Florida is in the middle of a property insurance crisis. Since Hurricane Andrew hit in 1992, property insurers have been fleeing the state and raising rates faster than ever before.
The result has been a steady decline in access to affordable coverage for homeowners, who are forced to either accept more expensive policies or go without coverage at all.
The situation came to a head with Hurricane Irma in 2017: while cities like Miami and Tampa saw damages that topped $10 billion, insurers increased rates as much as 30% on average before legislators stepped in with an emergency bill that limited their ability to do so again.
Florida’s Private Property Insurance Market is Out of Control
For a long time, Florida's property insurance market has been out of control. Insurers are cancelling policies and writing new policies when other carriers fail. They're raising rates and refusing to write certain types of policies or offering coverage in certain areas.
But the state hasn't been able to get a handle on the problem, even though they've tried. In 1995, the Florida legislature passed a law requiring insurers to provide at least 10% coverage for wind damage—which was supposed to address complaints that insurers were underpricing their wind policies as they shifted back into this competitive market.
But it didn't work; instead of making things better for consumers, it was more like having your car break down just because you got new tires. Then, in 2002 came another law requiring insurers who wanted their hurricane deductibles waived after Hurricane Andrew (and similar storms) had hit previously un-hit regions of Florida again—but this only further distorted competition by putting those who thumbed their nose at these rules at an advantage over those who followed them.
Regulation by the State
While insurers may be writing new policies for certain properties in the state, they are not necessarily doing so at reasonable rates. In fact, property insurance rates are regulated by the state, and a backstop program exists for super-expensive properties that private insurers refuse to cover.
The program was created following Hurricane Andrew in 1992, which resulted in more than $25 billion in insured losses. This is where things get interesting: after two decades of relatively low hurricane activity and favorable weather conditions, many Floridians had forgotten about their state’s vulnerability to extreme weather events—and insurers had become complacent with charging high premiums without proper reason to do so (or at least without government oversight).
Insurers Have Given out Self-Serving Rate Filings to Regulators
The Florida Office of Insurance Regulation (OIR) is charged with reviewing and approving insurance rate filings, in other words, a proposed rate increase. This is an important job, because the OIR's decisions about whether to accept a rate filing can have serious consequences for consumers: if a rate filing is approved, it means that the insurer can charge whatever premiums it wants for its policies. If it's rejected, insurers must lower their premiums to meet minimum standards set by state regulators.
But there are serious problems with Florida's system of approving these filings: rate filings are not transparent; they're not audited; they're not required to be approved by either OIR officials or even any elected official; and they're generally rubber-stamped by regulators who don't appear interested in challenging insurers' requests or holding them accountable if something goes wrong down the road (as we'll see later).
Citizens Property Insurance Corporation
Citizens Property Insurance Corporation is a state-run insurer that provides coverage to high-risk properties, typically those that have been turned down by private insurers. Citizens’ market share has grown over the last decade, and in 2018 it was ranked as one of the top five carriers in Florida with about $6.4 billion in total premium.
It has been around since 1935 and has survived many hurricanes over the years. Citizens provides coverage for high-risk properties when other insurers won't do so because they are too risky—for example, homes built on swampland or oceanfront properties at risk from storm surge. These homes would cost more than what most people can afford to pay out-of-pocket if they buy them without any insurance coverage at all; thus, they need some type of assistance from the government.
Unfortunately, Citizens' policies aren't as comprehensive or affordable as they could be—and they're not even available in all areas.
Citizens has been criticized for its high rates and lack of transparency with consumers. Because it's a state-run organization, there's little that homeowners can do about their situation other than try to find another company or pay the costs themselves.
The Florida Legislature has tried unsuccessfully to reform Citizens multiple times over the last decade, usually by allowing insurers to charge higher rates and pass those costs along to consumers.
The reforms have failed because they do not address the fundamental problem: rising claims costs.
Recently, the State Legislature passed a law stating that if you get a quote from a private insurer that's within 20% of the cost of your Citizens insurance policy, your coverage will not be renewed.
The legislation was proposed for several reasons. First, it's believed that public insurance carriers should not be forced to compete with private carriers, who have the ability to negotiate lower rates due to their ability to offer different types of coverage plans and products. Second, it's believed that public insurance carriers have been unfairly penalized by Citizens who have been able to offer lower rates because they don't need as much profit margin as private insurers do in order to stay afloat financially.
If you're a homeowner who has private insurance, the new law may result in increased premiums.
We are Here to Help
If you need assistance finding the best property insurance for your needs or have any questions about the rules and regulations, we are here to help. Contact Fiorentino Insurance Group today to speak to a licensed agent.