Lee County. "How's that for an increase?"

Ms. Salzman had been with her insurance company, Kin Interinsurance Network, since she had moved to Southwest Florida from Palm Beach County three years earlier. The company provided no explanation for the premium increase. Now she's shopping the internet for a new company but hasn't had much luck yet in finding a lower premium.

"I just feel bad that we've been paying premiums, and now we're getting penalized because of Hurricane Ian," Ms. Salzman said.

According to the Insurance Information Institute, an industry trade organization, the average cost of a homeowners insurance policy in Florida last year was $4,231, nearly three times the national average of $1,544. Local social media has been abuzz about the insurance rate increases. Many who received hefty premium bills this fall and winter took to the Nextdoor local social media app and speculated that the increases must be related to Ian in general or even directly caused by filing hurricane claims with their insurance companies. But others replied that they received significant rate increases last summer, before Ian's catastrophic landfall, and had never filed any claims, countermanding the theory that Ian was to blame. Yet others posted that they have received non-renewal notices instead of premium notices and were scrambling to find new insurance companies.

Lee County resident Jennifer Wiedmeyer received notice in July that American Integrity Insurance of Florida was increasing her yearly homeowner's insurance premium from $2,100 to $3,800.

"It was a pretty hefty jump — shocking," Ms. Wiedmeyer said. "We had no claims, and when we called them, they just said that the rates had gone up."

Ms. Wiedmeyer asked her local agent to shop for a better rate, but the agent's reply was that the $3,800 was the lowest premium available at the time. She opted to keep the insurance, and when she had to file a claim this fall, the company paid promptly.

"We could have reduced our coverage to reduce our premium — like taken off our shed or increased our deductible — but it turned out to be a blessing that we didn't when Ian came," Ms. Wiedmeyer said. "But I can only imagine what the next bill will look like this July — I'm terrified of that next bill."

While some who receive increased premiums go shopping, that's not an option for those in the midst of an open claim. Rita Montano of Lee County recently saw her Kin Interinsurance Network homeowner's premium go from around $2,600 to $7,259 annually. Since she is still having hurricane damages repaired, she opted to pay her premium quarterly — for the moment.

"It was a crazy increase, and the hard thing is no other property insurance company will even give an estimate until our claim is closed," Ms. Montano said. "We were between a rock and a hard place, and we couldn't afford the annual premium, so we paid three months. We just had our roof replaced, and I sent the invoice to the adjuster. So, we're hoping the claim will be closed before the next payment is due in March, so we can go with another company."

When Ms. Montano asked Kin why her premium increased, she said the company told her that all insurance companies had raised their rates because recent increases in the construction market would increase the cost of potential home repairs, and the company also mentioned increased litigation as a factor. She checked with friends, and while everyone had seen increases, none had seen a premium jump as dramatically as hers. "I have an insurance background from my career, and the thing that surprised me is that there are state insurance departments to approve rate increases," Ms. Montano said. "Typically, these departments would never agree to a rate increase of this size, so I'm amazed that Kin was able to put it through."

Ms. Montano called Kin's customer support department to inquire about the percentage of premium increase the state had approved for the company, and she pressed again for that information in a chain of emails that she shared with Florida Weekly. She also contacted the Florida Department of Financial Services' Division of Consumer Services with her question and received a lengthy but generic-sounding email that mostly provided homeowners with insurance shopping tips.

Kin was among seven property insurance companies for which the Florida Office of Insurance Regulation held public hearings in 2022 regarding their rate increase petitions.

These petitions requested increases ranging from 10.7% to as high as the request for an 84.5% increase by Southern Fidelity Insurance Company, with most companies asking for around the 25.1% increase that the regulatory office approved for Kin.

How approval of a 25.1% increase resulted in the dollar amount of the increases that Ms. Montano and Ms. Salzman saw when they received their Kin premium notices is not clear. Rate increase documents for Kin and for American Integrity Insurance that the Office of Insurance Regulation sent in response to Florida Weekly's records request did not provide any further insights into the amount of any of these residents' premium increases.

Since people have been receiving premium increases both before and after Hurricane Ian and regardless of whether or not they filed claims, the commonly held beliefs about rate increases have been shown to be urban legends. So, what are the myths, and how are insurance premiums actually calculated?

"The insurance industry can't react that fast," said Brian Chapman, CEO of Chapman Insurance Group, an independent insurance agency with offices in Charlotte and Lee counties. "Your Ian claim, if there is going to be an impact, it's going to be on the totality of Florida and not just Southwest Florida because a storm could hit the other coast next year. Ian's impact won't be felt for a couple of years because the insurance industry doesn't know how big the losses are going to be — it's just a guess at this point. So, those myths (that individuals' rates increased because of Ian or because of filing a claim) can be dispelled."

Another common myth has to do with the corporate structure of insurance companies.

