A new issues brief published by the Insurance Information Institute (Triple-I) has concluded that the instability in Florida’s home insurance market is due to two factors: the state’s outsized number of insurance lawsuits and its rampant roof repair fraud schemes.
"Floridians are seeing homeowners' insurance become costlier and scarcer because for years the state has been the home of too much litigation and too many fraudulent roof-replacement schemes," said Triple-I CEO Sean Kevelighan. "These two factors contributed enormously to the net underwriting losses Florida's homeowners' insurers cumulatively incurred between 2017 and 2021."
Triple-I pointed out that homeowners in Florida pay the highest average property insurance premium in America at $4,231 – almost three times the national average of $1,544.
The institute also said that the net underwriting losses for Florida’s domestic property companies exceeded $1 billion in both 2020 and 2021, which has led to insurers either having their ratings downgraded or being placed into insolvency. Triple-I also noted that several of the insurers that were able to withstand these negative trends chose to reduce their exposure to the state’s market, either by issuing non-renewal notices or restricting the writing of new business.
Although two major hurricanes made landfall in Florida in 2017 (Hurricane Irma) and 2018 (Hurricane Michael), the past three hurricane seasons have been relatively uneventful for the state, said Triple-I. Despite this, insurers operating in the state are experiencing net underwriting losses, as Florida is where 79% of all US homeowners insurance lawsuits over claims are filed, the institute said, citing data from the National Association of Insurance Commissioners. It was also noted that Florida’s home insurers receive only 9% of all US property insurance claims.
Litigation activity is expected to pick up, as Triple-I said that an estimated 130,000 property claim lawsuits will be filed in 2022, according to Floridians For Lawsuit Reform.
"Florida has one of the most generous attorney-fee mechanisms in the country—sometimes resulting in insurer payment of plaintiff attorney fees far greater than the damage awards given to the policyholders who are the plaintiffs themselves," the institute’s brief said. "A 2017 state Supreme Court decision allows courts to award plaintiffs' attorneys 2-2.5 times their hourly billing rate when courts rule in favor of policyholders. These ‘contingency fee multipliers’ can result in attorneys receiving several hundred thousand dollars for a simple lawsuit."
Triple-I’s brief also put a spotlight on unethical roofing contractors, who ask home insurance policyholders to sign assignment of benefits (AOB) forms or direction to pay agreements. These forms allow the contractor the right to collect payments directly from the insurer and file a lawsuit without the knowledge or consent of the policyholder.
These two factors have not only put insurers on the rope but have also led Citizens Property Insurance – Florida’s state-run insurer of last resort – to dangerously swell, Triple-I stated.
“Citizens had 931,357 policies in force as of June 30, 2022, up from 638,263 policies in June 2021 and 474,630 policies in June 2020. Citizens could spend as much as $100 million this year on litigation expenses,” the institute said.