By: Butch Swank
Last year I wrote an article explaining why our home insurance market was so broken. Guess what? It’s still pretty banged up. My agency gets calls daily from frantic people wanting help because they’re either getting dropped by their insurance carrier or their rate skyrocketed. The odds are good that you’ve always made your payments on time and never filed a claim. So, why is this happening? Currently, there are two primary reasons and I’ll go into greater detail later in this article. I will also explain what you can do to help yourself and what our legislators are doing to fix things. A surface-level explanation of the two things driving this is wear-and-tear or maintenance-related roof claims filed as lawsuits and reinsurance. Reinsurance is the insurance that insurance companies buy. Yes, even they need insurance.
Because of the way our legislators have things structured, attorneys are strongly motivated to use the system to file more and more lawsuits. As a result, thousands of claims are brought to court over roofs that appear to be old or neglected instead of damaged from a covered peril – like a hurricane or hail. We can all agree that it is our responsibility to maintain and provide the upkeep of our houses as homeowners. Not so these days. A suit can be filed on an old roof in the current environment, and the insurance carrier is obligated to fight it in court or settle. To illustrate things a bit more and put numbers to the story, consider this. From 2013 to 2020, Florida property insurers paid $15 billion in claims costs. 8% of that went to consumers. 71% was paid to attorneys. That is over $10 billion in legal fees. Now you know why Floridian’s average home insurance bill is now $3,600 a year – twice the national average.
Here is the second component causing rates to increase – reinsurance. Florida’s home insurance companies use reinsurance as a financial instrument to help them cover the cost of claims. For example, if a carrier insures $1 billion worth of homes but only has $200 million of reserves, they can use reinsurance to cover the needed $800 million. It is unlikely that every single house they insure would be destroyed, but reinsurance allows them to prepare for that event. The Reinsurance Market invests heavily in computer models that assess Florida’s hurricane, flood, and fire risk. Still, no effective model can calculate the added burden of legal loopholes and our localized explosion of attorney compensation. The reinsurers have had to raise their rates dramatically with all these lawsuits. This means the insurance carriers are facing not only increased claims costs but also a hugely increased cost of reinsurance. I met with an insurance company executive, and he shared an interesting example of what’s happening to them. Consider this scenario, a policy that costs a homeowner $1000 costs the carrier over $1300. So, they are losing $300 right out of the gate before any claims even enter the equation. Insurance rates are fixed by the State of Florida, so when reinsurance rates rise the company must file to raise their own rates. Since it takes regulation to approve rate increases for the carriers but not the reinsurers, oftentimes the insurance carrier will lose money right out of the gate. That is why so many people are getting dropped by their carrier or experiencing huge cost increases.
This is, obviously, not sustainable, and all of us Floridians are being forced to pay for it. I do, however, have a bit of good news. The Florida Legislature is currently in session and working on a solution. Senate Bill 1728 would offer homeowners a more affordable roof coverage option that would allow insuring their roof for Actual Cash Value. Currently, most older roofs are covered at Replacement Value. Older roofs are more costly to insure because they are most likely to fail in a hurricane. Allowing the use of Actual Cash Value means the insurance carrier can insure your 20-year-old roof for, say, $6000 instead of the $20,000 a new roof would cost. In short, that means your annual premium would go down. Once you replaced the older roof, you could change the coverage back to Replacement Cost with a quick call to your agent. One very important and, in my mind, fair part of this legislation is that even if you have a very old roof, if a named hurricane damages it, you will still get full Replacement Cost.
I’m sure right about now you are thinking, “That’s great, but what can I do today to help my budget?” My first bit of advice is to shop around. This marketplace has changed a lot, and your current agent may not have as many options available as they did a few years ago. Our agency has over 30 home carriers. That allows our clients many options to shop and compare not just price but also coverage. Everyone is unique, and we like to focus on your specific needs. Having as many options as we do allows us to be in a great place to help.
My other bit of advice is age-old wisdom: contact your representatives in the Florida Legislature to let them know you want this man-made crisis fixed. The Florida Legislature has now been at work for nearly a month. Senate Bill 1728 addresses the issues discussed earlier. Florida House Bill 1307 was introduced as the House’s potential solution to our current problem. However, attorneys and “advocates for policyholders,” think reducing the flood of lawsuits would harm homeowners. I appreciate they’re advocating for their industry but sacrificing the financial future of Floridian homeowners for the sake of a business model seems shortsighted to me.
Ultimately, these two bills must be successfully voted on and put into law for us to see relief. Keep in mind, if successful, the insurance market will likely not begin to stabilize until the fall of 2023. Carriers would need at least a year off from lawsuit losses to even start to return to profitability. If the Florida Legislature does not act this session, then we’re really in a pickle. Here are two handy links to help make sure that doesn’t happen:
ABOUT GOODLAD & SWANK
Founded in 2009, Goodlad & Swank is a award-winning family owned local independent insurance agency. They help serve clients across all of Southwest Florida with home, flood, auto, life and business insurance.
Partnered with one of the largest selections of carriers in all of Florida Goodlad & Swank makes it easy for you to have a one-stop-shop for all your insurance needs.
Butch Swank is also President of Southwest Florida Business Alliance. For more information visit: swflbusinessalliance.com