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TALLAHASSEE, Fla. (AP) — The Florida House of Representatives on Wednesday gave final passage to sweeping property insurance legislation that creates a $2 billion reinsurance fund and rewrites rules on coverage denials and attorney fees, as lawmakers attempt to stabilize rising rates and insurer losses.

The legislative package now awaits the signature of Gov. Ron DeSantis, a Republican.

The bipartisan vote in the House capped a special legislative session in which lawmakers approved the broad insurance proposals in three days with little expert analysis in public. Still, many lawmakers said that the measures represented a meaningful way to begin to solve problems in the market, with more work to be done in the future.

“I don't think, unfortunately, that our constituents are going to see the results that they want to see right away, but I do think this is an important first step for us to take, but it can't be the last step,” said Rep. Fentrice Driskell, a Democrat.

Democrats, the minority party in the statehouse, often pushed to insert measures to ensure rate decreases or freezes but were thwarted by Republicans who argued the wide-ranging legislation could yield decreases in the next 12 to 18 months.

The insurance industry has had two years of underwriting losses exceeding $1 billion each year and several insurance companies have either gone insolvent, required midterm cancellations, are in liquidation or have stopped writing new business since 2021, the governor said in his proclamation calling lawmakers back to the Capitol. The loss of private insurers has driven property owners to Citizens Property Insurance, a state-run public insurer meant to be a last resort.

The proposals passed Wednesday would create the $2 billion Reinsurance to Assist Policyholders program for insurers to purchase insurance to help insulate themselves from risk. In order for an insurer to access the fund, it would have to reduce policyholder’s rates.

The bills would forbid insurers from automatically denying coverage because of a roof’s age if the roof is less than 15 years old. Homeowners with roofs 15 years or older would be allowed to get an inspection before insurers deny them coverage. If an inspection shows that a roof has at least five years of life remaining, insurers can’t refuse to issue a policy only based on the roof’s age, under the proposed legislation.

If a roof is more than 25% damaged but already complies with the state’s 2007 building code, it would only have to be repaired instead of replaced under an exemption to the building code that the proposed legislation creates.

Another measure would provide grants worth up to $10,000 each to retrofit homes so they are less vulnerable to hurricane damage. To qualify, properties would have to have insured values of $500,000 or less, be homesteaded, constructed before 2008 and located in areas where wind speeds from storms can exceed 140 mph (225 kph). Homeowners would get $2 from the state for every $1 they invested in mitigation efforts.

The legislation also seeks to limit various attorney fees in insurance-related cases, which insurers blame for much of the rate increases for policyholders. Supporters of the legislative package have frequently noted that Florida accounted for 9% of all insurance claims filed nationally but nearly 80% of all the property insurance lawsuits.

The package also includes a measure to require that all condominiums higher than three stories statewide have periodic inspections of their structural integrity, a proposal that came in response to the Surfside condominium collapse that killed 98 people nearly a year ago.

The bills would allow for more state oversight so regulators can spot trends, analyze reasons and try to prevent the future failure of insurers.

Insurance customer Mimi Bright said the premium on her Parkland home jumped from about $4,500 a year to more than $7,500 after her previous insurance company went out of business. She had opened a claim for water damage in December and no other private insurance company would sell her a policy when she had an open claim.

Bright said the state-run Citizens Property Insurance initially refused to give her a policy but eventually relented, leaving her with a more than 60% premium increase from her old policy.

“Right now, that is my only option because it is the only company in the state of Florida that will write with an open claim with an exception,” Bright said.

Hurricane season is here—check out the following tips to keep you and your family, as well as your car, boat or RV safe in case severe weather strikes.

Tips to make sure your car is hurricane-ready

With most of your focus on your family and home, you may not think much about your car during a hurricane. But, it may just be your key to safety if you need to evacuate.

Make sure your car is ready and that you understand how to drive in severe conditions.

Well in advance:

• Prepare an evacuation route.
• Store emergency supplies in your trunk. The basics include a first aid kit, bottled water, non-perishable foods, and prescription medications. Here are a few additional suggestions.

If a storm is forecast:

• Get a full tank of gas. Fuel may be in short supply after the storm.
• Make sure the windshield wipers are in good shape, and the tires (including your spare) are properly inflated.
• Place your auto and home insurance documents, vehicle registration, title, and other important documents in a waterproof bag and keep them with you.
• Charge your cell phone and plan to bring it if you evacuate.
• If you expect to leave your car behind, be sure it’s not in a flood-prone area. Rising water can seep in and damage your vehicle.
• If you’re instructed to evacuate, do so immediately.

