Florida regularly sits near the top of the list when it comes to home insurance costs. The average annual premium in the state is well over $2,000 and now Florida homeowners insurance rates are going up.

The reasons behind this increase are complicated, but we’ve broken them down into five categories:

  • Catastrophic claims
  • Insurance fraud
  • Litigation costs
  • Reinsurance
  • Inflation

Just about every state experiences each of these issues to some extent, but Florida is currently struggling with all of them. Combine these with the 1.3 percent assessment recently issued by the Florida Insurance Guarantee Association (FIGA) due to some recent Florida insurers going under, and you can see why Florida homeowners insurance rates are on the rise.

How Are Homeowners Insurance Rates Determined in Florida?

We want our members to understand what goes into determining fair rates. As a member-owned insurance company, we strive to balance all the interests of our members by offering pricing as low as possible while ensuring our ability to pay claims and serve our members for years to come.

Florida has unique and strict laws that govern insurance ratemaking. Florida-licensed property insurers:

  • Can’t just charge whatever rates they choose.
  • Can’t exceed a maximum profit of 4.2%.
  • Must get any proposed rate changes approved by Florida’s insurance regulator; and
  • Must prove that any requested rate change is fair and necessary.

How Catastrophic Claims Impact Florida Homeowners Insurance Rates

Most people know that Florida homeowners see more than their fair share of foul weather, but some may not know how that impacts the cost of homeowners insurance. Essentially, Florida insurance companies must price policies so that they have enough money to cover claims expected from catastrophic losses such as hurricanes.

Because Florida has the highest risk of catastrophe of any state, Florida homeowners insurance typically costs more than the national average. And, unfortunately, climate change causes more severe hurricanes. This increases the chance of lots of homeowners experiencing claims all at once. This increased risk makes rates increase to cover those claims.

Insurance Fraud and Home Insurance Rates in Florida

Catastrophic claims aren’t the only problem Florida insurance companies face when trying to price homeowners policies. Another issue is insurance fraud, particularly scams involving assignments of benefits (AOB) and repairs, particularly for roofs. The scenarios usually go like this:

Scenario 1 ﹘ Manufactured Damage

  • A contractor sends a solicitation or knocks on an insured’s door saying that he or she has been able to get a “free new roof” for neighbors in the area and they’d like to inspect the insured’s roof
  • The contractor goes on the roof and creates “damage” with a hammer or other method
  • The contractor tells the insured that they have damage from a prior storm and that the contractor can get them a new roof from the insurance company
  • The contractor submits an insurance claim

Scenario 2 ﹘ Inflated Damage

  • A homeowner calls a contractor to fix roof damage.
  • The contractor has the homeowner sign an assignment of benefits contract that allows the contract to manage the claim directly with the insurer.
  • The contractor inflates the cost of repairs and sues the insurer.

There is no free lunch when it comes to insurance fraud. The cost of insurance fraud gets passed on to homeowners. As a member-owned insurer, we ask our members to help mitigate rate increases by contacting us directly if you have a claim and avoiding attempts by third parties to generate or inflate claims.

As stated by Florida’s Insurance Consumer Advocate, “(t)he cost of bad actors and third parties filing false or inflated insurance claims is passed along to all of us.” In fact, the Federal Bureau of Investigation estimates insurance fraud costs over
$40 billion per year

. That translates into approximately $700 to $800 in increased annual premium per family.

Litigation Costs Passed on to Policyholders

Florida’s high volume of lawsuits and efforts by third parties (people or companies other than the insured) to capitalize on consumers’ insurance policies is having a dramatic and negative impact. Recent statistics demonstrate how this manipulation has made Florida very different from the rest of the country and is forcing rates up for Florida consumers.

Ever wonder why Florida has so many attorney advertisements on television and billboards that are focused specifically on suing insurance companies? Florida’s incredibly high rate of insurance litigation is driven by unique Florida laws that do not exist in other states.

These laws specifically reward plaintiff attorneys for filing lawsuits against insurance companies without any counterbalancing risk that these attorneys could owe legal costs if their lawsuits are unsuccessful. Because of this, a recent report from the National Association of Insurance Commissioners shows that Florida has
over 76 percent of home insurance lawsuits

, but only 8 percent of homeowners claims.

Worse? Of the claims Florida property and casualty insurers paid out because of lawsuits between 2013 and 2020, only
8 percent

went to consumers. Lawyers fees, however, accounted for 71 percent.

Reinsurance Rising for All

increases in reinsurance costs

also contribute to Florida’s rising home insurance rates. Reinsurance is essentially insurance for an insurance company, and it’s a necessary part of an insurer’s ability to pay claims ﹘ particularly in catastrophe-prone states like Florida. But sometimes the cost of reinsurance goes up, and when it does, so can homeowners insurance premiums.

Like insurance fraud, rising reinsurance costs impact more than just Florida. The
Guy Carpenter Global Property Rate-on-Line Index

, which covers the world’s major reinsurance markets, was up 10.8 percent in January 2022﹘more than double the increase seen in the January of last year.

Again, you should note that this is a global index, so it includes other catastrophic events, such as European floods and Asian typhoons. Areas with more severe and frequent events can see even greater increases in reinsurance costs.

Inflation Hits Everyone

One of the biggest factors in determining the insurance rate for an individual home is the amount of money it would take to replace that home if it were destroyed. This is currently being significantly impacted by inflation.

The supply chain issues that plague other industries also impact Florida homeowners insurance rates. Take the cost of lumber for an example. Limited supplies coupled with high demand forced lumber prices to skyrocket in 2021. In turn, those prices drove up homes’ replacement cost estimates. And if your home costs more to replace, then your home insurance is going to cost more too.

This year total reconstruction costs in Florida are up between
11.22 and 12.36 percent

as of April, according to insurance software company Value360. While that’s not the highest in the country, it does add to increasing Florida homeowners insurance rates.

What About FIGA?

Finally, Florida homeowners are also being hit with an additional fee from the Florida Insurance Guarantee Association. This is the state-sanctioned organization dedicated to protecting insurance consumers in the event an insurer is unable to meet its obligations. To do this, FIGA periodically requires its members to collect fees from their policyholders.

The current 1.3 percent assessment, ordered on March 11, 2022, is specifically linked to St. Johns Insurance Company entering into receivership, according to a

put out by FIGA. This is on top of a prior .70 percent fee assessed on October 11, 2021.

What Can Homeowners Do To Reduce Insurance Rates

As we mentioned, the Florida state government is looking to reform home insurance. In the meantime, there are ways for you to reduce your homeowners insurance premiums. For instance, you might want to:

  • Ask for discounts. Every insurance carrier has its own list of discounts, so find out what your insurer offers so you can take advantage of as many as possible.
  • Install security devices. Deterring crime is a good way to minimize claims, and that can help you lower your home insurance costs in the long run.
  • Install wind mitigation features. The right window coverings and roof ties can make a big difference in a storm. You might be eligible for lower rates because of them.
  • Call your insurance company first. Don’t fall prey to fraudulent contractors or other parties who may create or inflate a claim.

Comparing rates from multiple insurance companies is also a good way to get affordable coverage. Just be sure you look at the entire offer, not just the price. Check out our guide to comparing home insurance companies for more tips.

  1. Rule 69O-170.00003, Florida Administrative Code.
  2. F.S. 627.062

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