Don’t expect miracles from a special session on homeowners insurance

Florida needs to fix its property insurance crunch. Homeowners are looking at much higher rates, while too many insurance companies go out of business or pull back on coverage. So first, a hat tip to Republican Sen. Jeff Brandes of St. Petersburg for trying to get his fellow lawmakers to convene in a special session to address the problem. And good for Gov. Ron DeSantis for supporting the effort. But the governor is right when he says the session will be a waste unless lawmakers have a solid, actionable plan. Will they? Homeowners all around the state await the answer to that question.

The average homeowner in Florida pays $3,600 a year for property insurance, according to data compiled by the Insurance Information Institute, a nonpartisan trade group. That compares to $1,400 for the rest of the country. And annual rates are headed up for many property owners. Last year, rates increased by double digits on average. This year, industry experts said Florida homeowners with private insurance shouldn’t be surprised to see their rates jump another 30 percent — or more.

Two insurance companies have already gone under since Jan. 1, and five or six others are teetering, said Mark Friedlander, the Insurance Information Institute’s director of corporate communications. Other companies have shed tens of thousands of policies in an effort to limit their financial risk. Florida’s property insurance providers saw just over $1 billion in net losses last year, according to data from S&P Global Market Intelligence. The state’s shaky insurance market has pushed homeowners to Citizens Property Insurance Corp., the state-run insurer originally set up as a last resort for Floridians in need of coverage. The number of Citizens policies has exploded in recent years from 446,327 on March 31, 2020, to more than 818,000 today. The corporation added 25,000 new policies in March alone and is headed north of 1 million by the end of the year. The influx adds to Citizen’s financial exposure — and by extension, taxpayers’ exposure — if a strong hurricane slams into one of the state’s densely populated cities.

Florida has built a lot of homes and businesses in a lot of vulnerable places — on the coast, in particular. That leaves wide swaths of homes badly exposed to hurricanes and other natural disasters, which makes them more expensive to insure. The rising cost of materials and labor needed to repair and replace damaged homes has also played a role in increasing insurance rates. But insurance providers say another factor has infected Florida’s market: roofing replacement schemes and the resulting litigation. Florida leads the nation in lawsuits related to property insurance disputes, many of them in recent years centered on whether insurance companies should have to pay the full cost of replacing an older roof.

Roofing companies go door-to-door telling homeowners their insurance can replace the entire old roof, and if the insurance company denies the claim, the homeowner can go to court. Insurance companies say they feel forced to settle many of the claims to avoid larger payouts padded by exorbitant plaintiffs attorneys’ fees. Insurance is supposed to mitigate risks, not act as a warranty against everything on a home that wears out or gets old. Settling so many legal claims raises rates. It also leads to companies dropping policies. Progressive Insurance recently shed roughly 56,000 policies on homes with roofs older than 15 years.

Previous solutions

Last year, lawmakers passed a bill to help curtail some of the questionable claims, including cutting the time property owners have to file a claim from three years to two years. The reforms also barred roofers from soliciting homeowners to file roof damage claims using “prohibited advertisement,” including emails, flyers and door hangers. A federal judge, however, temporarily blocked a part of the law on First Amendment grounds and the case is still pending. Keep in mind that the impact of new laws like the one passed last year often aren’t felt for about 18 months.

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Friedlander described Florida’s insurance woes as man-made. The state hasn’t been hit with a major hurricane in three years, but the litigation keeps piling up, he said. “Florida is the most volatile insurance market in the country,” Friedlander said, “and it’s on track towards collapse.”

Not everyone agrees with that assessment. Critics say the insurance industry is too quick to divert revenue to side businesses and then cry poor, and they are too guarded about releasing financial and other data, some of which is used to calculate insurance rates. Some of the companies aren’t well run, nor are they good at managing risk, the critics say. The system, they say, is tilted toward lining the pockets of insurance executives and that insurance companies too often deny legitimate claims. But whoever is right, the bottom line is Florida’s already expensive rates are headed up.

What now?