If you’re ordered to evacuate or are returning home after an evacuation:

• Avoid driving through deep water. The average car can be swept off the road by as little as 12″ of moving water. Just try to find an alternate route.
• If your vehicle stalls in water, you may need to restart the engine to make it to safety. But, be aware that restarting may severely damage your engine.
• If you can’t restart your car and you become trapped in rising water, immediately abandon it for higher ground. If you’re unable to get out safely, call 911 or get help from a passerby or someone standing on higher ground.
• After you and your vehicle are out of deep water and in a safe area, depress your brakes slowly several times to help them dry.

Tips to make sure your boat is hurricane-ready

Know how to protect your boat if a hurricane or other severe weather event is approaching. We developed these tips with help from the U.S. Coast Guard and Federal Emergency Management Administration. Ultimately, the best way to protect your vessel is to remove it from the water, and all other measures are supplemental in the event this can’t be done.

Whether your boat is docked, anchored, or in dry storage:

• Have a storm strategy and implement it well before the hurricane hits.
• Remove non-secure items, electronics and excess gear.
• Remove important documents and valuables.
• Make sure openings are watertight, and remove or stow non-essential canvas.
• Ensure that all self-bailing thru hull fittings are clear of debris.
• Check that batteries are fully charged and that automatic bilge pump switches are operational.

If your boat is docked:

• Double-up on chafe protection.
• Double all lines, attaching them high on pilings to allow for a storm surge. The longer the dock lines, the better a boat will move with high and rough tides.

If your boat is anchored:

• Do not tie it parallel to the shore.
• Leave plenty of room between your boat and other boats.
• Be sure to use enough line to allow for a storm surge.
• Clear all self-baling cockpit drains.
• Consider using several anchors.

If your boat is in dry storage:

• Place it in an area higher than the expected storm surge.
• Lash it to its cradle with heavy lines and consider adding water to the bilge to help hold it down. Never leave your boat on davits or on a hydro-lift.
• If your boat is on a trailer, take some air out of the tires and secure the wheels with blocks between the frame and the axles.
• Make sure all drains are free from debris and drain plugs are removed.

With any of these scenarios, if you’re out of town, ask a friend or relative with access to your boat to help. Sure, you’ll “owe him,” but that favor could help prevent some very expensive damage.

Of course, the most important thing to remember is to protect yourself. Never put yourself in danger while trying to protect your boat.

Tips to make sure your RV is hurricane-ready

Your RV can help you and your family evacuate an area, and serve as a cost-effective, temporary living space if your home isn’t livable due to storm damage.

Here are a few tips to make sure your RV is hurricane-ready.

Well in advance:

• Prepare an evacuation route.
• Store emergency supplies in your RV. The basics include a first aid kit, bottled water, non-perishable foods, and prescription medications. Here are a few additional suggestions.
• Perform a thorough safety check. If you use gas-powered lanterns or cook stoves, be sure to have battery-operated fire alarms and carbon monoxide detectors. If you use an electric generator, install a transfer switch to prevent shocks.

If a storm is in the forecast:

• Get a full tank of gas. Fuel may be in short supply after the storm.
• Make sure the windshield wipers are in good shape, and the tires (including the spare) are properly inflated.
• Pack sleeping bags and bedding in plastic to protect them from moisture.
• Place your auto and home insurance documents, vehicle registration, title, and other important documents in a waterproof bag and keep them with you.
• Charge your cell phone and plan to bring it if you evacuate.
• Empty the holding tanks, turn off the propane cylinders, and cover the regulator.
• If you have a travel trailer, tie it down and make sure it’s secure.
• If you expect to leave your RV behind, make sure it’s not in a flood-prone area. Rising water can seep in and damage upholstery, carpeting and electrical systems.
• If you’re instructed to evacuate, do so immediately.

Driving:

• Don’t drive during a hurricane. RVs are particularly vulnerable to heavy winds and rain because of their size and high center of gravity.
• If you have no alternative than to drive through standing water, do it slowly and steadily. If your RV stalls, you may need to restart the engine to make it to safety. But, be aware that restarting may severely damage your engine.
• If you can’t restart your RV and become trapped in rising water immediately abandon the vehicle for higher ground. If you’re unable to get out safely, call 911 or get help from a passerby or someone standing on higher ground.

