Originally published by Bankrate| Read Full Article Here
By Cate Denver
Florida is experiencing an exodus, but it’s not from residents relocating; rather, this is an exodus of home insurance companies. While this would be concerning in any state and at any time, it is particularly worrisome in Florida ahead of the Atlantic hurricane season, which starts on June 1.
Bankrate dug deep into Florida insurance news to discover the cause of this problem. We can help you understand why the Florida home insurance crisis is happening and what you can do to prepare for the possibility of receiving a cancellation or nonrenewal notice on your homeowners insurance policy.
The crisis in the Florida insurance market
Florida has always been a complex home insurance market, but recent issues are pushing the state’s market to the point of collapse. Since 2017, six property and casualty companies that offered homeowners insurance in Florida liquidated. Two more are in the liquidation process in 2022. Other insurance companies are voluntarily leaving the state, and still more are choosing to nonrenew swaths of home insurance policies or drastically tighten their policy eligibility requirements.
According to Logan McFaddin, vice president of state government relations at the American Property Casualty Insurance Association,
Florida’s property insurance market is in crisis as insurers grapple with out-of-control litigation costs and billions in losses from recent natural disasters.
Florida’s Insurance Consumer Advocate (ICA) Tasha Carter agrees, saying, “Homeowners insurance options in Florida have become more and more limited, and consumers are facing dire consequences.”
Why are home insurance companies leaving Florida?
Florida insurers are canceling policies, leaving the state or liquidating at a rapid pace. Why? What is behind these companies’ aversion to insuring Florida homes?
Florida has always presented a risky market to home insurance companies due to the high threat of widespread weather-related damage, but the current crisis is caused by a number of factors reaching a boiling point at the same time.
Insurance fraud in Florida
The biggest issue right now in Florida is home insurance fraud, driven by fraudulent roofing claims. ICA Carter explains how the scams work:
First, roofers canvas neighborhoods and offer inspections to unsuspecting homeowners. These contractors inevitably “find damage” on the roof and often promise a “free roof” to the homeowner, claiming they can have the home insurance deductible waived.
Homeowners are pressured to sign an assignment of benefits form, giving contractors the right to file an insurance claim on their behalf.
A claims adjuster from the insurance company inspects the alleged damage. The adjuster either finds no damage or far more minimal damage than the contractor found, and the claim payout is less than what the contractor demanded.
The contractor brings legal action against the insurance company, demanding a claim payout for the contractor’s original quote. Remember, the homeowner signed the benefits of the policy to the contractor, so the contractor doesn’t need the homeowner’s permission to do this.
The insurance company now has a choice: it can pay the legal costs to fight the lawsuit or pay the costs to settle out of court. Either way, the insurance company loses money due to the legal action.
ICA Carter notes that “these schemes are real and are happening more frequently,” which puts more and more financial pressure on insurance companies, especially in a state with high claims costs due to weather-related events.
According to Mark Friedlander, director of corporate communications at the Insurance Information Institute, “Florida property insurers are projected to post a cumulative underwriting loss of $1.7 billion for 2021” due to these runaway litigation costs. It’s no wonder that so many companies are going insolvent or leaving the state before they reach that point.
Instead of leaving altogether, some companies are tightening their underwriting restrictions to lessen the risk of these scams. This may be the reason why several companies — including Southern Fidelity, Progressive and Universal — have chosen to continue operations in Florida but have nonrenewed tens of thousands of policies.
Sean Harper, CEO of Kin Insurance, spoke with Bankrate about this approach. He explains the logic behind this from an insurer’s perspective: “If there’s this scam around roofs, I’m still going to be open, but I’m only going to underwrite roofs that are 10 years old or less, I’m not going to do any 15-year-old roofs.” Although many older roofs are perfectly sound, the risk of damage increases as a roof gets older, likely increasing the risk of falling victim to a roofing scam.
Risk will always be a consideration for home insurance companies in Florida. The state’s shape and geographic location mean that it could get hit from either side by a hurricane. Because the peninsula is so thin, even homes in the interior counties aren’t entirely protected.
To make matters worse, fraudulent claims may be more common after severe storms — and storms may be coming. Colorado State University predicts that the 2022 hurricane season will be more severe than usual, with 19 named storms, including nine hurricanes, four of which are predicted to be “major.” If any of those storms hit Florida — which is likely, considering that Florida has been hit by more hurricanes than any other state — it could push the already-teetering home insurance market into collapse due to increased home repair expenses, including the potential of fraudulent roof claims.
However, although the risk of hurricane damage complicates things, it isn’t what’s driving the market to the brink of collapse. After all, other risky states don’t have this problem. A high likelihood of damage generally means paying a higher premium to offset that risk, but coverage is usually still available. Oklahoma, for example, has the highest average cost of home insurance in the nation at $3,593 per year due to the likelihood of tornado damage, but homeowners in the state don’t face the same difficulty finding coverage that Floridians do.
Is anything being done to curb the crisis?
