Can lawmakers save the collapsing Florida home insurance market?

In 2022, the Florida home insurance market spent months tumbling toward collapse, but legislation was put in place to help mitigate disaster. These laws aim to make Florida home insurance more affordable while ensuring enough reserve funds to pay for catastrophic losses. It may take years to know if these changes can stabilize the market. Bankrate dug deep into the Florida insurance industry to identify systemic issues and help you understand your options if you receive a cancellation or nonrenewal notice on your homeowners insurance policy.

The crisis in the Florida insurance market

Florida has always been a complex home insurance market. Since 2017, eleven property and casualty companies that offered homeowners insurance in Florida liquidated. Five of those companies liquidated in 2022, and United Property & Casualty Insurance Company liquidated in 2023. Other insurance companies are voluntarily leaving the state. Even more are choosing to nonrenew swaths of home insurance policies, drastically tighten their policy eligibility requirements or request substantial rate increases.

For Florida homeowners, this is resulting in fewer home insurance companies and increased premiums. When a company goes insolvent, the Florida Insurance Guaranty Association (FIGA) takes on any claims that still need to be paid by that company. In late August, FIGA’s board and the Florida Office of Insurance Regulation (OIR) approved a .7 percent assessment to help cover the costs of open claims associated with the liquidated companies. That’s the second assessment this year, with a 1.3 percent assessment approved in March. Homeowners will pay these fees regardless of the insurance company they are with.

According to Logan McFaddin, vice president of state government relations at the American Property Casualty Insurance Association,

Florida’s property insurance market is in crisis as insurers grapple with out-of-control litigation costs and billions in losses from recent natural disasters.

Florida’s Insurance Consumer Advocate (ICA) Tasha Carter agrees, saying, “Homeowners insurance options in Florida have become more and more limited, and consumers are facing dire consequences.”

Why are home insurance companies leaving Florida?

Florida insurers are canceling policies, leaving the state or liquidating at a rapid pace. Why? What is behind these companies’ aversion to insuring Florida homes?

Florida has always presented a risky market to home insurance companies due to the high threat of widespread weather-related damage, but the current crisis is caused by a number of factors reaching a boiling point at the same time.

Insurance fraud in Florida

One of the biggest issues in Florida is home insurance fraud, driven by fraudulent roofing claims. A proclamation from the office of Governor Ron DeSantis notes that, although Florida only accounts for 9 percent of the country’s home insurance claims, it is home to 79 percent of the country’s home insurance lawsuits. Many of these lawsuits are fraudulent. ICA Carter explains how the scams generally work:

1. First, roofers canvas neighborhoods and offer inspections to unsuspecting homeowners. These contractors inevitably “find damage” on the roof and often promise a “free roof” to the homeowner, claiming they can have the home insurance deductible waived.
2. Homeowners are pressured to sign an assignment of benefits form, giving contractors the right to file an insurance claim on their behalf.
3. A claims adjuster from the insurance company inspects the alleged damage. The adjuster either finds no damage or far more minimal damage than the contractor found, and the claim payout is less than what the contractor demanded.
4. The contractor brings legal action against the insurance company, demanding a claim payout for the contractor’s original quote. Remember, the homeowner signed the benefits of the policy to the contractor, so the contractor doesn’t need the homeowner’s permission to do this.
5. The insurance company now has a choice: it can pay the legal costs to fight the lawsuit or pay the costs to settle out of court. Either way, the insurance company loses money due to the legal action.

ICA Carter notes that “these schemes are real and are happening more frequently,” which puts more and more financial pressure on insurance companies, especially in a state with high claims costs due to weather-related events.

According to Mark Friedlander, Director of Corporate Communications at the Insurance Information Institute, “Florida property insurers are projected to post a cumulative underwriting loss of $1.7 billion for 2021” due to these runaway litigation costs. The governor’s office reports that, for two consecutive years, net underwriting losses have exceeded $1 billion. It’s no wonder that so many companies are going insolvent or leaving the state before they reach that point.

