Because no other state in the U.S. has suffered natural disasters like the Sunshine State in the past few years, Florida house insurance has continued to be a tragedy. Below are some of the reasons why Florida house insurance is considered a tragedy:
Floridians have fewer and more expensive insurance options
Besides the state-run insurer of last resort, Citizens Property Insurance, and a group of small startups primarily funded by private finance, Florida homeowners were left with few options.
Some of these companies are now at risk of losing their credit ratings, ignoring policyholders, and, if they’re lucky, being acquired by more robust competitors. Their response: Increase homeowners insurance prices by about 12% to nearly 40% in the coming year.
“Insurance firms prepared to take even more out of us this storm season,” the South Florida Sun Sentinel newspaper headlines.
After 2007, other Florida problems were answered for nearly ten years. Then came Hurricane Irma in 2017, followed by Hurricane Michael the following year, causing $30 billion in damage between them.
It took more than a year for what insurers call “loss creep” to catch up due to insurance policy restrictions that allow Florida customers up to three years to file a claim.
Last October, homeowners insurance rate hike requests began pouring into the state’s insurance department, and officials were unable to deny them. According to Citizens CEO Barry Gilway, a profit of nearly $800 million in 2014 has dwindled to a net loss of $340 million in 2019.
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The Market Is Inundated With Non-Renewal Notices
Then non-renewal notices for the most vulnerable Florida homeowners insurance clients began to come.
Many insurance agents tried to locate replacements for clients whose coverage had been canceled. According to the National Association of Insurance Commissioners, Florida property owners with $300,000 to $399,999 in coverage pay an average of $2,350, compared to a national average of $1,252 for the same amount of coverage.
“It’s also crucial to remember that most homeowner’s insurance policies do not cover flood damage,” says state Insurance Commissioner David Altmaier. Flood insurance, according to figures from websites that sell it, might easily add another $1,500 to the price.
Furthermore, some homeowners may be unable to obtain insurance at all unless it is provided by the state.
In a June 2020 Sun Sentinel story, Locke Burt, CEO of Security First Insurance Co., cautioned that “if a house predates 2010 and is worth less than $300,000, no firm will write [insurance for] you.”
The existing and unusual insurance structure in Florida is centered on “reinsurance,” which protects insurers against big disaster losses such as hurricanes. Its property insurers, many of which arose in the aftermath of the 2004-2005 disasters, lack the capital to pay claims in the same manner that major insurers that have departed or reduced coverage can.
Instead, these insurers rely on private capital, such as hedge funds, which put up billions of dollars in the hopes that hurricanes will not occur frequently enough to cause them to lose money. If they do, though, they will raise their rates. According to Artemis, reinsurers in Florida are forecasting a 25% to 45 percent increase in their premiums.
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The Policyholder in Florida House Insurance Almost Always Pays
The cost of claims is virtually usually passed on to the Florida homeowner’s insurance policyholder. And it’s not even close to being over. The large premium increases reinsurers are receiving “may potentially be balanced out by the true cost of risk in Florida,” according to Ross Nottingham, chairman of Hiscox Reinsurance in North America. This involves growing claims payments as a result of “loss creep caused by claims fraud.”
To make matters worse, opponents claim that Florida house insurance businesses are now hiding their financial troubles by dubbing them “trade secrets,” despite the fact that the information is shared with rating agencies like Demotech, which has downgraded some. According to the Sun Sentinel, the information they’re withholding includes the number of policies in place, the number of claims paid out, and any suspicions of unlawful behavior.