Ian deals blow to Florida’s teetering insurance sector

Daniel Kelly and his wife purchased a double-wide mobile home in May 1977 for about $83,000 in Tropicana Sands, a 55+ community in Fort Myers, Florida. But he hit roadblocks trying to insure it.

Tropicana Sands managers told him he was unlikely to find a trucking company who would offer a policy because the house was too old. He said he checked with a Florida-based insurance agent who searched and found nothing.

“I can insure a 1940’s car, why can’t I insure that?” said Kelly.

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People stand on the destroyed bridge to Pine Island as they look at the damage caused by Hurricane Ian in Matlacha, Fla., Sunday October 2, 2022. The only bridge to the island is badly damaged, so it can only be reached by boat or air. Gerald Herbert/Associated Press, file

Luckily for Kelly, his trailer was largely spared by Hurricane Ian, aside from some flood damage. But for many Floridians whose homes were destroyed, they now face the arduous task of rebuilding without insurance or paying even higher rates in an insurance market that was already struggling. Wind and storm surge losses from the hurricane could range from $28 billion to $47 billion, making it Florida’s costliest storm since Hurricane Andrew struck in 1992, according to real estate analysis firm CoreLogic.

Even before Ian, the Florida home insurance market was struggling with billions of dollars in losses from a series of natural disasters, rampant litigation and escalating fraud. The difficult environment has put many insurers out of business and prompted others to raise their rates or tighten their restrictions, making it harder for Floridians to get insurance.

Those who do manage to insure their homes see the costs increase exponentially. Even before Hurricane Ian, the annual cost of an average homeowners insurance policy in Florida was expected to reach $4,231 in 2022, nearly triple the US average of $1,544.

“You’re paying more for less coverage,” said Tasha Carter, Florida consumer advocate for insurance. “It puts consumers in dire circumstances.”

The costs have gotten so high that some homeowners have dispensed with coverage altogether. About 12 percent of Florida homeowners don’t have property insurance — or more than double the US average of 5 percent — according to the Insurance Information Institute, an insurance industry-funded research organization.

Florida’s insurance industry has experienced net underwriting losses in excess of $1 billion per year for two consecutive years. A number of property insurers, six of them so far this year, have gone bankrupt, others are leaving the state.

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A street in Fort Myers Beach is completely filled with a high pile of debris from destroyed homes and businesses on the beach two days after Hurricane Ian passed through. Florida’s home insurance market was already on shaky ground. After the damage caused by the hurricane, it now faces an even mightier fight. Rebecca Blackwell/Associated Press

In July, 27 Florida insurers were on a state watchlist because of their precarious financial situation; Mark Friedlander, communications director for the Insurance Information Institute, expects Hurricane Ian to bankrupt at least some of them.

The insurance industry says overzealous litigation is partly to blame. Loopholes in Florida law, including fee multipliers that allow attorneys to charge higher fees for property insurance claims, have made Florida an overly litigious state, Friedlander said.

Florida currently averages about 100,000 homeowner insurance claim lawsuits a year, he said. That compares to just 3,600 in California, which has almost twice the population of Florida.

The Florida Office of Insurance Regulation said the state accounts for 76 percent of homeowner insurance claims in the state, but only 9 percent of all homeowner insurance claims.

“Florida plaintiffs’ attorneys have historically found ways to circumvent any efforts to curb abuse of rights, making it likely that further reform will be required to further stabilize the insurance market,” said Logan McFaddin of the American Property Casualty Insurance Association.

But Amy Boggs, chair of the Florida Justice Association’s real estate division — a group that represents attorneys — said the insurance industry is also to blame for refusing to pay out claims. Boggs said homeowners are being pushed to solicitors “as a last resort.”

“No policyholder wants to be involved in years of litigation just to rebuild their homes,” she said. “They come to lawyers when their insurance company underpays their claim and they can’t rebuild.”

Widespread fraud – particularly among roofing companies – has also increased costs. Regulators say it’s common for contractors to go door-to-door and offer to cover the homeowners insurance deductible in exchange for filing a full roof replacement claim with their property insurance company claiming damage from storms.

The insurance situation has gotten so bad that Florida Gov. Ron DeSantis called a special meeting in May to address the problems. New laws limit the rates attorneys can charge for some property insurance claims and require insurers to insure homes with older roofs – something they had stopped because of rising fraud cases.

The legislation also establishes a $150 million fund that will provide grants to homeowners to make hurricane protection improvements. But that program has yet to get started, and experts say it will take years to reverse the damage to Florida’s insurance market.

Meanwhile, the crisis has drawn more homeowners to Citizens Property Insurance Corp. pushed, the state-backed insurer that sells home insurance for those who can’t get coverage from private insurers.

Citizens had more than 1 million active policies as of September 23 before Ian struck, according to Michael Peltier, a Citizens spokesman. In 2019 there were around 420,000. He said the company was writing 8,000 to 9,000 new policies a week, double what it was a few years ago. Citizens has $13.4 billion in reserves and forecasts it will pay 225,000 claims from Ian totaling $3.7 billion.

Even if they have home insurance, many Floridians could face financial ruin because of flooding. Damage caused by flooding is not usually covered by home insurance but can be costly; Florida’s Department of Emergency Management Says 1 Inch of Flood Can Cause $25,000 in Damage

According to Friedlander, only 18 percent of Florida homeowners have flood insurance, either through the federal government’s National Flood Insurance Program or private insurers. In some coastal areas, more than half of homeowners have flood insurance, but in inland areas — where flood waters continued to rise even after the storm — the figure is closer to 5 percent.

Kelly, whose Fort Myers trailer was soaked with 4 feet of salt water and sewage after Hurricane Ian, could have benefited from flood insurance. He figured he might not be able to get it because he didn’t have home insurance, but that’s not the case — flood insurance is entirely separate and can even be purchased by renters, experts say.

“I kind of left it when I couldn’t find anyone to insure it originally,” he said. “It’s a costly oversight on my part.”

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