Yes, although the full effects of the measures have yet to be seen. Senate Bill 76 went into effect in July 2021 and included several provisions to hopefully curb the fraudulent claims causing insurers so much strain. One such provision is aimed at reducing the solicitation tactics that fraudulent contractors often use at the start of a scam. While this legal measure may help solve the problem, Harper warns that “there will need to be additional action taken to restore the market to health.”
It remains to be seen if additional action happens before the upcoming hurricane season. In April, Governor Ron DeSantis announced his plans to convene a special session in May to discuss potential reform within the property insurance market.
How to lessen your risk of nonrenewal
If you live in Florida, having a plan could help you lessen your risk of receiving an insurance nonrenewal. There’s nothing you can do to prevent your company from pulling out of the state, but there are steps you can take to make your home as insurable as possible:
Keep your roof updated and in good shape: Inspect your roof regularly and repair minor damage as it happens. If you can afford to, replace your roof before it reaches 15 years of age to lessen the risk of being nonrenewed.
Install wind mitigation features: State law requires Florida home insurance companies to offer discounts for certain wind protection features, such as hurricane straps and other roof-bracing measures. These features lessen the risk of severe damage to your home, thus making your property more attractive to insurers.
Maintain your property: Generally, maintaining your property will make finding insurance coverage easier. Along with checking your roof, also regularly check the rest of the exterior features of your home for damage. You should also make sure no large tree branches or other potential hazards overhang your home, as these could put you at risk of roof damage in a windstorm.
Additionally, there are ways you can lessen the impact of home insurance fraud and help keep companies from having to liquidate. ICA Carter points out that “consumers have the power to help stop contractor fraud by being informed and reporting fraud.”
Know the signs and stay educated: ICA Carter created educational resources called “Demolish Contractor Fraud: Steps to Avoid Falling Victim” that may help homeowners recognize the signs of fraud, stop it before it happens and report it.
Be wary of solicitation: Soliciting business isn’t against the law, but contractors who canvas neighborhoods after storms — and especially those who offer incentives and rebates for an inspection — may be part of a scam. Instead, contact your insurance company if you are concerned your home sustained damage after a storm.
Do not sign an assignment of benefits form: By keeping control of your policy, you decide if a lawsuit is filed, which vastly cuts down on fraudulent litigation. It’s worth noting that these forms are often buried within otherwise legitimate-looking contracts. Once you’ve signed, the form is legally binding, so it’s important to read everything you are asked to sign. Do not let a contractor simply point out a signature section on paperwork or scroll past the details on a tablet screen. Read the entire document carefully.
Additionally, some companies now offer a discount if you agree to make your policy unassignable. Kin is one such company, and Harper notes that having a high number of unassignable policies has shielded the company from much of the litigation nightmare ensnaring other carriers.
What to do if your home insurance has been canceled
If you’ve received a Florida homeowners insurance cancellation, act quickly. With hurricane season approaching and the insurance market in turmoil, getting another policy could be difficult, but it is possible.
McFaddin recommends that you “work closely with your insurer or insurance agent to see what options may be available to you.” ICA Carter’s advice was similar, advising that “consumers should contact their insurance agency immediately to determine what their options are for homeowners insurance.”
If you’re struggling to find home insurance coverage in Florida, there are still a few companies that may be able to help.
No home insurance company in Florida is immune to the ripping effects of raging litigation, but Harper notes that his company has “some things that we’re doing that allow us to stay open in Florida when other folks aren’t or are going out of business.” In addition to the bulk of the company’s policies being unassignable, the company also employs a unique system for assessing claim damage.
Harper explains that Kin uses software that monitors weather systems and accurately pinpoints which houses may be damaged. The company can then proactively reach out to homeowners to determine if a claim needs to be filed, thereby cutting out potentially predatory contractors.
It sounds crazy, right, to be an insurance company that is asking our customers for claims? But it actually pays off. — Sean Harper
CEO of Kin Insurance
Citizens Property Insurance Corporation
Citizens is often one of the only options for homeowners in many areas of the state. The company has experienced rapid growth due to other carriers leaving the market. In 2018, the company had only 414,000 active policies; by March 2022, that number had ballooned to over 800,000. Michael Peltier, the spokesperson for Citizens, told Bankrate that the company is writing 5,000 to 6,000 new policies per week, and that in many parts of the state, Citizens is “the only game in town right now.”
Even so, Peltier says that “we do have underwriting guidelines,” so it may not be an option for all homeowners. Additionally, Friedlander warns that, because Citizens is insuring so many of the high-risk homes that other carriers have walked away from, “a major hurricane striking Florida could have devastating effects” on the company and the industry.
The bottom line
Florida home insurance has always been complex due to the state’s high risk of storm damage, but the incidence of fraudulent roofing claims has pushed the market to the brink of collapse. The problem may not stay in Florida, either; if other high-risk states like Louisiana and California see an increase in insurance fraud, those markets could begin to degrade. There is hope, though, as laws are passed that could help curb scams and some carriers take a different approach to insuring homes in the Sunshine State. But will the solution come soon enough?