"What is probably the biggest misunderstood thing on the planet as it relates to the insurance industry is this — insurance is for profit — these are not non-profit companies," said Deborah Sewell, a Bonita Springs retiree who worked multiple positions in insurance brokerage and national accounts risk management for four decades, to include writing the policy manuscripts that some insurance companies use for issuing insurance policies. "And most of us, through our 401(k)s or IRAs, have some type of investment in the insurance industry."

Ms. Sewell pointed out, as for-profit businesses, that insurance companies have a couple of ways to make money, and these income streams affect the premium rates that people pay.

"Insurance companies don't make most of their money from premiums," Ms. Sewell said. "They try to underwrite policies to a profitable combined-loss ratio, which is the ratio of premiums against the losses they pay, but they might pay loss ratios in excess of 100% (of the premiums). So, where they made their money was by investing the cash that they set aside to pay future claims. When the interest rates were high, that was great, and they were making money. But when the interest rates dropped to nothing, and the loss ratios exceeded 100% because of combined windstorms in Florida over five years, you can see insurance companies were losing money. And the money has to come from somewhere, so that's part of why rates have increased."

Like any business, insurance companies have operating costs, such as administrative costs, commissions to agents and brokers, claims management and loss control expenses. Ms. Sewell said these overhead expenses can easily run between 30% and 35% of the premium income. But a major influence upon premium rates is the cost of reinsurance, which is the insurance that insurance companies purchase as coverage to cap their own losses. In one of the documents that the Office of Insurance Regulation sent to Florida Weekly, Kin listed that it was paying

65% of premiums for its reinsurance coverage. Ms. Sewell said the reinsurance companies take on a significant portion of possible losses in exchange for being paid a significant percentage of the premiums, but reinsurance companies also have a cap for their capacity to risk losses. Once an insurance company reaches that cap with their reinsurance company, they cannot write any more insurance policies. Since the insurance company cannot seek new customers to increase income once they have reached their cap, they must turn to raising rates for existing customers if they need more income.

Risk management models also influence premium rates. Insurance companies model what they expect to happen as well as the worst-case scenario that could happen, based upon both the scale of a disaster as well as the location of large population centers that could be hit. Between windstorms, floods and sinkholes, Florida has become a high-risk state for the insurance industry.

"It used to be just the southern tip, the Panhandle and certain areas of the east coast of Florida that were deemed winds torm-prone areas, but it's expanded to the entire state being deemed windstorm sensitive," Ms. Sewell said. "So, the overall catastrophe risk of loss to an insurance company in the event of a Category 5 hurricane hitting Florida, it's the same concept as earthquakes in California. The state of Florida over a five-year period, you've had major, major hurricane losses, so Florida is viewed very differently than the rest of the country (by insurance companies) based on the hurricane risk."

Litigious state

Beyond the actual damages caused by hurricanes, Mr. Chapman and Ms. Sewell both cited another factor that makes insurance companies wary of writing policies in Florida: litigation. Mr. Chapman said that, in the years following Hurricane

Irma, new unscrupulous roofing companies sprung up that specialized in approaching homeowners with older roofs, since there was a three-year window for filing hurricane claims. He said that they manipulated assessments and estimates to attribute normal wear and tear instead to hurricane damage. He said that often the papers they presented homeowners to sign would include an assignment of benefits document, which signed the homeowner's rights and control of their insurance claim over to the contractor. Since the contractor now controlled the claim, they would present an inflated repair bill to the homeowner's insurance company. When the insurance company objected to the price and to the assessment that the entirety of the roof 's problems was caused by a hurricane, the contractor then retained an attorney and sued, often without the homeowner's knowledge because they had assigned their benefits to the contractor. Mr. Chapman said this scenario was repeated many times over by multiple contractors and attorneys against multiple insurance companies in Florida.

"The carrier has a responsibility to get you back to where it was the day before the storm," Mr. Chapman said, "but the life expectancy of a shingle roof in Florida is 15 years. Insurance is not a warranty program to pay for wear and tear, and it never has been designed to do that. The worst part is that the insurance industry is now using a depreciation schedule, so that as the roof ages, they'll only pay the value of the life that's left and not the whole roof, so it dilutes the insurance product bought by most consumers. Then some companies that were willing to write policies on homes with 20-year-old roofs will now only write if the roof is 10 years or newer, so it's giving less options for people to buy insurance."

According to the Office of Insurance Regulation, Florida accounted for 9% of homeowners insurance claims filed nationwide, yet 79% of lawsuits filed over homeowners insurance claims nationally were filed in Florida. The office also reported that, over the last 10 years, insurers paid out $51 billion, with 8% going to claimants and 71% going to attorneys and public adjusters.