So what should homeowners anticipate from a special session on insurance? A good bet: Don’t expect a magic bullet and don’t expect rates to suddenly drop. The House and Senate couldn’t tackle the issue during the recently ended legislative session because they were too far apart on possible remedies. The Senate passed a bill (SB 1728) that underscored the theme of the law passed last year that any offer by a contractor to waive or rebate a deductible in exchange for being hired to make repairs amounted to fraud. It required contractors to add a disclaimer to advertisements making it clear that homeowners were responsible for payment of any insurance deductible.

The bill allowed insurers, in some cases, to charge a separate deductible for roofs, and to offer policies that reimbursed roof losses on a depreciated basis. The bill also made it more expensive for a property owner to renew with Citizens instead of seeking coverage in the private market. And those with second homes insured by Citizens would no longer enjoy statutory caps on annual premium increases, which could more than double the annual hikes for non-primary residences. The Senate passed the legislation by a vote of 28-11, with five Democrats joining Republicans to vote in support. But the measure died in the House.

Some of those same measures could come up in the special session. Occasionally there’s also talk of requiring companies that write auto insurance policies in Florida to also write homeowners policies. But that idea could push more companies out of the overall insurance market instead of encouraging them to enter or stay in the market. Others have suggested allowing some insurers to pay less into the Florida Hurricane Catastrophe Fund, or to tap into the fund to cover more losses. Of course to some observers that raises the question: Why would Florida’s taxpayers want to use its catastrophe fund to prop up poorly run insurance companies? Whether you agree with that or not, it shows why it will be hard for lawmakers to find consensus on possible solutions. Squeeze the balloon on one end and it creates pressure on the other.

Republicans have solid majorities in both the House and Senate. They don’t necessarily need any Democratic votes to enact significant changes, though both parties view insurance reforms as having bipartisan support. But regardless of party affiliation, lawmakers don’t all see the issue through the same lens. Some focus more on creating a robust market for insurance companies where competition will help stabilize rates. While others want to focus more on how to implement reforms that directly help struggling homeowners, or at least don’t cause them to pay more every years. In supporting the call for a special session, Broward County Democratic Sen. Gary Farmer said in a statement Monday that it was clear that the major cost drivers “have been rooted in corporate greed, as insurers wrongly deny or limit claims” to protect their bottom lines. But in an interview with the Times Editorial Board in February, Sen. Brandes pointed the finger at trial attorneys and the questionable lawsuits. “The trial bar is playing chess, the rest of the world is playing checkers, and homeowners pay for it with higher rates.” Farmer and Brandes both support a special session. They both want reforms. But they are hardly alone among lawmakers in envisioning different paths toward a solution. That makes comprehensive reform a tough task during a special session, especially during an election year and especially since some of the proposals could make rates go up, not down, at least in the short term. Lawmakers appear more likely to tinker around the edges, more like triage than finding a cure.

An eventual fix requires two things: (1) Making sure that insurance is just that, insurance against a catastrophe, not a warranty for when a roof or another part of a house merely wears out and (2) Finding a way to even out the cost of insuring against hurricanes and other storms, whether it’s separating insurance into normal perils and wind coverage or some other system that recognizes the unique dangers that hurricanes present to Florida.

Reforming Florida’s property insurance market will take creative thinking and long term planning. It’s not a challenge easily solved in one special session. Homeowners shouldn’t expect to see rates tumble anytime soon. The next couple of years could be ugly for rates, no matter what comes out of a special session. It’s also worth noting that the insurance industry employs a legion of lobbyists in Tallahassee, so lawmakers’ priority for a special session should be to ensure any “reforms” are actual reforms and not just a way to assuage insurance companies. Their motto for this special session should be “First, do no harm.” Florida’s property insurance market is hardly healthy, but it only takes a couple bad decisions to put it on life support.

Editorials are the institutional voice of the Tampa Bay Times. The members of the Editorial Board are Editor of Editorials Graham Brink, Sherri Day, Sebastian Dortch, John Hill, Jim Verhulst and Chairman Paul Tash. Follow @TBTimes_Opinion on Twitter for more opinion news.