Why Is Homeowners Insurance So Expensive in Florida?

Depending on which news story you read, the homeowners insurance situation in Florida right now is either "in a state of turmoil," "on the brink of collapse" or – at the very least – in "crisis."

Money expert Clark Howard describes it simply as "broken."

Many Florida homeowners have either lost coverage or are facing huge increases in their premiums this year, as several property insurance companies there have seen their financial stability ratings downgraded, have been declared insolvent or have pulled out of the Florida market altogether.

In this article, I’ll review factors that have led to instability in the homeowners insurance market in Florida and what options are currently available for people facing these challenges.

• Why Is Homeowners Insurance So Expensive in Florida?
• Who Offers Homeowners Insurance in Florida?
• What Can You Do if You Lose or Can't Get Coverage?
• Additional Resources and Information

Why Is Homeowners Insurance So Expensive in Florida?

The challenges impacting Florida's homeowners insurance market come down to two key things, according to money expert Clark Howard: weather and human beings acting badly.

The hurricane factor is simple. Because most of Florida is coastal and subtropical, the state is prone to hurricanes and other forms of severe weather. This makes the Florida homeowners insurance market risky for insurers and premiums more expensive for homeowners.

I've written more about how location impacts the cost of homeowners insurance here.

According to the industry association Insurance Information Institute, Florida insurers suffered net underwriting losses exceeding $2 billion over the last two years. But no major hurricanes made landfall in 2020 or 2021. (Before Hurricane Ian in September 2022, the last major hurricane to make landfall in Florida was Michael in 2018.)

Much of the financial loss insurance companies are experiencing in Florida is being driven by factors beyond weather. Two human factors strongly affecting the homeowners insurance market in Florida right now are fraud and litigation.

The state has been plagued for years by roofing contractors filing false damage claims on behalf of unknowing homeowners, overcharging insurance companies for materials and labor on unnecessary roof replacements and suing companies that challenge their claims.

According to NBC News, "Insurance companies usually settle the disputed claims for many times more than the original claim. Most of that money goes to the contractors' lawyers. … Some lawyers file hundreds of such lawsuits a year."

The Florida Office of Insurance Regulation (OIR) reports that only 9% of all homeowners insurance claims filed in the United States are for properties in Florida, but 79% of all lawsuits against insurance companies for claims filed are in Florida.

Data also show that lawsuits are opened for more than 27% of claims that are closed without payment in Florida. That's eight times more than the state with the next largest amount (if you're curious, it's Connecticut with 3.4%). According to the Florida Office of Insurance Regulation (OIR), "a litigated claim costs approximately three times the cost of a non-litigated claim."

If a company is paying out more than it's earning, its financial stability rating is impacted. Third-party analysis firms such as A.M. Best and Demotech provide financial stability ratings (FSRs) on insurance companies. Being insured by a company with a downgraded FSR is risky because it means the company might not be able to pay for covered damages or loss to your property. Also, some mortgage lenders have minimum FSR rating requirements.

If your insurer gets downgraded, your lender might require you to purchase insurance with a different company, or the lender might buy a force-placed insurance policy for you. You'd be responsible for the cost of a force-placed policy, but the lender would choose the company and policy with no guarantee that all your assets are protected.

In August, Demotech downgraded three insurance companies in Florida, and the OIR has declared six companies financially insolvent so far this year.

The National Insurance Crime Bureau (NICB) has warned that bad weather leads to a rise in contractor fraud, which can increase the losses of insurance companies and lead to higher rates. Ultimately and unfortunately, Florida homeowners are paying the cost of this cycle of rampant insurance fraud and litigation.

Who Offers Homeowners Insurance in Florida?

With so many changes happening so quickly in Florida’s homeowners insurance market, it can be difficult to keep track of what affects your insurer and your policy.

The Florida OIR lists more than 100 insurance companies currently operating in Florida, but the state government also owns one: the Citizens Property Insurance Corporation.

According to its website, "Citizens was created by the Florida Legislature in August 2002 as a not-for-profit, tax-exempt, government entity to provide property insurance to eligible Florida property owners unable to find insurance coverage in the private market."