On top of that, Florida also previously had a “one-way attorney fee” system. This meant that when a court ruled in favor of the plaintiff (in this case, a home insurance policyholder or the third-party contractor who filed the claim), the defendant (in this case, the insurance company) was responsible for paying the plaintiff’s attorney fees. So not only were insurers paying for fraudulent lawsuits, they were also paying for the fraudster’s legal costs. Friedlander notes that the insurance reform bill passed in December 2022 “addresses the two root causes of Florida’s residential insurance crisis — litigation abuse and assignment of benefits (AOB) abuse…Eliminating both is necessary to slow down the mass volume of lawsuits being filed against Florida insurers.” Going forward, assignment of benefits forms are banned for home insurance losses, and Florida will no longer operate a one-way attorney fee system.

Roof age

Instead of leaving altogether, some companies are tightening their underwriting restrictions to lessen the risk of these scams. This may be the reason why several companies — including Southern Fidelity, Progressive and Universal — have chosen to continue operations in Florida but have nonrenewed tens of thousands of policies.

However, companies are now prohibited from denying coverage solely based on roof age if the roof is fewer than 15 years old and has a life expectancy of five years at the time the policy is issued. That said, insurers will have to decide if they are comfortable with these restrictions or if they will continue leaving Florida.

Storm risk

Risk will always be a consideration for home insurance companies in Florida. The state’s shape and geographic location mean that it could get hit from either side by a hurricane. Because the peninsula is so thin, even homes in the interior counties aren’t entirely protected.

To make matters worse, fraudulent claims may be more common after severe storms — and storms are not uncommon in the state. Hurricane Ian made landfall on September 28, 2022, as a powerful Category 4 storm, causing widespread damage. The damage and financial fallout could push the already-teetering home insurance market into collapse due to increased home repair expenses, including the potential of fraudulent roof claims.

However, although the risk of hurricane damage complicates things, it isn’t what’s driving the market to the brink of collapse. After all, other risky states don’t have this problem. A high likelihood of damage generally means paying a higher premium to offset that risk, but coverage is usually still available. Oklahoma, for example, has the highest average cost of home insurance in the nation at $3,593 per year for $250K dwelling coverage due to the likelihood of tornado damage, but homeowners in the state don’t face the same difficulty finding coverage that Floridians do.

How many home insurance companies have left Florida?

On July 13, 2023, AAA announced that it is limiting its risk in the state by nonrenewing policies with auto, home and umbrella bundles. The carrier is still writing new business in Florida for both auto and home but in areas with lower exposure. Earlier in July, Farmers Insurance announced that it is no longer offering new business or renewing any of its auto, home and umbrella policies in Florida.

In mid-2022, Bankers Insurance Company reported its exit from Florida, only to be followed by AIG and Lexington Insurance, a subsidiary of AIG. Lexington Insurance is a surplus lines carrier focused on high-value homes with replacement costs over $1 million — leaving an estimated 8,000 policyholders searching for specialized coverage in a limited market.

Between home insurance companies going insolvent, limiting their risk or leaving the state altogether, Florida has lost over 30 insurance providers — or some form of coverage from these providers — in the past three years.

Is anything being done to curb the crisis?

Yes, although the full effects of the measures have yet to be seen. Senate Bill 76 went into effect in July 2021 and included several provisions to curb fraudulent claims causing insurers so much strain. One such provision is aimed at reducing the solicitation tactics that fraudulent contractors often use at the start of a scam. While this legal measure may help solve the problem, Sean Harper, CEO of Kin Insurance, warns that “there will need to be additional action taken to restore the market to health.”

Florida lawmakers met for a special session from May 23 through May 27. The Legislature passed an insurance reform bill that includes several provisions to help slow the spiral of the market. The provisions included setting up the My Safe Florida Home Program, which provides grants to help Florida homeowners strengthen their homes against damage. Additionally, home insurance companies will not be able to deny coverage for homes solely based on roof age if a roof is less than 15 years old and still has five years of useful life left (older roofs may still be denied as they present a high risk of damage). Finally, lawyers will be restricted in the rates they can charge for property insurance claims cases, hopefully discouraging fraudulent lawsuits and decreasing litigation costs.

