The new insurance crisis: homeowners hit by rising premiums in 2022

As if inflation-hit consumers don’t enough to worry about with rising food and gas prices.

Now, as the hurricane season fast approaches, the home insurance market is in turmoil due to dramatically rising costs driven by fears of greater risks from severe weather, and what the industry describes as a new epidemic in home roofing fraud.

While the entire east and south coast of the United States is experiencing higher prices, the crisis is especially severe in Florida where several private insurance companies have collapsed in recent months under the extra strain of litigation cost from an avalanche of cases involving alleged fraud. Three companies went into liquidation in the last two months and as many as ten more are under close financial scrutiny by state regulators.

Other insurance companies are opting to leave the state, and still more are choosing not to renew home insurance policies or drastically tighten their policy eligibility requirements.

"Florida’s insurance market is on a trajectory to collapse," said Mark Friedlander of the Insurance Information Institute, which represents the industry. "Florida’s insurance market is on a trajectory to collapse."

The Florida state legislature is due to hold a special session to address the crisis the week of May 23, though it is unclear what solutions are on the table. Florida’s Republican Governor Ron DeSantis has yet to make any concrete proposals, though the governor cited “frivolous” lawsuits in the first line of his proclamation of the special session.

US bracing for another more active than usual hurricane season

If the legislature doesn’t move quickly the state could be in even deeper trouble as fraudulent claims tend to go up during hurricane season. Colorado State University predicts that the 2022 hurricane season will be more severe than usual, with 19 named storms, including nine hurricanes, four of which are predicted to be “major.”

If any of those storms hit Florida it could totally overwhelm the teetering insurance industry, leaving the state holding the bill, which would likely end up being passed on to the Federal Emergency Management Agency, (FEMA), which handles recovery from all types of disasters, from storms to covid.

Unless action is taken soon, the industry says more local insurers could be driven out of business if they are unable to purchase reinsurance, essentially backup financing from large international insurers for the losses that smaller insurance companies may incur.

“ Florida is the largest single market for reinsurance in the world with trillions of dollars of exposure and a very high hazard risk,” said Robert Hartwig, an insurance expert at the University of South Carolina.

Florida has always been a riskier home insurance market due to its geographic location at the center of summer hurricane activity. Insurers were wiped out in 1992 when Hurricane Andrew hit the southern half of the Miami metropolitan area, killing 65 people and caused an estimated $26 million in damage, making it the costliest storm in history at that time.

Last major hurricane to hit Florida was Michael in 2019

Florida has emerged virtually unscathed by recent hurricane seasons. The last major storm to face Florida was Hurricane Michael in 2018, which made landfall in the Panhandle, a region of Florida with comparatively less coastal development. Florida dodged a bullet in September 2019 when a major Category 5 hurricane, Dorian, appeared to be headed for south Florida before stalling over the Bahamas and then turning sharply north.

According to NOAA, 2021 data showed that since 1980, the U.S. had sustained 285 separate billion-dollar weather and climate disasters totaling over $1.8 trillion dollars in total damages. The total cost from 2017 through 2021 was more than $400 billion, with average insured natural catastrophe losses rising nearly 700% since the 1980s, according to the Insurance Information Institute.

“Florida knows this well – Irma, Michael, and Andrew alone caused the state $95 billion dollars in damage,” FEMA director Deanna Criswell told the Florida Governor’s Hurricane Conference on Wednesday, referring to three of the biggest cyclone disasters to hit the state. “Yet with every record we break, we are increasingly becoming numb to the significance of these dollar amounts,” she added.

Premiums set to go up by as much as 40% in June

Homeowners are certainly paying more attention this year as premiums across the board are set to go up between 30% and 40%, according to experts.

Homeowners’ insurance premium rates have risen significantly nationwide since the pandemic. Much of the increase can be attributed to supply-chain issues and labor shortages driving up the cost of home repairs and replacement, according to S&P Global Market Intelligence data.

Another part of the reason is a steady trend of people moving into risk-prone areas such as coastal Florida or the hills of California and Colorado, meaning more costly damage when extreme events occur.

This is how "door-to-door roofing fraud" works

Adding to the usual mix of woes this year is fraud, in the shape of roof replacement schemes that have blossomed over the past few years, costing the industry billions of dollars. Typically, roof contractors will offer repairs or replacements to homeowners telling them it is covered by their property insurer. The contractors ask the homeowner to sign a "Direction to Pay" agreement in which the insurance company directly pays the contractor. However, if the insurance company says the claim is not legitimate and was not caused by a storm – which often happens, the contractor will take the company to court.

Florida makes up 8% of all homeowners property insurance claims in the U.S., but 79% of all litigation associated with these claims as of 2020, David Altmaier, commissioner for the Florida Office of Insurance Regulation, told the Florida Cabinet last month.

“The roof replacement schemes (in Florida) are on a level that we have not seen anywhere else. They go door-to-door solicitating claims. They tell people ‘due to recent storm activity we are replacing roofs for free. Your insurance will pay all the costs'," said Friedlander.

Often the claim costs are inflated by the roofer, or if they find the roof is in good condition they rip up shingles to make it look like storm damage, he added.

The insurance industry is partly responsible for the crisis, some say

Not everyone is convinced by the insurance industry cries for help over the roofing fraud.

“I think it’s an excuse to be honest. There’s got to be money. There hasn’t been a hurricane so they should have plenty of reserves,” said Gavin Magor, an industry expert who rates insurance companies.

Magor said he was recently forced to look for new coverage after his existing insurer dropped by his policy. A colleague of his was also dropped because the insurer said his roof was too old, despite being in perfect condition.

“People are being treated very poorly, and the state of Florida hasn’t taken very seriously the burden on homeowners. Insurance very often higher than taxes. The state needs to do something,” he added.

Lawyers defend themselves from accusations of insurance industry

Miami property insurance lawyer Anthony Lopez told Univision that the insurance industry data is inaccurate, calling it “propaganda designed to create mass hysteria” and unfairly blame lawyers for a problem of the insurance industry’s own creation.

“Insurers love to point their fingers at anyone other than themselves. I would not be in business if the insurance industry paid more claims,” he added, noting that juries decide against insurers in the vast majority of cases. juries.

Lopez, who heads the state’s largest property insurance firm, said the state has already taken action to limit legal fees for property insurance claims, causing lawsuits to drop more than 25% in the last year. He noted that the industry is only required to pay attorney fees when it loses a case. Since most claims are in the $10,000-20,000 range, many cash-strapped homeowners are unwilling to hire a lawyer unless they can recover their legal fees.

Florida homeowners left without insurance end up at the mercy of the so-called “insurer of last resort”, state-run Citizens Property Insurance Corp.

Michael Peltier, the spokesperson for Citizens, told Univision that the company is writing 6,000 new policies per week. Citizens is on track to surpass one million by the end of the year, up from 800,000 at the start of the year and only 400,000 in 2018. The average number of new policies each month in 2020 was only 15,000, increasing to 32,000 policies per month this year. It’s policies are more affordable, but are also set to rise 11-12% this year.

In case of a major disaster, Florida’s insurers are backed by the state’s Hurricane Catastrophe Fund which has $11 billion in its reserves. But that that may not be enough in case of a major hurricane hitting densely populated South Florida.

“If there was a major tropical event you could see a rash of insurers fails,” said Hartwig.