Understanding the Rising Insurance Costs in Florida
Florida homeowners have recently faced skyrocketing home insurance premiums, causing widespread concern and frustration. Insurance companies frequently point to financial crises stemming from litigation costs as the primary reason behind these rate hikes. But what exactly is driving these increased premiums, and is litigation the main culprit?
Property and casualty insurance is one of the nation’s most important but least understood industries. Every person and business in America will need 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 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. It is this figure that insurers file with state insurance departments when seeking rate hikes.
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.
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. This is known as the “insurance cycle.
Why Insurance Companies Claim a Financial Crisis to Raise Rates and Blame Litigation
Insurance companies have increasingly pointed to a “financial crisis” as justification for skyrocketing premiums in recent years. They claim that excessive litigation and fraudulent claims are the culprits behind rising costs, yet deeper scrutiny reveals a different story. Often, these crises are exaggerated—or even fabricated—to protect insurers’ profits, shift blame, and push for regulatory changes that benefit the industry at the expense of policyholders.
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.
The Rate Hike Surge
Hurricanes like Ian ($60 billion in losses) and Milton keep Florida’s claim tally high, while humidity and old pipes pile on water damage woes. Premiums jumped 20-40% annually since 2021, hitting $11,759 projected for 2024. The Triple-I says that insurers cry foul, pointing to a litigation “explosion” in Florida’s 9% of U.S. claims, spawning 79% of property lawsuits. But there’s more to this story.
The “Financial Crisis” Claim: A Closer Look
Insurance companies love a good sob story. They’ll tell you they’re drowning in red ink ($1.7 billion in underwriting losses for Florida property insurers in 2021) per the Insurance Information Institute, or $2.9 billion in legal fees in 2022, per the Florida Office of Insurance Regulation (OIR). “We’re in crisis!” they shout, hiking rates 20-40% annually and blaming a litigation explosion.
The pitch: Lawsuits are bleeding them dry, especially over-denied or underpaid claims. According to Triple-I, Florida accounts for 9% of U.S. homeowners’ claims but 79% of property insurance lawsuits. Assignment of Benefits (AOB) scams, where contractors sue insurers after homeowners sign over claims, get a lot of headlines too. It’s a compelling case until you zoom out.
Nationally, the property and casualty insurance industry hauled in over $700 billion in premiums in 2023, with giants like State Farm and Progressive posting billion-dollar profits. Even in Florida, 2023 flipped to a net profit for insurers—the first since 2016—despite the “crisis.” If they’re so broke, how are they still cashing in?
Litigation: The Perfect Fall Guy
Lawsuits sting, $3 billion in legal costs in 2019, per FIU’s Shahid Hamid. One in 5 claims turn litigious when insurers lowball or deny as a Fort Myers homeowner stuck with $5,000 for a $45,000 fix until a lawyer stepped in. But litigation’s a symptom, not the disease. Florida’s 2023 tort reform curbed AOB and attorney fees, but rates still soared. Why? Reinsurance costs (up with storm risks), profit skimming ($680 million to affiliates post-Irma), and a shrinking market (15+ insurers gone since 2020) weigh heavier.
What Insurers Don’t Say
Litigation isn’t some unstoppable force bleeding insurers dry. Often, it’s a symptom of their own decisions. Here’s what they’re less eager to admit:
- Underwriting Choices: Insurers sometimes take on risky policies—like insuring older homes in hurricane-prone areas—then cry foul when claims roll in. In Florida, companies kept writing policies despite knowing the storm risks, only to balk when payouts hit.
- Claims Denial Tactics: Denying or lowballing claims is a go-to move. When policyholders fight back with lawsuits, insurers tally those legal costs and say, “See? Litigation’s the problem!” A 2022 American Property Casualty Insurance Association study found that litigation costs in Florida were high—but often tied to disputes over denied or delayed claims.
- Investment Income: Insurers don’t just sit on your premiums—they invest them. When interest rates drop (like they did during the early 2020s), their investment profits shrink, and they lean harder on premium hikes to offset it. Litigation becomes a handy excuse to mask this.
- Profit Margins: Many insurers stay in the black even in “crisis” years. Progressive, for example, reported a $4.9 billion net income in 2022, despite moaning about claims costs. Rate hikes often go beyond covering losses—they’re about boosting shareholder value.
Why Insurance Companies Get Away with It
Insurance companies can push this narrative because they’ve got the upper hand:
- Data Monopoly: They control the claims and cost data, so it’s their word against yours. Independent studies exist, but insurer-backed reports drown them out.
- Lobbying Power: In Florida alone, the insurance industry spent millions lobbying for those 2023 reforms, framing them as a public good while protecting its profits.
- Consumer Fatigue: Most people don’t fight a $200 annual rate hike—they grumble and pay it. Insurers bank on that.
What Florida Homeowners Can Do About It?
Here’s how to fight back:
- Compare Coverage and Deductibles: Make sure you’re getting comparable coverage at a fair price.
- Negotiate with Current Insurer: If you receive a more competitive quote, ask your current insurer if they can match or beat it.
- Consult an Independent Agent: Independent agents aren’t tied to one company; they can provide multiple quotes to help you find the best deal.
- Mitigate Risk: Storm-proof with My Safe Florida Home grants—up to $10,000 for roofs or windows, cutting premiums.
- Fight Denials: Use an insurance claim lawyer for bad-faith rejections. We work on contingency.
Remember: The lowest price doesn’t always mean the best coverage. Review policy limits, exclusions, and deductibles thoroughly before making a switch.
Need Help Navigating Florida’s Complex Property Insurance Landscape?
While rising claims, legal costs, and fraud are genuine concerns, insurers frequently overstate them to protect profits and justify rate increases. By recognizing these tactics and advocating for transparency, consumers and regulators can push for a fairer, more balanced insurance market. If you’re struggling with home insurance claims or need help navigating Florida’s complex insurance landscape, contact Williams Law, P.A. Call us at 1-800-451-6786 or fill out our contact form to schedule a free consultation.