Central Florida is a great place to live—we have great beaches, warm temperatures, and a laid-back lifestyle. We also have the second highest average homeowners insurance premiums in the U.S., and our rates are most likely about to go up again.
5 Factors for Why Homeowners Insurance Rates are Going Up
Even though Florida homeowners rates are higher than average, they have been stable, or even going down slightly, for the past 10 to 15 years. Insurance companies have not been increasing their premiums at a rate that matches the reality of the Florida homeowners insurance marketplace, and we are now seeing some big rate increases on the horizon. Here are five factors that have contributed to this situation:
Insurance companies have paid out billions in claims and litigation
Despite nearly 15 years of low hurricane activity, in the past couple of years, Florida has been seriously impacted by hurricanes. Hurricane Irma cost insurers $11 billion in claims, and Hurricane Michael cost $7 billion. Insurers are also seeing something called “loss creep,” which means that the loss estimates are increasing considerably over what the insurance companies predicted they would be, not because of poor planning, but because of a rise in lawsuits (see below).
In addition to hurricanes and loss creep, water damage losses and roof replacement fraud have also increased insurance companies’ cost of doing business in Florida.
Potential Demotech downgrades
Demotech rates the financial stability of more than 40 Florida homeowners insurance companies. They recently announced they plan to downgrade a number of these companies if the companies don’t take steps to become more financially stable. One of the recommendations is that carriers raise their rates to an “actuarially sound” level. (Read more about what this downgrade means here.)
Reinsurance costs are rising
Simply put, reinsurance is insurance for insurance companies. When catastrophic losses occur, reinsurance helps insurance companies cover those losses. Like it or not, the worldwide reinsurance market has been affected by disasters all over the globe—not only hurricanes, but also such catastrophes as the recent California and Australian wildfires.
Some reinsurance companies have pulled out of Florida, while others are asking for substantial rate increases. Reinsurance rates are expected to rise by 15 to 20 percent at the June renewal period, and insurance companies, who operate on razor thin margins, are forced to pass this expense on to their policyholders or face going out of business altogether.
Lawsuits have increased
Insurance companies are spending increasingly more money defending themselves against lawsuits. In addition to the expense of assignment of benefits litigation, one homeowners carrier noted that the percentage of claims represented by an attorney has risen from four percent to 36 percent, and another company reported a 727 percent increase in lawsuits.
Legislation recently passed that should help curb assignment of benefits lawsuits, but another aspect of the legal system is still causing insurance companies’ legal costs to rise. Under current law, attorneys can earn up to three times their hourly rate for a basic insurance lawsuit. This was originally intended to help consumers who couldn’t afford to sue an insurance company. However, now some attorneys are using it as an excuse to collect large fees, and many lawsuits are frivolous or fraudulent. Insurance companies who don’t want to risk losing in court wind up settling out of court. Even if they do so, it costs them much more than paying a claim to an individual not represented by a lawyer.
The homeowners market is hardening
More and more companies are pulling out of the Florida homeowners insurance market or tightening their underwriting rules, making it harder for consumers to get insurance at all. As rates rise and coverage options shrink, the market is said to be hardening. That’s what appears to be happening right now.
At L & M Insurance Group, we understand that this may be a challenging time for Florida homeowners. As an independent agency, we remain committed to finding you the best coverage at the most affordable rates. We represent dozens of financially sound insurance companies, not just one. We pride ourselves on offering personalized service to all our clients. Review your homeowners policy when it comes up for renewal, and give us a call at 813-672-4100 if you have any questions, or if you’d like us to compare rates for you. If you prefer, contact us via email by clicking here.
