Industry insiders: A not-so-sunny outlook for Florida's property insurance market

There are myriad reasons why Florida faces a property insurance meltdown. Some are historical, some are situational. But the bottom line is this: Florida’s property owners are in trouble, as long-developing problems have led to rate hikes while coverage, and availability, shrink and concerns linger about how the system will do after a storm.

As the number of carriers raise prices or stop writing policies grows, more pressure is put on Citizens Property Insurance Group, created 20 years ago as the last resort for property owners unable to secure coverage from private companies. Florida’s Legislature tackled the issue during a special session in May with a reform package that, according to those who follow the issue, was considered at best a good start.

Earlier this month, the Business Observer sat down with four insurance industry experts, all looking at it from different angles, for an insider's look at how Florida got into this position and what business leaders and executives can expect to next.

What is the doomsday scenario?

Travis Moore, lobbyist who represents community and condominium associations: I think we’re there. This is coming from the perspective of that commercial residential space, which is a unique space, and associations that are that are run by unsophisticated volunteer board of directors that also have to be elected. They’re trying to keep everything really, really low, but they’re looking at policies that might have a whole bunch of exclusions. They don’t know that because they’re just "Oh, it’s cheap." Agents used to be able to go out and get quotes from 12, 15 carriers. That would keep the prices low. Now, I think, there’s two admitted carriers in that space. And because of that, we’re in this crisis of not having available markets and the insured getting caught with products that, if there was a storm, I don’t think they’re going be able to collect on.

Patrick Del Medico, Shepherd Insurance: We’re there. It’s not a ticking time bomb. It’s already exploded. If you look, 11 insurance carriers have gone out of business, 16 have already closed for new business. We only have a handful that are now open for business. And now those ones that are open for business are actually increasing their underwriting guidelines so tight that the choices and the availability have gone down.

What's Citizens role in the crisis?

Del Medico: They’re considered the last resort, right? It’s not the last resort. It’s now pushing to the first resort. Many people don’t know this, Citizens is limited to $700,000 on a coverage. Now they’re looking to increase it to $1 million. If they do, it’s game’s over because no one will be able to compete with the rate. I don’t know how they’ll be able to protect people properly at that level. Up until six months ago, we had about 25 Citizens policies in our book. We’ve probably quadrupled that in the last three months, because there’s no other options. 

Vanessa Ross, attorney handling insurance claims for insured: It’s brutal. I’ve been litigating a little roof claim with this little elderly couple in Fort Lauderdale. They don’t speak English. And they’ve been litigating it for three years now. I would have taken $8,000 on this claim. And how much are their fees? They talk about plaintiff’s lawyers, my fees are zero. I’ve gotten paid nothing so far. What have they spent on their defense costs? They have a blank check.

Del Medico: That’s also the thing that scares all of us. Even to write a policy right now is an extremely difficult process. It takes us at least three or four times the time to write a policy. Imagine what it would be on the claim side.

Moore: To that analogy of the ticking time bomb, if there is a storm, I don’t think a lot of people realize the amount of assessment points that Citizens has on all the lines that they can hit if they need the money. I think it’s everything but medical malpractice. It’s your autos. It’s all kinds of things. All of a sudden people would be, "Why am I getting assessed on my GEICO bill?" It’s because of that.

Mike Noble, FCCI Insurance Group: You were talking about claims handling. I think that’s a really good point. Because when you take open free competition out of the equation, the incentive to handle claims at a certain level goes away. We like claims because, No. 1, if we didn’t have claims, I wouldn’t have job. And No. 2, That’s the one chance we have to shine. When the competition is down to nothing or an insurer last resort, where is that incentive to differentiate from the competition?

Ross: The free markets is taken away. Some insurance companies, their whole business model is "Don’t pay claims." That’s what a lot of people don’t understand: insurance companies in general are not really in the business of paying claims. You have companies like FCCI that value their customer, but in general they’re there to collect premiums, invest the premiums and make money on their investments. The claims department is sort of like a little the hole in the bucket that the sand drags through.

Noble: There are carriers out there that are not operating from that standpoint. The incentive is not to help the customer. But, I don’t know, maybe I’m a cockeyed optimist or something, but I do feel that most are (there to help the customer.)

What's a better way? 

Del Medico: One thing we could all agree with is 49 other states are doing it better. Why would we reinvent the wheel? Louisiana, which is in dire straits and has gotten crushed, they’re better off than we are right now. Before 2004, we were doing okay. It wasn’t perfect, right? But we kicked a bunch of really well capitalized carriers out of the state or did not give them the incentive to stay in and we brought in a bunch of people and we set them up to lose. I will give the carriers the benefit of trying their best in this marketplace to find solutions, but it gets harder and harder.

Noble: I think to Patrick’s point, I don’t want to go on record as saying all insurance companies are terrible and that they’re not wanting to help out the customer. Sometimes their hands are tied. And that’s frustrating as well.

What if Citizens fails? 

Del Medico: We sort of badmouth Citizens and actually I didn’t want to want to do that. Because, the bottom line is, they were set up this way. They’re not at fault, per se. And again, maybe the way they manage their situation is not perfect, but I think, at this point, if they were to go under, think about it, we’re talking about a million plus policyholders.

