Today’s Entry: Brian, I appreciate what you do to keep us informed, but something I’ve not heard from anyone – even you – is how much lower property insurance polices would be if the market is fixed from all of the problems that are always discussed. That’s important to know in attempting to figure out affordability concerns in the longer term. I’m frustrated the Legislature hasn't REALLY fixed the problems yet. Why should we expect them to get it right in another special session?
Bottom Line: Well, I’ll start by saying I forgive you for not catching all of my content all of the time... Your question is one I addressed in May when covering the reforms undertaken as part of the first special session addressing property insurance this year. That said, there have been a few changes since then, including the average cost of a property insurance policy in Florida, not to mention the potential impact of Hurricane Ian on our already reeling property insurance marketplace. With Governor DeSantis calling for another special session before year end, it’s a good time to hit the reset button with where we stand in Florida – including how much you would stand to save on property insurance if the state legislature effectively reforms the marketplace. On that note, I agree with your sentiment, you should be frustrated with the legislature on this issue. So, let’s take a look at where we stand and what the view of the possible would be with appropriate reforms.
In attempting to figure what cost savings would be, it’s important to evaluate what the biggest cost factors are in determining property insurance rates.
The three biggest factors which impact property insurance rates are...
- Value of a property / potential cost of repairs
- Geography
- Reinsurance rates
Property insurance rates ultimately are based on series of risk assessments. The first of those assessments is the potential cost of restoring the property being insured in a catastrophic event. From there you have a risk assessment calculation made regarding the likelihood of everything from a complete restoration to a minor restoration. One of the most recent, yet major, pricing pressures negatively impacting insurance rates is inflation. With inflation totaling 16.1% over the past three years, independent of other factors, we’d be facing double-digit increases in premiums due to the impact of inflation. As we’re talking about what needs to change in Florida’s property insurance market, and how much can be saved if the needed reforms are made, inflation is going to continue pressure rates until that issue is resolved as well.
As inflation has driven the cost of life higher – it's been especially brutal on building materials. To give you an idea of how big of an increase we’ve seen in just the past year... The average cost to build an average home anywhere in the USA was about $248k. Today, that number is $362k. Obviously – a huge increase which must be accounted for by insurance companies. But as you well know – there's nothing about South Florida property that’s typical. The cost of meeting Florida’s building code, which changed significantly after Hurricane Andrew in 1992, adds to the cost as well. To meet current building code, you can expect to add a minimum of $35 per square foot in cost to build/repair. Of course, as we saw with Hurricane Ian, the stronger the construction with newer building codes, the better the outcomes. So, the extra cost for rebuilding damaged property with better construction standards has the potential to mitigate the higher cost of potentially having to repair it. And that takes us to geography.
It doesn’t matter that Southeastern Florida hasn’t had a direct mass claim event since Hurricane Irma in 2017, or that we haven’t had a direct hurricane landfall since the record setting 04’-05’ hurricane cycle – which kicked off the previous Florida property insurance crisis. According to national property insurance risk assessments, Florida’s still far and away #1 for risk and where we live still has a top risk rating. To give you an idea about how dinged we are for our geography when property insurance is priced – according to the property insurance risk assessment, Florida’s not only the riskiest state to insure – no other is even close. Louisiana and Rhode Island are the two states closest to us and Florida’s 19% riskier to insure than any other state (and 4.7 times risker than the lowest risk state). As for reinsurance, it’s like this. Property insurance companies must have reinsurance to ensure they remain solvent and are able to pay claims. As the cost of everything goes up, it does along with it for Florida insurance companies. And that takes us to the other two factors which weigh much heavier on Florida’s property insurance market than they should and it’s where reform is specifically needed. Claims history & litigation.
As risky as it is for Florida’s property insurance companies with the threat of hurricanes and related severe weather - in recent years a threat every bit as big has been litigation. This is the crux of where reforms are needed most. Florida has about 8% of the country’s property insurance policies but accounts for a stunning 78% of the lawsuits. Most of the litigation against property insurance companies isn’t based on claims related to an event. 60% of all lawsuits against Florida’s property insurers were based on claims which weren’t brought on by a mass claims event. Generally speaking, what we’re talking about are situations where homeowners need repairs – commonly roof repairs – and are filing insurance claims to attempt to have the insurers pay for regular maintenance. This creates a one-two punch of awfulness for other, more honest Floridians. It’s driving up the claim rates on properties around us – making our homes look risker to insure than they really are – and the cost of litigating the lawsuits is literally costing the industry over $3 billion dollars a year which is paid for by all property insurance holders statewide. What’s worse. Only 8% of that money went to property repairs. The biggest winners – the attorneys. 71% of all litigation money “recovered” has been going to attorneys. That’s what must stop. And that you still see and hear attorney’s doing what they’ve always been doing tells you previous reforms didn’t go far enough to stop it.
The result has been a net loss for the Florida property insurance industry for three consecutive years (and surely a fourth this year after the impact of Ian) That’s despite the already huge increase in premiums. In answer to your question about what could be saved on property insurance if our market were truly fixed...
- The average Floridian pays $680 more for property insurance annually due to lawsuits
The legal abuse of Florida’s property insurance market has proven to be more devastating to our property insurance market than any hurricane which has struck our state over the past decade preceding Ian.
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