In order to qualify for coverage with Citizens, you must not be able to get coverage from any other insurance company in Florida, or coverage from another company must be "more than 20 percent higher than the premiums for comparable coverage from Citizens."

In calling for a special state legislative session to address the insurance crisis, Florida governor Ron DeSantis said in April, "Citizens Property Insurance, the State of Florida's public insurer of last resort, has seen an increase of 399,822 policies since the beginning of 2020 and is on track to be over 1 million policies by year-end."

This highlights the impact of insurance companies raising rates or dropping out of the market, but there are still many private companies offering homeowners insurance in Florida.

The Florida OIR oversees licensing companies, reviewing rates and enforcing market conduct requirements for all insurance companies across the state. It also keeps a database of all insurance companies that are authorized and actively doing business in Florida. You can use the Florida OIR's Active Company Search to get a list of active property and casualty insurers.

But finding a company that offers sufficient coverage at an affordable rate and without too many restrictive requirements is getting hard to do.

In response to rising rates and challenges to secure or maintain coverage, Gov. DeSantis signed Senate Bill 2-D into law in May 2022.

The new law includes a mandate that contractors cannot encourage residents to make roof damage claims without also informing them that:

• The consumer will be responsible for paying any deductible on a claim;
• It's insurance fraud if a contractor pays, waives or reimburses any part of a deductible "with intent to injure, defraud, or deceive,";
• It's insurance fraud if you knowingly file a claim with false, misleading or fraudulent information;
• Insurance fraud is punishable as a third-degree felony.

Other key features of the law include:

• If your roof is less than 15 years old, insurance companies cannot refuse to issue or renew a policy based on your roof's age alone.
• If your roof is 15 years or older, insurance companies must let you get a roof inspection before requiring a roof replacement to issue or renew a policy; if it's determined that your roof has five or more years of life then companies cannot refuse to issue or renew a policy based on your roof's age alone.
• Insurance companies can offer separate roof deductibles at a rate of up to 2% of your dwelling coverage limit or half of your roof's replacement cost (whichever is lower); customers who choose separate roof deductibles must be given a "premium credit or discount" on their policies.

You can read a summary of all of Senate Bill 2-D's initiatives here.

Since the law's passage in May 2022, there have been news reports that some companies are finding new ways to keep people from getting – or keeping – their homeowners policies.

So what options are available if you find yourself unable to secure coverage?

What Can You Do if You Lose or Can’t Get Coverage?

It's estimated that more than 400,000 Florida homeowners have been impacted by insurance company changes this year.

If you’re unable to get coverage through a private company, you are eligible for coverage with Citizens Property Insurance Corporation.

The state-owned insurer offers coverage that is comparable to a standard HO-3 homeowners insurance policy. But unlike many private insurance companies, there are fixed limits for many of the included coverages. Take a look at the coverage limits below.

Citizens Property offers limited coverage, but it provides options when no others are available. And while the company isn’t known for the most robust coverage, it’s better to have some coverage than none at all.

Additional Resources and Information

I’ve compiled a list of resources that may be helpful.

As a result of Hurricane Ian, several government entities have made changes in policy and/or additional resources available to Florida residents, including the following:

• Gov. Ron DeSantis issued emergency orders on September 23, 2022, that prevent insurance companies from canceling or failing to renew policies before November 28, 2022, and for a minimum of 90 days after repairs are made to properties.

• Federal Emergency Management Agency (FEMA) announced that more than $75,000 in government assistance could be available for residents who don't have enough coverage to pay for damages to their homes and destroyed property. Residents must register with FEMA to access funds.

• National Flood Insurance Program (NFIP) approved Florida's request for a waiver that allows state residents to receive advance payouts from their flood policy coverage or receive partial payments before completing the entire claims process, so that funds are available sooner to begin repairs.

In addition, the Federal Bureau of Investigation (FBI) has warned that, as organizations step up to support residents and claims rise across the state, scammers will also step up their fraud efforts across the state. You can report fraud to the FBI here and find tips to protect yourself. The Federal Trade Commission (FTC) also has resources for weather emergencies and for avoiding the scams that can follow.

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