Ross: I don’t think they can go under. They’re an integral part of the state of Florida. They’re the government. If they’re going under, the entire state of Florida is going under.

Moore: I think the Achilles’ heel of the of the real estate market is our insurance market. And I think they’re going to make sure it works. I think Citizens is not going to be allowed to fail. Unlike a private company, it’s kind of micromanaged by the legislature and the law. I think the issue is less what happens if Citizens goes away to more what happens if the rest of the market goes away. 

Noble: The premise is that somebody has to look at their financial stability.

Did the special session reform work? 

Ross: They allowed a lot less coverage on roofs for people. In the discussions, in the debates, there was a discussion that said: "Well, if you’re going to take away coverage, why don’t we have some plan to at least stabilize the rates? Not now. Maybe in 18 months have a promise that it will be reduced somewhat because we’re reducing coverage." That didn’t pass. So rates are going to continue to go up and the coverage is going to go down.

Moore: There’s supposed to be a balancing act. If we were going to help out the carriers and provide them some help with the reinsurance side, or the litigation side, or the roof side, then there’s got to be a corresponding drop in premiums. If we’re going to help you here, and you say that this will save you money, then you’ve got to show that to the consumer. Forcing that in the law did not pass.

Del Medico: I don’t think legislation went far enough by any means. I think the areas that they identified were good.

Lawyers’ fees are causing all the problems, critics say. Is that accurate?

Ross: It’s a lie. It’s not. It’s an easy target because when you look at the little charts the insurance company lobbyists make and the charts that go around say "Look at the costs of claims have skyrocketed." It’s Irma 2017; 2018, Hurricane Michael; 2020, Hurricane Sally. It’s going to come down again and they’re going to be profitable one day. To blame lawsuits, I just don’t see it. And they’re not paying all the attorney’s fees. My client is paying it most of the time.

Noble: One of the general problems is fraud. That’s what we’re talking about here. And fraud is rampant when there’s a storm and there will be another storm at some point. There’s another stat, we have 9% of the homeowners insurance (claims) in the United States and 79% of the litigation.

Ross: That statistic has been circulating and it cannot be backed up. That whole statistic was promulgated without looking at New York, without looking at North Dakota, which has a really high incidence of tornadoes and has a Citizens like us. It didn’t include parts of Texas. It’s just baseless. And how did they figure it out? It’s a statistic that keeps getting brought up, but it’s just not, I don’t think, accurate.

Del Medico: I disagree on the attorney piece. We can argue stats, but there’s another stat that says we file more claims than the 49 states combined. Combined. Maybe it’s a Florida mindset because there’s an advertisement for an attorney five times in a row before a television show. Maybe we’ve just gotten down a path where this is what you normally do. Maybe it’s just a consumer mindset. "If I’m not satisfied, I have to get an attorney involved." I’m not saying that’s right or wrong. I’m saying, I do believe that mindset has created where we are.

Noble: I watch the commercials, too. The insurance company is the villain and there are some pretty vicious attacks in some of these ads. And that’s certainly unhelpful. Again, I feel like a vast, vast majority of carriers want to do the right thing and pay the right amount. To be vilified, it’s a really tough position to be in.

What's magic wand? Do politicians have the courage to fix the problem? 

Noble: We’ve got to be careful when we wave magic wands because it’s not all rainbows and unicorns. There’s not one thing we’re going to do and everything’s going to fall into place. There are multiple reasons why the marketplace is tough for an insurer to enter and stay. We have to find a way to make that more attractive. (Fixing) the assignment of benefits, things like that, will certainly help. The roof thing is something that needs a lot of work.

Del Medico: If you really think about it, insurance is one really bipartisan topic because everybody is affected by it. So if the legislature could agree to be bipartisan, that’s No. 1. No. 2, you have to take out the special interests altogether and agree there are core problems. There are multiple players that are quote unquote guilty. And I think they’ve tried to do this. They’re trying to address the attorney fees. They’re trying to address the fraud and the bad actors. They’re going to try to address costs rising. And they’re also holding the insurers accountable. There isn’t one magic wand, but there needs to be an avenue for well capitalized, AM Best rated carriers to get into the marketplace to bring some stability

Ross: And competition. Don’t you think we should require GEICO and State Farm and whatever to (write) a certain percentage of homeowners (policies)? We should put pressure on them. We were going to do that way back when. I feel like if we did that, we wouldn’t be in the situation we’re in. They’re making plenty of money on auto insurance. It would be like you have to write a percentage, a small percentage. You have to help create some competition.

Moore: I think our policymakers are good at reacting. That’s natural. But I think they need to do a better job, and focus on, from the regulatory standpoint. And also, I don’t think it should take a special session to deal with insurance. I think that’s such an important part of our economic health in our state. It shouldn’t take a storm. They should be more proactive. We have 60 days, we are the third largest state in the country, we have over $100 billion state budget and we have a part time, elected officials in Tallassee that all do other things. Time is a valuable commodity. You’ve got to prioritize that time. I think that’s important. I wish that they would be more proactive and focus on it rather than treat it as an afterthought.