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Monday, April 26 2021

Florida’s property-insurance market is headed toward a crisis, as mounting carrier losses and rising premiums threaten the state’s booming real-estate market, according to insurance executives and industry analysts.

Longtime homeowners are getting socked with double-digit rate increases or notices that their policies won’t be renewed. Out-of-state home buyers who have flocked to Florida during the pandemic are experiencing sticker shock. Insurers that are swimming in red ink are cutting back coverage in certain geographic areas to shore up their finances.

Various factors are at play, insurance executives and analysts say. Two hurricanes that slammed the state—Irma in 2017 and Michael in 2018—generated claims with an estimated cost of about $30 billion. The cost of reinsurance, which insurers take out to cover some of the risk in the policies they sell, is swelling. Of particular concern, executives say, are excessive litigation over insurance claims and a proliferation of what insurers see as sham roof-related claims.

A large group of Florida homeowner insurers tracked by Marsh McLennan’s Guy Carpenter business had $1.58 billion in underwriting losses in 2020, more than double the $664 million loss in 2019.

“The industry is in a panic because it is losing so much,” said Barry Gilway, chief executive of Citizens Property Insurance Corp., a state-backed insurer of last resort that is growing rapidly as private-sector insurers retrench. Barring changes, he said, “rates will continue to skyrocket and it absolutely will have an impact on the real-estate market.”

Eric Firestone, a 37-year-old teacher who lives with his wife in the Miami area, received a letter from their insurance company in February saying their policy wouldn’t be renewed because the carrier was no longer servicing their area. When their insurance agent shopped for an alternative, the cheapest one she could find had a $9,644 annual premium—an 85% increase over their most recent premium of $5,205.

“Where am I going to get the extra $4,000?” Mr. Firestone said. “Worst-case scenario, I will have to go into credit-card debt.”

Florida is the most expensive state in the U.S. for home insurance. Residents are projected to pay on average $2,380 in premiums this year, a 21% increase over the $1,960 paid in 2018, according to estimates by trade group Insurance Information Institute. By contrast, the average American homeowner is expected to pay $1,297 this year, up 4% from $1,249 in 2018.

Out of 105 rate increases for multi-peril homeowners policies approved by the Florida Office of Insurance Regulation last year, more than half exceeded 10%, compared with six of 64 in 2016, state Insurance Commissioner David Altmaier informed lawmakers.

Ana Regina Myrrha, an insurance agent in the Orlando area, said she hired three more employees because clients’ policies that used to automatically renew now require “re-quoting,” or finding cheaper alternatives. Her office used to tell clients to expect a single-digit rate increase upon renewal, she said, but “we now tell them that a 20% increase is a gift.”

Florida lawmakers are considering bills that supporters say would help curb premium increases. Among the provisions of a Senate measure backed by the insurance industry and passed by the Republican-led chamber are limits on attorney fees and roof coverage that proponents say would reduce incentives for frivolous lawsuits and claims.

A measure in the GOP-led House that industry representatives consider weaker is expected to come up for a vote in the next few days. If it passes, lawmakers will have until the end of the session on April 30 to negotiate a compromise.

Many Democrats and plaintiff lawyers oppose the bills, saying they would hurt consumers by limiting legal recourse against insurance companies. Opponents say the insurance industry is exaggerating the role of fraud in its deteriorating finances and playing down the significance of losses from natural disasters and rising reinsurance rates.

While Florida made up 8% of all homeowner insurance claims in the U.S. in 2019, it accounted for 76% of homeowners’ insurance lawsuits, according to an analysis by Mr. Altmaier’s office.

A survey by his office of Florida insurers representing about 60% of the market showed they received 90,950 roof claims in 2020, up from 56,657 in 2019. Questionable claims often involve alleged roof damage from hail or wind that the carriers’ adjusters and engineers conclude was due instead to normal wear and tear, which isn’t insured, according to industry executives.

In Florida, as in other states, policyholders with disputed claims can sue their insurers. Critics say that Florida law currently allows too-easy access to insurer-paid legal fees, encouraging contractors to drum up business and lawyers to file frivolous lawsuits over claims, seeking the legal fees.

“Let me help you get a new roof through insurance!” reads one door hanger that Mr. Altmaier shared with lawmakers.

