Florida Personal Lines Coverage Reaches Crisis Levels — Part 1

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After years of abusive lawsuits and fraud, homeowners insurance rates in Florida are through the roof – and both agents and policyholders are suffering.

December 28, 2021 at 10:06 AM

 6 minute read

CommentaryBy Oscar Miniet

The original version of this story was published on Https://www

Editor’s note: Part two of this article will appear on Wednesday, December 29, 2021.

Experienced members of the property & casualty insurance industry will tell you that the U.S. can be divided into three parts: 49 States, Florida and South Florida.

Those who live in or conduct insurance business in the Sunshine State will also tell you that it’s hard to imagine the residential property insurance market getting much worse than it is at the moment, both for agents and for homeowners.

Considering the number of severe weather events that have wracked the state over the last decade, it would be tempting to believe that the multi-million dollar losses — and the ensuing massive loss creep — dealt by hurricanes such as Irma and Michael are mostly to blame for the widespread pull-out of national insurers from the Florida property market.

This is not to say that those losses aren’t huge; in fact, they continue to mount. Among the insurers who still write business here, in 2020 — even without a hurricane making landfall — Florida’s property insurance market posted one of its worst financial performances to date: 56 Florida insurers reported a combined $1.57 billion in underwriting losses, according to data obtained by the Tampa Bay Times.

That not only marks the industry’s fifth consecutive year of losses in the state, but is also more than two-and-a-half times what those companies lost in 2019.

As incredible as those figures are, agents in Florida know that the damage dealt by major hurricanes isn’t even the main driver behind insurers abandoning the state — as well as the huge influx of policies to Citizens Property Insurance Corp., Florida’s insurer of last resort.

Rather, the current residential property insurance crisis in Florida is the result of years of abuse by bad actors who have taken advantage of the assignment-of-benefits loophole, exploiting property insurers and policyholders alike.

Cause & effect

Ten years ago, unscrupulous lawyers, public adjusters, restoration companies and others began posing as “insurance specialists” and targeting homeowners who suffered weather damage. They promised these homeowners exceptional results on their property claims if they signed over their right to make a claim (an assignment of benefits) to them. Many would sell themselves on “taking care of everything” for the homeowner, including any and all dealings with the insurance company.

Additionally, homeowners were and have been offered financial incentives in order to initiate claims. That trend began to skyrocket five years ago at a pace that carriers and agents were unable to combat.

Prior to recently passed legislation, if a homeowner believed they were entitled to more than what their insurer said, they would hire a lawyer and sue their carrier for what the insured felt they deserved (or what their lawyer, contractor or public adjuster told them they deserved).

Regardless of whether the attorney was able to secure an award above the initial offer from the insurance company, the lawyers were able to include their legal fees in the lawsuit — which is where the costs to the insurer truly began to skyrocket.

Those law firms, adjusters (some licensed, some not) and contractors have scammed thousands of Florida homeowners this way, offering deposit waivers, rebates and even gift cards to get homeowners to agree to AOB. AOB lawsuits make up more than half of the suits filed statewide against insurance companies, and in 2019, Florida accounted for over 76% of all homeowners’ litigation in the U.S. That should tell you something about just how profitable these legal actions are for Florida lawyers.

Also, consider this statistic: Since 2013, $15 billion has been paid out in claims in Florida — 71% of which went to attorney fees, 21% paid for insurers’ defense costs and just 8% went to property owners for their losses.

Roofing contractors are largely to blame for pushing many of these claims that would otherwise never have been filed. Typically, a contractor solicits a property owner, telling them that they believe the property has sustained damage covered by the homeowner’s policy; if they’ve lost a few shingles off their roof in a hurricane, why shouldn’t they receive a whole new roof?

Sometimes things work out for the homeowners, allowing them to get over on their insurer. But those “victories,  which in reality are just insurance fraud, have led to premium increases of up to 40% for Florida homeowners after carrier appetite for property waned, competition decreased and rates went through the roof.

Insurance carriers can reserve against acts of God, but not the acts of unchecked greed. Another factor causing an uptick in claims is a lack of knowledge of the claims process among insureds and a widespread sentiment among them of not wanting to deal with the process of a claim. As a result, those looking to perpetrate fraud upon the system find no shortage of homeowners to prey upon.

In one such case, the sister of a Renaissance member was misled by contractors who knocked on her door and advised her that some neighbors in her community were suffering from water damage and mold in their homes and that she could have the same damage. Concerned, she invited in the contractors, who quickly broke large holes in her drywall, set up dehumidifiers and fans and led her to believe they immediately found signs of water damage. The contractors then had her sign a form that gave them all the rights to her claim.

Weeks went by, and after numerous unreturned phone calls she called her insurance company. They advised that they were unable to speak to her regarding her own claim, as she had assigned all rights, including the right to communicate, over to the contractors.

Oscar Miniet is regional executive vice president at Renaissance Alliance. He can be reached at Oscar.Miniet@Renaissanceins.com.

Reprinted with permission from Renaissance Alliance. https://www.renaissanceins.com/how-it-works/