December Special Session yields promising reform legislation

Additional legislation was signed into law on December 16, 2022. Senate Bill 2-A. The bill has numerous provisions but focuses on one-way attorney fees and the assignment of benefits scam. Friedlander told Bankrate:

“This is the strongest insurance reform package we have ever seen passed in Florida. It shows Florida’s new legislative leaders understand the enormity of the state’s property insurance crisis and are initiating decisive actions to create a path toward stability of the market.”

Doing away with one-way attorney fees and assignment of benefit forms could potentially remove massive financial pressure from insurance companies and reduce the number of fraudulent lawsuits. The combination of actions included in Senate Bill 2-A will hopefully buoy the rapidly sinking insurers in the Florida market.

However, Friedlander notes that change won’t happen overnight: “…it will take time to see positive impacts of the legislative reform. We expect home insurance rates in Florida to remain high in 2023 due to expenses associated with ongoing litigation, combined with soaring reinsurance rates and double-digit replacement cost increases driven by escalating prices of construction materials and labor.”

2023 Legislative session introduces new laws impacting homeowners

Of the seven Florida bills passed in the first half of 2023, Senate Bill 1102 updated the claims process surrounding motor vehicle glass damage. The remaining six bills focus on insurer accountability, restructuring the claims process regarding public adjusters and multiple changes to property insurance. Some changes give more clarity to bills passed in the December session.

House Bill 799 for property insurance modifies rating factors and flood coverage requirements for different property types. Citizens policyholders insuring secondary homes are excluded from the rate cap, allowing rate increases up to 50 percent. Changes impact new Citizens policyholders with policies starting after November 1, 2023.

All properties covered by Citizens now require flood coverage except for policies without wind damage coverage and condo policies. The state has set an enrollment deadline schedule based on structure replacement cost. The dwellings with the highest replacement cost, over $600,000, must secure flood coverage by January 1, 2027.

House Bill 881 extends the My Safe Florida Home Program to more properties, waiving the wind-born region requirement. Also, the insured value of the eligible homes increased to $700,000, and the low-income grant amount increased to $10,000.

Most changes from these laws were in effect for policy renewals at the beginning of June and July 2023. Hopefully, reinsurance companies feel that these measures have gone far enough to continue extending coverage to the insurers that have remained in Florida. If not, more providers may announce their retreat from Florida in the near future. In other words, relief may be coming, but it’ll likely take some time for homeowners and insurers to feel it.

Demotech responds to potential rating downgrades

Because many home insurance companies have been hit hard by the rampant and fraudulent litigation, they may no longer be as financially stable as they were. In late July 2022, financial strength rating company Demotech announced it was considering downgrading the financial strength ratings of 27 property insurance companies.

The situation is complex. While these carriers may no longer have the financial strength they used to, downgrading also causes issues. Downgrading financial ratings impacts homeowners with federally-backed mortgages — those from Fannie Mae and Freddie Mac — because these lenders require home insurance companies with Demotech ratings to maintain at least an ‘A’ level. Demotech has not released the names of the companies it is considering downgrading.

“Preliminary evaluations are just that — preliminary,” Demotech President Joe Petrelli told Bankrate. Some of the 27 could retain an ‘A’ or higher rating. But if these downgrades happen, homeowners whose coverage is with an affected company may need to find another insurance carrier in a market where options are already limited or expensive.

While a rating downgrade may present challenges for a company and its insureds, that hardship cannot, and does not, factor into our ratings, which are based on specific data and the objective application of our rating methodology.

— Joe PetrelliPresident of Demotech

The Florida OIR established a reinsurance fund through its last-resort insurer, Citizens. This means that if an insurance company’s financial strength rating is downgraded below the ‘A’ level, the downgraded company could purchase coverage from Citizens to back it, similar to a co-signer backing a loan. Reinsurance through Citizens would allow the downgraded insurance company to meet Fannie Mae and Freddie Mac’s requirements. This is important because it would prevent policyholders from being required to find a new property insurer. However, a reinsurance solution further strains Citizens, which is already taking on substantial risk by insuring more policyholders in the state as other insurance companies exit Florida.