Mandy Wells, 40, a real-estate agent in Cape Coral, met with a representative of roofing company Marlin Construction in 2019 regarding storm damage. The representative guided her on filing a claim and said she would get a new roof, according to Ms. Wells. She signed an agreement authorizing Marlin to receive payment directly from the insurer.

But Ms. Wells said Marlin, which has generated numerous complaints to the Better Business Bureau, never performed any work, and broke off contact when she refused to sign additional documents. Scott Hertz, a Marlin attorney, said Ms. Wells cut off Marlin after receiving an insurance payment, and the parties are now locked in litigation, partly over that money. He said the complaints against Marlin are mostly tied to the employee who met with Ms. Wells, who is no longer at the company.

Though Florida’s real-estate market remains strong, spiraling insurance premiums could hobble it, real-estate agents say. Some out-of-state buyers streaming into Florida say they are stunned by their insurance bills.

Ricardo Calina, 45, a former Wisconsin resident who closed on a house in Winter Garden, near Orlando, in January, said he was upset to learn he and his wife would pay roughly 25% more in homeowners insurance, even though the 4,500-square-foot Florida property is 500 square feet smaller than their Wisconsin residence.

“It is frustrating that we are paying more for less,” Mr. Calina said.

Meanwhile, in Davie, near Fort Lauderdale, Alexander Barr is worried about getting priced out of the house where he grew up and is now raising his two children with his wife. Earlier this month, they received a renewal notice from their insurance company advising that their premium was increasing to $4,006, a 63% jump from the $2,451 they paid last year.

“I can only imagine what’s going to happen next year,” Mr. Barr said.

Monday, April 26 2021

After many years of trying, Florida is closer than ever to repealing its 50-year-old motor vehicle no-fault law.

However, many industry stakeholders have expressed opposition to the legislation passed by the Florida Senate last week and its companion bill approved by the House Judiciary Committee Monday, saying the proposals will actually raise rates for many Florida drivers and be ineffective at weeding out fraud.

Florida’s current no fault law requires drivers to carry personal injury protection coverage of $10,000. If passed, the new law would instead require that drivers carry bodily injury liability coverage with limits starting at $25,000 per person.

Senate Bill 54 and House Bill 719 would also create a new framework to govern motor vehicle claims handling and third-party bad faith failure to settle actions against motor vehicle insurance carriers. The bills also require policies include a medical payments option of $5,000, though under the House version insureds can opt out of purchasing the coverage.

SB 54’s minimum liability requirements for motor vehicle ownership or operation include:

  • For bodily injury (BI) or death of one person in any one crash, $25,000, and, subject to that limit for one person, $50,000 for BI or death of two or more people in any one crash.
  • Retaining the existing $10,000 financial responsibility requirement for property damage.
  • Eliminating the limitations on recovering pain and suffering damages from PIP insurers, which currently require bodily injury that causes death or significant and permanent injury.

Insurers may also offer medical payments coverage with limits of $10,000, without a deductible, to cover medical expenses of the insured. Insurers can offer other policy limits that exceed $5,000 and may offer deductibles of up to $500. SB 54 requires that insurers must reserve the first $5,000 of MedPay benefits for 30 days to pay providers of emergency services or hospital inpatient care.

The exclusion of a specifically named individual from specified insurance coverages under a private passenger motor vehicle policy, with the written consent of the policyholder, is also authorized under the bill.

“Florida is one of only two states in the country that does not currently require drivers to carry liability coverage that would immediately kick in if they cause harm to another person while operating a motor vehicle,” said Senate President Wilton Simpson in a statement. “For everyone’s protection, drivers must be insured at sufficient levels. PIP coverage levels are clearly insufficient. It’s the right time for Florida to move to mandatory coverage for bodily injury liability.”

Included in the Senate version of the bill and added Monday to the House version is the creation of a new framework for motor vehicle insurance bad faith actions. The bill requires insurers to follow claims handling best practices standards based on “long-established good faith duties related to claims handling, claim investigations, defense of the insured and settlement negotiations,” a Senate statement said.

But industry groups say the proposed bad faith reforms will not reduce lawsuits, which is a primary driver of costs for the state’s insurers.

“Meaningful reforms to Florida’s deeply unfair bad faith system should be included to help reduce lawsuits,” said Michael Carlson, president and CEO of the Personal Insurance Federation of Florida. “While the Senate bill includes an attempt at bad faith reform, it has been weakened by the trial bar to the point that it may not help reduce lawsuits.”

