A Primer on the Florida Homeowner Insurance Market

Florida’s 2022 saw a mid-year special session and a close-of-year December special session, both designed to ease pressure on Florida’s property insurance market. This pressure has been building for a while and was only heightened by the late September Hurricane Ian. But what led to that point?

As insurers finish their accounting of the last year and examine how (and whether, in some cases) to move forward, Florida’s Office of Insurance Regulation is working to maintain a voluntary market in a difficult atmosphere. Here we summarize the historic challenges facing the Florida market. To read a five-point summary of the bill the Florida Legislature finalized in December, which Gov. Ron DeSantis signed into law, check out our coverage of the major changes. 

Challenges facing the Florida market and its insurer of last resort:

1. History of high lawsuits for unpaid claims

As we covered in a post on the AgentSync blog about the reforms the Florida Legislature implemented in their first insurance special session, Florida’s previous rules concerning roof replacement, assignment of benefits, and attorney fee multipliers contributed to rampant fraud. 

Local news reports noted that neighborhoods affected by storm damage would fill with roofing contractors. Like door-to-door sales agents, contractors promised roofing inspections and repairs, took on assignment of benefits, upcharged insurance companies, and then retained attorneys at multiplied rates to take property insurance carriers to court if they refused to pay the inflated fees.

In the last few years, the state saw its share of claims compared to other states remain roughly the same, in the 7 to 9 percent range. Yet, of all claims litigation, more than 75 percent of lawsuits have happened in Florida in the same period. And, according to data in 2021, the state’s ratio of lawsuits to claims closed without payments was eight times higher than the next-highest state.

2. Real estate continues to develop on sand

If this large-scale litigation were happening in Hawaii or Utah, some of the states with the lowest home insurance rates because of low property claims, perhaps it wouldn’t have such a widespread effect. But, with much of Florida’s real estate being developed along the coast, conflicts over insurance claims for storm-impacted areas have much more gravitas at scale

Beach property – that coveted driver of Florida real estate market growth – will, by most accounts, be harder to insure as climate change threatens the shape of the beach, even with more stringent building codes and an emphasis on resilience. Regardless of how resilient a property is, a building and its contents are more likely to submit claims for damage if it faces cataclysmic storms on a recurring basis.

3. Property insurers exit the market

The factors of unethical and fraudulent insurance claims plus the natural difficulty of insuring beach property have led to instability in the Florida property insurance market. Homeowners and business owners have watched premiums double or even triple over the last few years, even as fewer insurers step in to underwrite the Florida market.

Left with fewer than 50 property insurers extending policies to Floridian homes and businesses, and with many of those existing insurers struggling to remain solvent, the state has undertaken a disproportionate duty to shore up the remaining market. Among the Florida OIR’s actions: The state agreed to take on the risk of reinsuring those insurers that were coming under fire for being insolvent.

This reinsurance agreement, arranged in July, made Citizens’ Property Insurance Corporation, the Florida insurer of last resort, responsible for any claims that a troubled property insurer couldn’t pay because of solvency. Of course, an insurer’s insolvency would also invoke the statutory responsibility of claims assistance from the Florida Insurance Guaranty Association, which pays partial claims based on fees assessed to solvent insurers.

4. Hurricane Ian and the reliance on the residual market

Against this backdrop, Hurricane Ian made landfall in Florida in late September, taking 109 lives and leaving an estimated $50-65 billion in insurance losses. In addition to rocking the Florida property insurance market, the National Flood Insurance Program (NFIP) took a high hit, paying out over $5 billion in losses as of a Jan. 17, 2023 news release. As one report revealed, despite only 13 percent of Floridians having flood policies, the proportion of NFIP policies is skewed toward Florida: two of every three NFIP policies are owned by Floridians.

The year closed with the voluntary market reeling; even before Ian, Citizens’ Property Insurance Corporation held 13 percent of the policies in the homeowners market. In some counties, Citizens’ insured almost 40 percent of policies. After the hurricane, even more policyholders flocked to the residual market insurer. By the close of 2022, Citizens’ had issued more than 1.4 million policies. 

5. Reinsurers leaving the Florida market

As larger insurers have left the Florida P&C market to seek profitability elsewhere, the businesses that are left tend to be smaller, localized property insurers – not ideal for spreading risk. So the market has relied heavily on global reinsurers that can spread those risks.

Data from 2019 to 2021 supports that, although the cost of reinsurance has been lurching upward – a 54 percent increase from 2019 to 2020, and 28 percent from 2020 to 2021 – Florida’s property insurers continued to buy reinsurance to maintain solvency and claims-paying abilities at ever-increasing rates over the same period. 

By early 2022, some of the largest reinsurers stopped offering policies in Florida, with the two largest drawing back their reinsurance capacity by 50 to 80 percent. In Florida’s May 2022 insurance special session, the legislature authorized $2 billion in taxpayer funding to provide temporary state reinsurance to maintain solvency for the insurance carriers who were struggling on the brink. For perspective, the state’s operating budget for 2022 was just under $110 billion, with $20 billion in reserve, including budget items such as pre-kindergarten ($453 million), Everglades restoration ($1 billion), and emergency response and recovery funding ($1.6 billion). 

Taken together, these troubles have put consumers in the position of scrambling to find an insurer that’s willing to insure their property, and, even if they can find a non-state-sponsored insurer, that insurer may be struggling to maintain solvency, and may be offering the contract at rates more than three times the cost of insurance in other states.

This drove the state’s legislature into its second special session of 2022, focused again entirely on shoring up the Florida property insurance market. Whether the overhaul of the state’s regulations, tamping down on opportunities for fraud, and creation of state-backed reinsurance will bring down surging property insurance costs remains to be seen. Learn more about the specific changes that developed in the December 2022 special session.