What can we learn from (or who can we blame for) the insurance mess in Florida?

At times citizens of the United States joke that Florida is another world. The current insurance mess in The Sunshine State would point to one area where this is statistically accurate. More specifically, insurance claims lawsuits. Current Governor Ron DeSantis recently cited statistics demonstrating that his state generates 9% of property insurance claims but is the clear leader with 79% of the nation’s homeowner insurance lawsuits. In response, the Governor has called for a special session on property insurance, declaring that Florida citizens need assistance in the face of ever-rising premiums.

While anyone who has insurance should be asking, what can we learn from this situation, what most observers are asking, is who can/should we blame? 


Insurance Companies? 

Senator Gary Farmer, a Democrat out of Ft. Lauderdale points the finger at insurance companies who routinely deny claims. He is a trial lawyer and stated, 

“We must protect homeowners in Florida by calling a special session to address our state’s property insurance crisis, and the only way to effectively do so is to ensure that insurers are held accountable to their obligations to their customers.” 

According to Insurance Journal, Florida’s domestic marketplace lost $1 billion during the first three quarters of 2020 which is reported to be more than double its underwriting losses in 2019. While the concern expressed by many is to protect the consumer from excessive rate hikes, the driver appears to be losses incurred by the insurers. 


Contractors? 

As chief spokesman for the Insurance Information Institute, Mark Friedlander, throws shade upon, “Bands of unscrupulous roofers, going door-to-door, soliciting claims.” He believes that consumers are being persuaded to sign over benefits to their claims. In scenarios where coverage is denied by the carrier, the insurer settles rather than risk a trial in what Mark believes are, “Frivolous lawsuits by the thousands.” If you listen closely, even Mark notes that claims denials are a factor. 

In 2021, Florida Insurance Commissioner David Altmaier alerted the Florida House Commerce Committee of what he observed as consistently high litigation trends. According to The National Association of Insurance Commissioners (NAIC) and data from the Florida Office of Insurance Regulation (OIR):

• 2016 Florida Homeowner’s Claims 7.75% and Homeowner’s Suits 64.43%
• 2017 16.46% vs. 68.07%
• 2018 11.85% vs. 79.91%
• 2019 8.16% vs. 78.45%

OIR analyzed the data between Florida and other states to attempt to determine the contributing factors. The research was inconclusive in detecting systemic patterns and the office offered no conclusion for the state's outlier status. 


Attorneys?

Altmaier suggested that legislators look into, “Reforming the state’s one-way attorney’s fee statute.” They want to enable policyholders to retain their rights to filing lawsuit but remove incentives for attorney, “To file illegitimate claims.” In 2019 the state enacted assignment of benefit (AOB) reforms which he believes, “Preserves important consumer protections, while providing a framework to ensure litigation brought against insurance companies is legitimate.” 

Many argued leading up to 2019 that the AOB was at the root of rate increases. As such, consumer protection was the flag under which the calls for reform were waving. Yet, even with these reforms, Barry Gilway, president and CEO of Citizens Property Insurance, states, “The reality is, while AOB is going down, first-party litigation is going up.” If I understand this correctly, this means that AOB, which allowed contractors (third-party) to sue the carrier on behalf of, or in the first-party position, is now down but policyholders, the first-party contract holder with the carrier, is now suing directly? 


Florida?

If the above is true, consumers in Florida are dissatisfied with the actions of their carriers at the time of claims processing. As we stated in the opening paragraph, Florida is otherworldly as it is home to a buffet of natural disasters, including hurricanes, tropical storms, tropical depressions, tornadoes, wildfires, and floods, the state has several unique insurance-related operational factors, a few of which include: 

• Contingency fee multipliers are separate from, and therefore perceived as easier to acquire, than existing federal standards (Joyce vs. FedNat, 2017). 
• Concurrent causation ramification from Sebo vs. American Home Insurance (2016) which Altmaier believes has incentivized roof claim solicitations. 

We mentioned the “consumer protections” language which drove the AOB conversations and now they are the same concerns underlying this next round of reforms. Take a look at what proponents say about Senate Bill 76 and help me discern who is being “protected”:

• The bill would allow property insurers to offer homeowners policies that adjust roof claims at actual cash value if the roof is older than 10 years old. 
• Further, it requires a 60-day notice of a property insurance claim before a suit can be filed against an insurer and gives insurers 30 days to inspect the property.
• The bill would mandate that attorney fees in property lawsuits be awarded based on how successful the insured was in recovering the amount demanded in the lawsuit rather than using the current fee multiplier.

Protection From Whom?

Do the three items above protect the consumer or the carrier? The insurance companies are clear in who they have on their suspect board as the “bad guys”. If that wasn’t already clear, they blame contractors and attorneys. But they know that few would listen to them if they came out and said that consumers need to be protected from excessive insurance rates while also presenting themselves as the mediators of justice in righting this wrong. 

How does this logic go, “If contractors and attorneys didn’t charge so much, we (the insurance companies) could charge you less?” Does anyone believe this would be the outcome? If the politicians could pass legislation that would restrict what contractors and attorneys can charge for, then of course, the insurance companies will gladly reduce their prices. Just so we are clear, this is sarcasm. Yet, it appears that this is the consensus among many commenters following this, and similar stories. 


How Do We Protect Consumers? 

If the goals is consumer protection, the people must accept their responsibility to educate themselves on what they are buying, what the insurance policy covers, what it excludes, and what to expect during the claims process. As a general rule, it is best for the consumer to do business with people invested in their local market. 

If you are an insurance policyholder, when you purchase your homeowners policy you should hire a local insurance agent who will walk you through the process and is committed to being actively involved whenever there is a claim. The opposite of this is shopping for the lowest rate, without understanding the coverage limitations, and/or hiring an agent who will direct you to a 1-800 number for claims filing while washing their hands of the process. 

If you are a homeowner who has experienced damage, find a contractor who is based and active in the local community. You want to hire people who are going to care about their reputation when it comes to work quality and ensuring project completion. 

While it is fun to talk about blame, the reality is that there are bad actors in each of the groups we discussed. Homeowners are not excluded from being in that category. There are plenty of opportunistic insureds who believe their policy should do more than restore them to pre-loss conditions during a claim. 

In the rush to assign blame, often the loudest voices, or the deepest pockets, will prevail in painting the picture of who the culprit is. Consumers must pay attention to and play and active role in understanding that insurance is a key factor in protecting your largest asset, your home. Listen for fear tactics that attempt to persuade you, and your elected representatives into doing the wrong things for the right reasons. We should all be careful not to make a bad situation worse by restricting consumer options in future circumstances.