The American Property Casualty Insurance Association’s (APCIA) Assistant Vice President of State Government Relations Logan McFaddin said the proposals lack “any meaningful reforms to Florida’s bad faith laws, which will only serve to fuel the current cycle of lawsuit abuse, worsen Florida’s legal environment, and could lead to even higher costs for consumers.”

Specifically, McFaddin said HB 719 is a “considerable step backward and [will] do nothing to alleviate the current abuses of Florida’s bad faith laws.”

PIFF and APCIA said the passage of the proposed PIP repeals would likely raise costs for Florida drivers, particularly those who buy the minimum required insurance or who currently buy bodily injury coverage at amounts below what the proposed law requires.

Florida’s uninsured motorist rate would likely increase from its current 20%, the groups said, as more low-income and underinsured drivers will be unable to purchase higher amounts of coverage. Florida drivers currently pay the highest premiums in the nation, according to MarketWatch data.

“In Florida, approximately 40% of drivers carry minimum limits that are below what would be required under SB 54. Under the current proposal, these drivers could see their auto insurance costs rise by $165 to as much as $876 a year,” said McFaddin.

“Florida cannot afford the higher insurance rates generated by HB 719 and SB 54,” Carlson said.

Senator Jeff Brandes was the lone vote in the Senate against SB 54. Brandes supported a previous version that did not include a mandatory MedPay option, and said there was insufficient time to gather data on if the amended bill would lower rates for Florida drivers. Brandes voiced concern the new version would increase the number of uninsured drivers in the state and harm low-income policyholders.

“We have no basis for making claims that rates will go down,” he said. “Twenty percent of Floridians are driving around without auto insurance and if we raise prices, more Floridians will drive around without insurance – that is a huge problem for me.”

APCIA’s McFaddin said lawmakers are attempting to eliminate the major public policy “through a rushed process without an objective study on the cost impact to consumers.”

However, Senator Danny Burgess, SB 54 sponsor, asserted his bill would eliminate fraud in the system that would lower costs and would offer an overall reduction in rates. The bill, he said, is trying to right a “very broken system.”

“The goal of this legislation is to lower the number of uninsured and underinsured drivers and provide a greater safety net in the event of an accident. Replacing our current no-fault system with a bodily injury liability system more appropriately places liability where it should be – with the party that caused the accident,” said Burgess.

He added the new framework for handling bad faith litigation, “will lead to better outcomes for both insured Floridians and their insurance companies.”

A report from the Office of Insurance Regulation in February noted that overall loss trends for automobile insurance losses in Florida are continuing to increase for the most significant coverages such as BI liability, PIP, and comprehensive coverage. The increases are a result of cost drivers such as a higher rate of fatal crashes in Florida than the rest of the country, higher loss trends for BI and PIP, and the costs of services associated with auto insurance such as medical care, hospital care and motor vehicle body work.

“These trends in auto insurance rates will likely continue, regardless of whether PIP remains or is replaced by BI,” the report stated. “If PIP is repealed and replaced with mandatory BI and MedPay, without addressing bad faith and litigation trends, increased litigation and claims costs associated with the new mandatory coverages could increase premiums dramatically.”

HB 719 now goes to the full House for a vote. If passed and signed by the governor, the new system would take effect Jan. 1, 2022.

Wednesday, April 07 2021

WASHINGTON— FEMA is updating the National Flood Insurance Program’s pricing methodology to communicate flood risk more clearly, so policyholders can make more informed decisions on the purchase of adequate insurance and on mitigation actions to protect against the perils of flooding.

The 21st century rating system, Risk Rating 2.0—Equity in Action, provides actuarially sound rates that are equitable and easy to understand. It transforms a pricing methodology that has not been updated in 50 years by leveraging improved technology and FEMA’s enhanced understanding of flood risk.

“The new pricing methodology is the right thing to do. It mitigates risk, delivers equitable rates and advances the Agency’s goal to reduce suffering after flooding disasters,” said David Maurstad, senior executive of FEMA’s National Flood Insurance Program. “Equity in Action is the generational change we need to spur action now in the face of changing climate conditions, build individual and community resilience, and deliver on the Biden Administration’s priority of providing equitable programs for all.”

The National Flood Insurance Program provides about $1.3 trillion in coverage for more than 5 million policyholders in 22,500 communities across the nation. Understanding the magnitude of even the smallest changes of a program of this scale, FEMA devoted thousands of hours to develop the new pricing methodology to ensure equity and accuracy.