"What these firms relied on was that it was cheaper for insurance companies to settle in lieu of having to pay for defense litigation costs, so insurance companies paid way more than they should have for losses as a result of roof damage," Ms. Sewell said. "How do you risk control for roofers pulling scams and attorneys?"

Florida Weekly reached out to two law practices, one in Palm Beach County and one in Lee County, that advertise that they handle insurance claim cases to request their viewpoints for this story. Neither replied by deadline. A large insurance brokerage firm in Lee County also didn't respond to Florida Weekly's interview request.

Mr. Chapman said that there were also some companies that he would call bad actors among the insurance carriers, so his own industry wasn't entirely clean. He said they had done awful jobs when they had to handle claims and needed to be held accountable.

State of the insurance business

Between the hurricane risks and the potential for lawsuits, many of the big-name insurance companies familiar from national advertising campaigns write few to no homeowners' insurance policies in Florida. Mr. Chapman said that most of the companies providing homeowners' insurance in Florida are small companies located in-state that typically write between 50,000 and 100,000 policies. He said most are so small that his agency actually has more employees than many of the insurance companies he does business with.

"They're smaller companies because the large companies don't want to write business here because of the litigious environment and the bad actors (doing roofing scams) are so strong," Mr. Chapman said. "It's not worth their risk — not because of storms and normal losses — but because of the manipulation that takes place after the storm. They don't want to fight that fight, and they don't have to write in Florida, so they've shrunk their portfolios to become really small players in our market."

The homeowners' insurance market has become so unstable that 11 property and casualty insurance companies are currently in receivership with the state for liquidation, which is a number that Mr. Chapman said was unusual to the point of being historic. The Florida Department of Financial Services shows that seven of those insolvencies took place in the last two years, and another three took place between 2017 and 2019. Southern Fidelity Insurance, the company that petitioned the state for an 84.5% premium increase in 2022, went into receivership later in the year.

Given the Florida insurance industry saw net underwriting losses exceeding $1 billion per year in 2020 and 2021, the number of insolvent companies is not surprising. When the state puts an insurance company into receivership, policy holders have 30 days to find another insurance carrier — in a tightening market with higher rates. And policy holders must wait for the state to complete its accounting of policy records to send to the Florida Insurance Guaranty Association before they receive any premium refunds. The liquidations have forced hundreds of thousands of homeowners to seek new policies. Many have scrambled to Citizens Property Insurance Corporation, a not-for-profit insurer established by the state legislature to serve as an insurer of last resort for those who cannot find policies elsewhere.

Insurance reforms

To remedy the insurance market crisis, Gov. Ron DeSantis called the state legislature into a special session last May to work on legislation for the property insurance market. Senate Bill 2A passed during a second special session in December, and the governor signed it into law.

Among the reforms, the new law eliminates assignment of benefits to a third party, such as a contractor. It also eliminates one-way attorney fees, so insurance companies will no longer be required to pay a homeowner's lawyer in addition to the claims settlement if the insurer loses the case; each party will now pay their own legal fees. Additionally, it creates and funds a new $1 billion reinsurance option for insurance companies; reduces the time insurance companies have to pay or deny a claim; reduces the time policy holders have to file a claim; adds additional restrictions for obtaining insurance from Citizens Property Insurance; and provides the Office of Insurance Regulation more ability to examine insurance companies' conduct following hurricanes, among other provisions. Aspects of the law began to be phased into place starting in January.

"I think this law will bring more competition and interest to our marketplace," Mr. Chapman said. "We may see some of the bigger carriers creep back in slowly. There will be a first run of investor capital that's interested in trying to make a few quick bucks by capturing the right timing, but that's a good thing because it means it's a healthy marketplace that people will want to be a part of. They'll show up, put money behind it and write insurance, and that competition will drive pricing down because, right now, availability is the number one issue we face."

Ian's impacts upon insurance premiums are due to hit in two to three years, and the impacts of the new law will likely manifest around the same time. Meanwhile, Mr. Chapman offered advice to homeowners to prepare them to shop for better rates. He said that, once repairs are completed to fix Hurricane Ian damage, homeowners should double-check to be certain that their claim is closed, but he said to be absolutely certain that all repairs and paperwork were completed first because nothing can be added to a closed claim.

He said to consider projects to harden the home against hurricanes, such as a new roof or windows, to reduce premium rates and make the home more attractive to new insurers. (A state program offers grant possibilities to help pay for the upgrades.) He said to retain receipts for all types of home repairs (not just hurricane repairs) to prove to insurers that you have maintained and improved your home, which lowers their risk for insuring you. And he suggested working with a local independent insurance agent because they have the flexibility to shop multiple insurers to find the best coverage and rate for you.

"I know it's complicated because, with increased insurance rates, you're strapped just paying for insurance," Mr. Chapman said. "But if you can harden your home, as competition comes into the marketplace, they're going to want to write good business, and you'll be first on their list." ¦