Home is where the heart is, but lately, it seems like it's also where the costs are climbing. The sting of rising insurance premiums has become all too familiar for many homeowners.
Since 2017, two of the six costliest hurricanes in history have hit Florida, including Hurricane Ian. The 2022 hurricane caused around $50 billion in insured losses and between $10 and $17 billion in uninsured flood losses.
While these weather-related events significantly drive up insurance costs, other factors impact the state’s residents' premiums. When the industry complains that claims have increased, it never adjusts its data for inflation or population, masking that adjusted claims have been stable for decades.
Understanding Property Insurance
The property and casualty insurance industry is one of the nation's most important but least understood industries. Every person and business in America needs insurance.
The unique accounting practices of the property & casualty insurance industry allow companies to identify “losses” that are not losses at all. To an insurance company, “loss” is short for “incurred loss.” When a company has an “incurred loss,” this does not mean the insurer has actually paid out this money. This figure includes estimates of future claims that they know about (reserves) and claims they do not even know about yet, called “incurred but not reported” (IBNR). Some of these claims may not even exist, and others may take years for a payout to occur. It is this figure that insurers file with state insurance departments when seeking rate hikes.
How Do Insurers Make Money- By Investing the Premiums You Pay
Modern insurance companies are financial institutions seeking to maximize profits, just like banks and savings and loans. While the underwriting process is the principal source of revenue for insurance carriers, the income from investing those premiums is the primary source of profits for the industry.
Insurance rates reflect conditions in the financial marketplace as well as the assessment of risk. When interest rates increase, investment income from premiums produces a high return. Under these conditions, insurance companies reduce their prices and solicit and underwrite more significant risks to attract capital for investment. However, when interest rates are low and investment yields are correspondingly reduced, the industry increases premiums to maintain profit levels. This is known as the “insurance cycle.”
Factors Driving Up Florida Home Insurance Rates:
Property Insurance Premiums in Florida are set to go up by as much as 40% in June.
Homeowners’ insurance premium rates have risen significantly nationwide since the pandemic. According to S&P Global Market Intelligence data, much of the increase can be attributed to supply-chain issues and labor shortages, which have driven up the cost of home repairs and replacement.
Another part of the reason is the steady trend of people moving into risk-prone areas such as coastal Florida or the hills of California and Colorado, which means more costly damage when extreme events occur.
The insurance industry inflates losses by manipulating its claim reserves at critical moments to justify rate hikes, particularly as it is trying to trigger a challenging market, as is likely happening today. Raising reserves raises rates and lowers tax liabilities at times of significant profits.
What You Can Do About It:
Seven out of ten Americans believe their insurance company will pay for the total cost of rebuilding from a natural disaster or fire and would reimburse them for the total replacement cost of personal belongings. However, insurance companies “cap” the amount they will pay for a total loss and deduct it for depreciation when assessing damage to personal belongings.
The insurance industry has trillions of dollars in assets, enjoys average profits of over $30 billion annually, and pays its CEO's more than any other industry. However, insurance companies still engage in dirty tricks and unethical behavior to further boost their bottom line.
Many people are reluctant to make claims on their home insurance, fearing their insurance company will raise their premiums or refuse to renew their policy. Do not give up. Insurance policies are filled with legal jargon and complex clauses that can be challenging for the average homeowner to decipher.
As lawyers specializing in Florida property insurance claims, we'll review your policy, interpret its terms, and help you understand your rights and obligations under the contract. We can also identify any potential coverage gaps or exclusions that the insurance company may try to exploit.
“Tort Reform” Campaigns Exposed as Fraudulent: Studies Show Premium Rates Do Not Decrease
For most Americans who do not pay close attention to insurance markets, it is easy to be misled by this industry when it tries to justify rate hikes after years of stable or decreasing premiums. The insurance industry has publicly attempted to cover up its mismanaged underwriting and accounting practices by blaming lawyers, juries, and the legal system. Insurers hide data that could disprove their position, yet lawmakers never demand to see this data before stripping away victims’ rights.
Excessive payouts to insurers’ affiliate companies have been repeatedly cited for insolvencies. Still, little attention has been paid to this aspect of Florida’s insurance market: Insurance executives lined their pockets for years instead of operating responsibly and building adequate reserves.
In December 2022, Florida lawmakers responded to growing property insurance market instability by passing Senate Bill 2A, a package of insurance reforms. One major part was a change that discouraged policyholders from suing insurers. Previously, Florida law let insured individuals recover attorney fees if they secured any amount through litigation against their insurer.
The idea is that making this change will discourage needless lawsuits. However, research shows that attempts to exclude attorneys from the negotiation process often lead to more expensive litigation and less access to justice.
The Cato Institute also found that if there is a problem with rising litigation costs, the problem does not track back to the plaintiff’s lawyers but to the hourly billing practices of insurance industry lawyers as a key reason why insurance litigation costs are rising.
**Florida Political Leaders Blame an “Insurance Crisis” on Lawsuits, But the Evidence is Thin.
How to Shop for Cheaper Homeowners Insurance in Florida?
Finding the best affordable insurance quotes in Florida requires comparison shopping and being proactive. Here are some critical steps:
Shop Around: Get quotes from several national and regional insurance companies. Utilize online comparison tools or contact independent insurance agents familiar with the Florida market.
Increase Your Deductible: You can significantly lower your insurance premium by increasing your insurance deductible, which you pay out-of-pocket before the insurance kicks in. However, ensure you can comfortably afford this expense if needed.
Take Advantage of Discounts: Many insurers offer discounts for factors such as installing security systems, bundling policies, or having a claims-free history. Inquire about available discounts to maximize savings.
Beware of specific discounts for clauses such as "binding arbitration." The American Association of Justice report in 2019 found that only about 6% of plaintiffs walked away from arbitration with a monetary award.
Senate Bill 2A codified parts of the insurer’s arbitration clause and now requires arbitration offers to meet specific requirements:
- The policy must offer the policyholder a premium discount or credit in exchange for agreeing to binding arbitration.
- The arbitration requirements must be explained in a separate endorsement attached to the policy, and the policyholder must sign a form electing to accept arbitration.
- The form must explain the rights the policyholder is giving up, including the right to trial by jury.
- Before arbitration begins, the parties must attempt to settle the dispute through nonbinding mediation, as state law defines. The Florida Department of Financial Services offers a mediation service for insurance disputes.
Consider Wind Mitigation Features: Installing wind mitigation features such as hurricane shutters or reinforced roofing can lead to significant premium discounts from insurers. Florida requires companies to offer discounts through wind-mitigation improvements. Discounts are available for the following safety features:
- Roof Shape
- Roof Bracing of Gable End Roof Deck Attachment
- Roof Covering
- Roof-to-Wall Connections
- Secondary Water Resistance
- Doors
- Protection of Openings (windows and other openings)
Although the initial costs of adding a few features can be high, long-term financial investment can decrease your Florida homeowner's insurance coverage costs and make your home safer.
Improve Home Security: Some companies offer discounts for having a smoke alarm, alarm system, or deadbolt locks. However, several companies provide additional discounts if you install an advanced sprinkler system and a fire and burglar alarm that rings at a monitoring station.
Review Your Coverage Regularly: As your life and needs change, reevaluating your coverage is crucial. Adjusting your insurance policy can lower your insurance costs and maintain the protection you need.