Learn more: Demotech downgrades and what they might mean for the Florida property insurance market

Florida seeks to replace Demotech

On September 9, 2022, the Florida legislature approved a $1.5 million plan to search for a financial strength rating company to replace Demotech. The state will hire a consultant to seek out alternatives that may include finding another company or creating a state-backed financial strength rating agency. Petrelli released a statement in response:

“Since 1996 in Florida, Demotech has provided neutral, unbiased ratings to property insurers, among the approximately 50,000 such ratings we have produced across the country. Our review and analysis process has remained consistent throughout this time. Currently, at least four rating organizations acceptable to the government-sponsored mortgage enterprises operate in Florida and countrywide, and a research effort on rating alternatives could be accomplished at no cost to the taxpayers by reviewing existing Freddie Mac and Fannie Mae sellers or servicer guides. Today’s action is an unnecessary response to a problem that does not exist. The reality is that when Hurricane Andrew devastated the state nearly 30 years ago, the rating agencies involved in Florida chose to step away — but Demotech stepped up.”

It remains to be seen if finding another ratings agency will produce meaningful results toward correcting the Florida home insurance crisis. These major changes to insurance laws came into play after Florida’s decision to replace Demotech. However, the president of Demotech applauds these changes calling them “an impressive series of meaningful reforms.” As always, Bankrate continues to monitor the situation.

How to lessen your risk of nonrenewal

If you live in Florida, having a plan could help you lessen your risk of receiving an insurance nonrenewal. There’s nothing you can do to prevent your company from pulling out of the state, but there are steps you can take to make your home as insurable as possible:

• Keep your roof updated and in good shape: Inspect your roof regularly and repair minor damage as it happens. If you can afford to, replace your roof before it reaches 15 years of age to lessen the risk of being nonrenewed.
• Install wind mitigation features: State law requires Florida home insurance companies to offer discounts for certain wind protection features, such as hurricane straps and other roof-bracing measures. These features lessen the risk of severe damage to your home, thus making your property more attractive to insurers.
• Maintain your property: Generally, maintaining your property will make finding insurance coverage easier. Along with checking your roof, also regularly check the rest of the exterior features of your home for damage. You should also make sure no large tree branches or other potential hazards overhang your home, as these could put you at risk of roof damage in a windstorm.

Additionally, there are ways you can lessen the impact of home insurance fraud and help keep companies from having to liquidate. ICA Carter points out that “consumers have the power to help stop contractor fraud by being informed and reporting fraud.”

• Know the signs and stay educated: ICA Carter created educational resources called “Demolish Contractor Fraud: Steps to Avoid Falling Victim” that may help homeowners recognize the signs of fraud, stop it before it happens and report it.
• Be wary of solicitation: Soliciting business isn’t against the law, but contractors who canvas neighborhoods after storms — and especially those who offer incentives and rebates for an inspection — may be part of a scam. Instead, contact your insurance company if you are concerned your home sustained damage after a storm.
• Do not sign an assignment of benefits form: These forms have been banned by Senate Bill 2-A, but keeping an eye out for them as you work with a contractor could still be useful. By keeping control of your policy, you decide if a lawsuit is filed, which vastly cuts down on fraudulent litigation. It’s worth noting that these forms are often buried within otherwise legitimate-looking contracts. Once you’ve signed, the form is legally binding, so it’s important to read everything you are asked to sign. Do not let a contractor simply point out a signature section on paperwork or scroll past the details on a tablet screen. Read the entire document carefully.

Additionally, some companies now offer a discount if you agree to make your policy unassignable. Kin is one such company, and Harper notes that having a high number of unassignable policies has shielded the company from much of the litigation nightmare ensnaring other carriers.

What to do if your home insurance has been canceled

If you’ve received a Florida homeowners insurance cancellation, act quickly. With hurricane season approaching and the insurance market in turmoil, getting another policy could be difficult, but it is possible.

McFaddin recommends that you “work closely with your insurer or insurance agent to see what options may be available to you.” ICA Carter’s advice was similar, advising that “consumers should contact their insurance agency immediately to determine what their options are for homeowners insurance.”

If you’re struggling to find home insurance coverage in Florida, there are still a few companies that may be able to help.

Kin

No home insurance company in Florida is immune to the ripping effects of raging litigation, but Harper notes that his company has “some things that we’re doing that allow us to stay open in Florida when other folks aren’t or are going out of business.” In addition to the bulk of the company’s policies being unassignable, the company also employs a unique system for assessing claim damage.

