Wondering why your insurance rates keep going up? Look into your neighbor’s new kitchen [Miami Herald]

As home insurance premiums keep rising in Florida, homeowners shopping around for better rates are discovering that they can be hard to find in the Sunshine State. And while much of the success depends on the location and overall conditions of a home, an unexpected question can also determine your chances of getting a new policy: Have you filed any claims lately?

The situation is worse in South Florida, where few companies, besides the state-run Citizens, are writing new policies except under certain circumstances, said Leonard Bujnicki, an agent in Pembroke Pines for We Insure.

“These companies, I would say seven or eight of them, will write a new policy if there is a new roof and if there is no claims history,” Bujnicki said. “No claims in five years. That’s a big deal.”

READ MORE: Bad news for Florida homeowners: high insurance premiums unlikely to drop any time soon

Flood of insurance claims

Besides the billions of dollars in losses caused by hurricanes in Florida over the past few years, insurance companies have been dealing with a flood of claims that have no parallel in the other states.

According to the industry-funded Insurance Information Institute, the state accounts for about 9% of the nation’s number of claims — but an extraordinary 79% of the litigation related to homeowners’ insurance.

This situation has prompted many major firms into leaving or scaling down their operations in the state, and forced several smaller ones into bankruptcy.

“In the last two years, since the beginning of 2022, we’ve had seven Florida insurers declared insolvent,” said Mark Friedlander, director of corporate communications for the Insurance Information Institute.

“There have been more than a dozen other companies that have stopped writing business, meaning they are not writing new policies.”

New laws going into effect this year aim to curb the abuse of the legal system by making it harder to sue insurance companies. But already industry representatives are saying that it might take a long time before the impact of those laws is felt, noting the reluctance of companies to expand operations or compete at all in Florida.

The limited competition between providers will keep prices high for the foreseeable future and the market might take months, if not years, to stabilize, said independent agents, whose role is to find the best rates for home owners and do not represent any particular insurance company.

Industry critics, including public adjusters who advocate for property owners in insurance disputes, say insurance agents’ claims of excessive litigation are not only exaggerated but seek to attribute to others the consequences of their own mismanagement. They argue that insurance companies have been hit hard by the fact that they operate inside a high-risk state, and that seeing their finances hurt by hurricanes, they simply began to short-change their clients.

The situation has become so problematic that homeowners in Miami-Dade, Broward and Palm Beach counties can realistically get quotes from only a handful of companies besides Citizens, while also seeing a constant increase in their insurance rates.

Litigation abuse and other factors

Other factors also are playing an important role in the crisis, namely the heavy storm losses, an inflation-related increase in the replacement costs of a home, and a 60% to 65% increase in the rate of reinsurance — the policies insurance companies buy from larger companies to help them cover large claims.

But litigation abuse is the main reason rates in Florida are significantly higher today than in other hurricane-prone states such as Texas, and why homeowners in the tri-county area have fewer options than residents of other counties, insurance agents interviewed by the Miami Herald said.

“All of this abuse with the claims is what created the problems that we are having right now,” said Fermín Acosta, of F. Acosta Insurance Group in Doral.

“It is not that insurance companies have been trying to do whatever they want and charge more, but rather that they were forced to increase their rates by the high number of claims they have, by the situation in the state of Florida, which not only is a high-risk area, where hurricanes happen, but also has the risk of an unjustified number of claims,” Acosta said.

Acosta pointed to abuse by public adjusters and contractors who knock on doors telling people they can help them get a new roof after finding two or three broken shingles — if they sign papers yielding their claims to the adjuster or to lawyers working on behalf of the contractors that made the repairs.

Claims of this type often lead to lawsuits in an attempt to obtain large insurance payouts, and that is what the Florida’s new laws aim to stop, by making it harder and more expensive to sue an insurance company.

“Practices like this should be controlled and even penalized,” Acosta said. “It shouldn’t be allowed for homeowners to transfer their rights only because someone knocked on his door telling them they can get them a new roof.”

Homeowners caught in the middle

Rob Buvens, a lawyer and public adjuster representing homeowners in Florida since Hurricane Andrew, said that while it is true that there has been abuse of the legal system, executives at the insurance companies have turned this into a tall tale to get state officials to introduce new legislation in their favor at the expense of homeowners.

“You can’t blame the people who pay premiums for their insurance policies when they file a claim because they have damages. I mean that’s the literal definition of blaming the victim,” Buvens said. “They now want us to feel sorry for the insurance companies because they didn’t plan appropriately for the money that they took. ... The insurance crisis in Florida is based on the lack of oversight by our government officials. They let these insurance companies rape and pillage their reserves and left the homeowners holding the bag.”

Scott Jarrell, a public adjuster in the Melbourne area, said that the bulk of legal actions filed in Florida come from clients with legitimate claims who were forced to seek help after their insurance companies let them down.

“Insurance companies have spent millions in a narrative that they are going to be there for their customers if anything happens — we are your neighbors, you are in good hands — and then fail to come through when they are needed,” Jarrell said. “ I know some insurance companies have gone out of business, but to what extent is it mismanagement of the funds that they have when they are paying millions of dollars to their own executives?”

Yet, insurance agents insist that system abuse is largely responsible for the mess South Florida.

Bujnicki said the problems began when a large number of homeowners decided that they could use their insurance policy to pay for their new kitchen, taking advantage of the language used in the contracts, which tended to be loose.

He added that Instead of fixing a leak in the kitchen, for example, they would find a public adjuster and a lawyer and file an $80,000 claim.

“So they sue for a brand new kitchen, instead of fixing the problem which they could have done if they just bought some plywood and wallpaper to repair the bottom of the cabinet,” Bujnicki said.

And while those homeowners may have gotten their new kitchen, other homeowners are left picking up the tab for the abuse, he said.

“Someone has to pay,” he said. “Nothing in life is really free.”