Hurricanes are not the primary reason that Florida homeowners currently paying the most expensive insurance premiums in the country.
Florida homeowners are facing costlier and scarcer insurance because of so many lawsuits filed and fraudulent roof-replacement schemes in the state, says the Insurance Information Institute.
“These two factors contributed enormously to the net underwriting losses Florida’s homeowners insurers cumulatively incurred between 2017 and 2021,” said Sean Kevelighan, CEO of the Insurance Information Institute, known as Triple-I, in a press release. The organization, founded in 1960, provides insurance information to consumers.
“Add climate-related perils, and it’s a recipe for collapse,” Triple-I said in a brief published August 9.
Florida homeowners pay the highest average property insurance premium in the U.S. at $4,231, nearly three times the U.S. average of $1,544, according to Triple-I’s analysis.
Insurer insolvencies, policies canceled
Triple-I noted underwriting losses for Florida domestic property companies exceeded $1 billion in both 2020 and 2021. Those losses have led to insurer insolvencies and rating downgrades, Triple-I said. Meanwhile, others have reduced their exposure to Florida’s homeowners market by issuing non-renewal notices to existing policyholders or restricting the writing of new business in the state.
The past three hurricane seasons have been relatively quiet, Triple-I noted.
Instead, insurers have faced net-underwriting losses mainly because 79% of all homeowners insurance lawsuits in the country are filed in Florida, Triple-I said. However, only 9% of all U.S. homeowners file claims with Florida homeowners insurers, according to the National Association of Insurance Commissioners.
Floridians For Lawsuit Reform estimates litigants will file 130,000 property-claim lawsuits in 2022, largely due to Florida’s favorable litigation environment, Triple-I said.
“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 Triple-I’s report explained.
“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,” it added. The homeowners insurer pays the plaintiff’s attorney fees as well as damages to the plaintiff, the insurer’s policyholder, if the court rules in favor of the policyholder.
Triple-I’s Issues Brief also highlights the steps taken by unethical roofing contractors, who ask homeowners insurance policyholders to sign assignment of benefits (AOB) forms or direction-to-pay agreements. These agreements allow the contractor to collect claim payments directly from the insurer and file a lawsuit without the knowledge or consent of the policyholder. These lawsuits require insurers to allocate resources to defend themselves in court, with the policyholder often unaware the signed AOB form has set into motion potential litigation.
“As insurers fail or leave, Citizens Property Insurance Corp. – the state-run home insurer of last resort – is swelling with business,” the report said. The state-run insurer had 931,357 policies in force as of June 30, 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,” Triple-I’s brief reported.
“Most of the onus will be on the state legislature to correct the conditions that promote fraud and litigation, as well to mitigate anticipated effects of extreme weather and sea-level rise,” the brief concluded.