Nate Koslowski, Account Executive at Goosehead Insurance, shared his thoughts on Florida Homeowners Insurance with the team. Here's what he had to say:
It’s no secret that Florida is in the middle of a homeowners insurance crisis. Most of us have felt the sting of high insurance premiums, non-renewals, or cancellations over the past few years. Nine homeowners insurance carriers left the state in 2022 alone. This has caused Citizens Property Insurance, the state-backed insurance carrier, to take in more policies than expected. Citizens is generally referred to as the “carrier of last resort” but, given the circumstances, they have become many consumers' first and only choice. Everyone seems to have their own theory as to why this has been happening, but few truly hit the core of the problem. Some say the greedy insurance companies are to blame, while others contest that hurricanes are the real culprit. Yes, we are a state subject to unique and common perils such as hurricanes and floods. However, these are more of a catalyst than a cause. Natural disasters have invited other industries to take advantage of our homeowners industry and it is my belief that we do not have an insurance problem in Florida but, rather, a litigation problem.
The Core Issue
Insurance litigation has wrecked our homeowners industry. Sure, a few new roofs around the neighborhood can cost insurance carriers a pretty penny, but these costs are relatively small when compared to the price of attorney fees. Florida is home to the one-way attorney fee statute which was designed to protect policyholders against legal bills if they needed to sue their insurer. It puts insurers on the hook for the bill. This, however, has invited attorneys and contractors to take advantage of the system. In recent years, insureds have been prodded more than ever to sue their insurance providers.
As the numbers reflect, Florida has become an attorney’s playground. When insurance companies are faced with these skyrocketing litigation costs, they are forced to raise insurance premiums to mitigate their losses.
Bad-faith contractors have also played their part in the market turmoil. Florida is host to the assignment of benefits (AOB) contract. This is a contract that, quite literally, assigns the benefits of an insurance policy over to a third-party contractor. This seems like it would benefit the policyholder by speeding up the claims process, but it has done more harm than good. Once in control, contractors have the power to dispute claims and litigation soon follows. 35% of the industry’s litigation has come through AOBs and they have become more common after the state is hit by a hurricane.
Wind and hail claims are expected to be higher in a state prone to hurricanes, but not as much as three times higher. Insurance carriers have been forced to tighten underwriting guidelines and raise premiums to stay afloat in the Florida market.
The Big Change: Senate Bill 2A
A few weeks ago, Florida lawmakers came together during a special session and passed Senate Bill 2A. This is a huge win for the insurance industry and its consumers. The bill eliminates one-way attorney fees and AOBs, permits carriers to offer an arbitration option, and introduces Citizens reform. Now, more and more carriers are offering a mandatory arbitration option in exchange for a discounted premium. This would bring a neutral party to the table to address claims disputes rather than filing a lawsuit. The frequency and cost of litigation should fall dramatically, but how soon? We are coming off the heels of a rough hurricane season and, unfortunately, there’s nothing we can do to change that. We will still feel the influence of these storms throughout 2023 and the changes this bill brings will positively influence the market from the top down. Citizens will need to be reduced back to the last resort option, new investors will need to come back to the Florida market, and private market carriers must open capacity before consumers experience positive change. We should start to experience market corrections by the end of this year and into 2024.
What We Can Do
As consumers in this tough market, the best practice is to remain educated and diligent in pursuing the most realistic insurance options for our homes. Homeowners insurance policies are not “one size fits all” and there are many levers to pull to drive premiums down. These are the times in which you should know your insurance agent on a first-name basis. Make sure you are discussing all your insurance carrier options in the market as well as your choices of coverage, limits, and deductibles. We have all felt the impact of this crazy market but I’m confident Senate Bill 2A will help to right this ship. There is certainly reason for hope this year.
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