It should come as no surprise that Florida’s property insurance premiums are skyrocketing, but hurricanes are not the only reason this is happening.
Florida is a risky market to begin with. It’s ground zero for hurricanes in America, historically being impacted by 40% of all hurricanes that make landfall in the U.S. This environment already makes insurance expensive, but man-made factors like litigation and fraudulent claims have compounded the issue over the past few years.
What’s Causing Rate Increases?
The Insurance Information Institute finds that Floridians are responsible for 9% of the total homeowners’ insurance claims filed in the U.S. Still, they account for 79% of the homeowner’s insurance lawsuits each year. Win or lose; these lawsuits often cost insurance companies more than the original claim. Fraudulent claims also add to the financial stress the insurance companies are under, with many agencies pointing to contractors as the problem.
A common tactic of these fraudulent companies is to show up unsolicited and persuaded owners to let them take a look at the property. After inspecting the property and reporting issues, they ask for an assignment of benefits (AOB), granting them the power to deal with the claim on the owner’s behalf. Once the AOB is signed, the contractor will file a highly inflated claim to the insurance company. When the insurance company attempts to reject the excessive claim, the contractor often sues and ends up costing the insurer even more money.
In an effort to educate the public on this ongoing problem, The Florida Department of Financial Service has published a few helpful guides.
What is the State Doing?
As many Florida property insurance companies have left the state, the government is trying to find a way to keep Floridians insured. A number of bills have been introduced in recent months to address the crisis, mainly aimed at stabilizing the market and keeping insurers in the state. Senate Bill 2A, effective March 2023, has taken away one-way attorney fees to keep litigation costs down. Under this bill, to protect owners and insurers from inflated repair costs, owners can no longer assign benefits to a third party.
Unfortunately, the new legislation has come up short in its attempts to keep insurance companies in Florida. Early this week, Farmers Insurance became the fourth homeowners’ insurance company to pull out of the State. As providers leave we have seen a massive price hike in premiums, but with few other companies to turn to, owners are left with limited options moving forward. For now, it remains unclear how the State Legislature is going to handle this worsening situation. In the meantime, tenants of commercial real estate in the State are suffering the consequences.