Harper explains that Kin uses software that monitors weather systems and accurately pinpoints which houses may be damaged. The company can then proactively reach out to homeowners to determine if a claim needs to be filed, thereby cutting out potentially predatory contractors.

It sounds crazy, right, to be an insurance company that is asking our customers for claims? But it actually pays off.

— Sean HarperCEO of Kin Insurance

Citizens Property Insurance Corporation

Citizens is often one of the only options for homeowners in many areas of the state. The company has experienced rapid growth due to other carriers leaving the market. In 2018, the company had only 414,000 active policies; by August 2022, that number had ballooned to over 1,000,000. Michael Peltier, the spokesperson for Citizens, told Bankrate that the company is writing 5,000 to 6,000 new policies per week, and that in many parts of the state, Citizens is “the only game in town right now.”

Even so, Peltier says that “we do have underwriting guidelines,” so it may not be an option for all homeowners. Citizens is also affected by the same issues that are plaguing other insurance carriers and have recently raised their rates. Although the company requested a 10.7 percent increase on standard home insurance policies, the Florida OIR approved a 6.4 percent increase. While 6.4 percent is certainly better than 10.7 percent, it’s likely that many Citizens policyholders will still feel the strain of a larger bill. The rate increase will go into effect on September 1.

Additionally, Friedlander warns that because Citizens is insuring so many of the high-risk homes that other carriers have walked away from, “a major hurricane striking Florida could have devastating effects” on the company and the industry. Offering reinsurance to companies if Demotech does downgrade ratings will add more risk to Citizens if a disaster strikes.

Citizens may get some relief from the reform bills, though. Policyholders must now accept private insurance quotes if they are no more than 20 percent higher than Citizens’ quotes. Additionally, Citizens’ rates must be actuarially sound but are now required to be non-competitive with the private insurance market. Finally, Citizens policyholders will be required to carry flood insurance. Rates for a last-resort policy are likely to be higher going forward, but that should theoretically help curb the influx of policies that could drown Citizens entirely.

Slide Insurance

Since its 2021 inception, Tampa-based company Slide Insurance has embraced taking on books of business from insolvent Florida home insurance companies.

In February of 2022, the Florida OIR announced that Slide would absorb about 147,000 policyholders from St. Johns Insurance Company when it reported its insolvency. In a similar move, approximately 72,000 UPC Insurance policyholders were transferred to Slide when UPC went belly-up in February 2023.

But what is Slide Insurance? Founded by former Heritage Insurance CEO Bruce Lucas, Slide is an insurtech that relies on AI and large data sets for its underwriting models. The company claims this is the edge it needs to thrive in the challenged Florida homeowners insurance market. Slide is rated A (Exceptional) by Demotech.

If you’re one of the many homeowners who have found themselves transferred to Slide, you might be wondering what’s next. According to the company, policyholders have no actions to take — as long as you pay your premiums, there will be no lapse of coverage. Additionally, Slide will notify your mortgage company for escrow purposes (if applicable).

One important thing to note is that Slide will not handle any open UPC claims that occurred before February 1, 2023. Instead, those that need help with an existing UPC claim should contact the UPC claims center directly.

Tailrow Insurance Company

In April 2023, the Florida OIR announced that it approved the application for Tailrow Insurance Company, bringing a new carrier into the state.

While Tailrow is yet to be formed (the company has provisions to meet before the OIR will authorize it to do business), this may be a promising first step in stabilizing the market. Bankate’s experts are committed to staying on top of this story and will bring our readers new information as it unfolds.

The bottom line

Florida home insurance has always been complex due to the state’s high risk of storm damage, but the incidence of fraudulent roofing claims has pushed the market to the brink of collapse. The problem may not stay in Florida, either; if other high-risk states like Louisiana and California see an increase in insurance fraud, those markets could begin to degrade. There is hope, though, as measures are put into place to protect companies and policyholders from financial strength rating downgrades, laws are passed that could help curb scams and carriers take a different approach to insuring homes in the Sunshine State. But will these measures be enough to save a market in turmoil?