In developing the new rates, FEMA coordinated with subject matter experts from the U.S. Army Corps of Engineers, U.S. Geological Survey and the National Oceanic and Atmospheric Administration along with experts from across the insurance industry and actuarial science to ensure alignment with federal regulations, systems, guidance and policies.

The new methodology allows FEMA to equitably distribute premiums across all policyholders based on the value of their home and the unique flood risk of their property. Currently, many policyholders with lower-value homes are paying more than they should and policyholders with higher-value homes are paying less than they should.

To provide more equity, FEMA now has the capability and tools to address rating disparities by incorporating more flood risk variables. These include flood frequency, multiple flood types—river overflow, storm surge, coastal erosion and heavy rainfall—distance to a water source and property characteristics such as elevation and the cost to rebuild.

The cost to rebuild is key to an equitable distribution of premiums across all policyholders because it is based on the value of their home and the unique flood risk of their property. This has been an industry standard for years.

FEMA is conscious of the far-reaching economic impacts COVID-19 has had on the nation and existing policyholders and is taking a phased approach to rolling out the new rates.

  • In Phase I: New policies beginning Oct. 1, 2021 will be subject to the new rating methodology. Also beginning Oct. 1, existing policyholders eligible for renewal will be able to take advantage of immediate decreases in their premiums.
  • In Phase II: All remaining policies renewing on or after April 1, 2022 will be subject to the new rating methodology.  

FEMA continues to engage with Congress, its industry partners and state, local, tribal and territorial agencies to ensure clear understanding of these changes.

Monday, April 05 2021

More than a million Floridians will see their flood insurance premium rise next year, FEMA said Thursday.

The good news is, most will see increases of less than $120 a year. The bad news is that homeowners will likely see annual rate hikes like that for the foreseeable future.

The National Flood Insurance Program, which underwrites most flood insurance policies in the U.S., is changing the way it calculates what each property has to pay. The new strategy, called Risk Rating 2.0, is meant to help pull the program out of its $20 billion debt and encourage people to live in safer, less flood-prone homes.

The new program will stop charging flood insurance premiums based solely on whether a home is within or outside of a flood zone and instead consider a range of factors like distance from the ocean, rainfall flooding and the cost to rebuild a home.

“It allows us to set accurately sound rates and communicate flood risk better than we ever have before,” David Maurstad, senior executive of FEMA’s National Flood Insurance Program, said in a press conference to announce the changes, the most dramatic change to the program in 50 years.

Starting April 2022, this pricing revamp will lead to higher prices for a majority of Florida’s 1.7 million policyholders — the most of any state — as well as a decrease for about 20% of policies, more than 340,000 policyholders.

For the million-plus who will see increases, about 68% of policyholders will see their premiums rise less than $120 a year. Eight percent, about 134,000 policyholders, will see increases as high as $240 a year. About 73,000 policyholders will see their annual rates rise higher than that, but still within the congress-set cap of 18% a year.

And that’s just year one. Rates will continue to rise every year at that 18% level until the annual insurance premium reflects the real cost of protecting the home, a figure that will be provided to homeowners along with the annual cost increases.

Andy Neal, chief actuary of the NFIP, said in the press conference that they expect half of the policies to be at their full, proper price in five years, with 90% of policies at full risk in 10 years.

“That last 10% takes us a good five years to get to a majority of it, and some will take even more of that,” he said.

This reflects one of the major findings of the Risk Rating 2.0 revamp: higher-value homes are generally underpaying for flood insurance and lower-value homes are generally overpaying.

The riskiest (and therefore most expensive) properties to insure are more likely to be homes that are expensive to rebuild, Neal said. That price, known as the replacement cost, is the same figure home insurers use to come up with premiums. Now flood insurance will do the same, which is likely to raise the cost of insurance for those homes.

“Larger increases are highly correlated with high replacement cost, but there are some exceptions,” Neal said. “This is an effort that’s about equity in pricing.”

Although most current policyholders won’t see a change in their rates until next year, on October 1 policyholders that are up for renewal can choose to switch to the new premium if it’s lower than their current one.

October 1 is also the date that this new method of pricing applies to new flood insurance policies.

Because FEMA hasn’t released much information about what that change might look like, advocates for affordable flood insurance are worried about the potential impact for the real estate market.

“We’re leery of how that’s going to touch us, because it’s never touched us in a good way,” said Mel Montagne, head of Fair Insurance Rates in Monroe, an advocacy group that aims to keep flood and home insurance affordable for residents of the Florida Keys.

Last time the NFIP was reformed, it sent premiums skyrocketing and ground real estate transactions to a halt in the Keys for months, before the changes were rolled back. Montagne recalled one $200,000 ground level home in the Keys that saw its premium jump to $20,000 a year.

“It was absolutely ludicrous,” he said.

However, the new Risk Rating 2.0 strategy appears to have some new protections to prevent the sins of the past. For one, congress’s 18% annual cap keeps premiums from rising overnight.

Under Risk Rating 2.0, the maximum for a single-family home’s annual premium would be about $12,000 a year, a number that could change going forward. Currently, there is no cap for a maximum policy, and Maurstad said the maximum annual policy price tops $45,000.

The NFIP is also maintaining most of its discounts, like the ones for properties newly mapped into flood zones. That will likely be important in Miami-Dade, where new draft flood maps will be released in May. In a county webinar last week, one snapshot of the draft maps revealed plenty of properties in the Little River area will soon be considered in flood zones, which means that flood insurance will be mandatory.

There will also be new discounts for homeowners who protect their homes by elevating them, install flood panels or elevate important outdoor equipment like their AC units.

Other NFIP discounts for homes built before FEMA’s building standards existed will also apply, as will discounts for cities and counties that participate in FEMA’s Community Rating Service, which offers big discounts on flood insurance to communities that guard against flood damage.

Miami Beach residents get a 25% discount under CRS. That used to only apply in full to residents in flood zones, which cover 93% of buildings in Miami Beach, but under Risk Rating 2.0 it will extend to every property in the city.

Amy Knowles, Miami Beach’s chief resilience officer, said that discount saves residents about $8.2 million.

“We do want flood insurance to be accurate, but as a coastal city we’ve got to be able to afford it,” she said. “We’re doing everything we can as a city to offset the cost of federal flood insurance.”

Making flood insurance more expensive is unpopular on either side of the political aisle, and Congress could step in to lower the 18% cap or force the NFIP to make more changes to lessen the impact of the suggested price hikes.

In 2019, all of South Florida’s U.S. House members from both parties, with the exception of Democratic Rep. Frederica Wilson, signed a letter to House leaders expressing concern with the proposed flood insurance rate changes.

“While FEMA intends Risk Rating 2.0 to provide more accurate and transparent flood insurance pricing, this untested proposal could lead to increased premiums, forcing homeowners to drop coverage, or even worse, lose their home,” the lawmakers wrote.

Reps. Mario Diaz-Balart, Debbie Wasserman Schultz, Ted Deutch, Lois Frankel and Alcee Hastings all signed the letter, along with former Reps. Donna Shalala and Debbie Mucarsel-Powell.

The letter also stated, “our constituents cannot suffer from a double-digit rate increase in addition to the fees and surcharges FEMA could impose on policy holders under Risk Rating 2.0.”

Diaz-Balart’s office said Thursday his position on NFIP rate changes is unchanged from the 2019 letter he signed.

“I worked with my colleagues across the country to push FEMA to lower the cap on annual premium increases and take into account how rate increases will impact regions like South Florida that are extremely vulnerable to climate change and hurricanes,” Rep. Debbie Wasserman Schultz said in a statement. “FEMA should be assessing flood insurance affordability for our region, especially during COVID.”

But risk experts say those high prices serve a purpose: pushing people away from vulnerable spots, a process that will only get more important as sea levels rise.

Del Schwalls, the immediate past chair of the Florida Floodplain Managers Association, praised FEMA for joining the private flood insurance market by charging customers the proper amount for their policies.

“I think this is exactly what we’ve been asking for, and at times begging for,” he said. “Now people aren’t subsidized into a false sense of security. If you tell them their risk is insanely high but they’re paying $1,200 a year, their gut tells them you’re wrong.”

As that $1,200 premium balloons to a $5,000 premium a decade down the line, Schwalls said homeowners might be more likely to consider elevating their home or other floodproofing improvements as a way of saving money.

Or, they might decide the risk is too great and move inland.

“When you get a policy premium that is equal to your risk, it informs your decisions,” he said.

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