Heritage Property & Casualty Insurance Co. reported more losses for the first quarter of 2022 and a spike in its combined ratio. But company officials said Friday they are taking aggressive steps, including rate increases, policy changes and tightened underwriting requirements, to improve the Florida-domiciled company’s financial profile.

The Friday earnings call for the publicly traded Heritage came the same day that the carrier filed notice with the Florida Office of Insurance Regulation that it would cut the eligibility age of metal, slate and tile roofs from 25 to 15 years for new homeowner policies, beginning June 1. A number of Florida insurers, including Heritage, have aleady reduced the age of covered shingle roofs to 10 years, but this may be one of the first filings to tighten requirements on metal and tile, which are generally expected to last for decades.

The conference call also came two weeks after Tampa-based Heritage filed for an endorsement requiring binding arbitration for claims disputes, beginning July 1 for new and renewing homeowners policies.

“Given the turbulent state of the market, rampant with fraud and abuse, we are proposing changes that will control exploitation,” reads a memo accompanying the April 26 filing with OIR.

The filing came two months after OIR surprised many in the industry when it approved an endorsement from American Heritage Insurance Co., offering arbitration in exchange for a premium discount for policyholders. But Heritage, facing weather losses and spiraling litigation expenses, appears to be taking it a step further, with no mention of a trade-off.

“If you and we fail to agree on whether there is coverage for the loss, either party may, in writing, demand arbitration,” the Heritage endorsement reads. “An arbitration award shall be binding upon the parties as the issue of coverage and all damages and benefits due and owing under the policy.”

Both parties must pay for their respective arbitrators and experts. If the chosen arbitrators cannot reach agreement, the matter will go to a chief arbitrator, paid for by Heritage, the endorsement notes. The insured and the insurer will pay their own attorney fees and policyholders will not be able to recover the legal costs from the insurer, as is currently allowed by statute for some claimants who prevail in litigation.

Heritage homeowner policies, like most insurers’ policies, already call for non-binding mediation and an appraisal panel to help settle disputes before litigation. But the arbitration clause is new, according to the OIR filing. The regulatory agency has not indicated if or when the endorsement will be approved.

Insurance groups have embraced the idea of more arbitration as a way to avoid costly litigation, and more carriers are expected to file similar endorsements in coming months. The special session of the Florida Legislature, which meets May 23-27, also is slated to consider ways to expand the use of arbitration.

Policyholder attorneys and consumer advocates have expressed concern, arguing that arbitration does not follow the rules of court and can take away homeowners’ right of appeal and due process.

The Heritage earnings call did not mention the new arbitration endorsement. But company officials did name other steps the company is taking to stem losses.

“We will continue to seek rate changes commensurate with our cost of doing business,” Heritage CEO Ernie Garateix said. “We are committed to proactively and appropriately raising rates to offset higher loss costs and taking actions to improve our profitability throughout the year.”

“We will consider all options,” Chief Financial Officer Kirk Lusk said.

The company’s first quarter 2022 financial results show a $31 million loss, a big increase over this time last year, but less red ink than the $49 million loss in the fourth quarter of 2021. The combined ratio also shot up, to 129.5% for Q1 2022. That’s significantly worse than the 107.7% reported in Q1 2021 and the profitable 93.2% reported for the last quarter of last year.

Financial analysts on the call wondered about Heritage’s unusually large amount of catastrophe losses this year. The company reported net accident year weather losses of $64 million – double the prior year’s Q1 results. The weather losses included $45 million in catastrophe losses, despite no hurricanes so far this spring.

Lusk said the losses were due to six significant weather events, most of them in Florida, in January. Heritage also writes in six Southeastern states as well as other states.

Heritage’s Q1 2022 financial report also shows that it has continued to pull back from the trouble-plagued Florida market, shedding almost 18% of its policies in the state and about 15% of its totaled insured value there.

Across its book of business in all states, Heritage also has seen an average premium increase of 21%, company leaders said.

The financial results, posted a few days before the earnings call, did not soothe Wall Street. Two investment research firms, Zachs Investment Research and StockNews.com, last week downgraded the Heritage stock from a “buy” rating to a “hold.” The stock price closed Friday at $3.72 per share, down sharply from a week before, when the preliminary financial results were posted.

Since the end of March, the stock price has lost half its value, according to Yahoo!Finance and other stock trackers.

Heritage continues to enjoy an “A, exceptional” financial stability rating from the Demotech rating firm.

Who would have thought, given what many have called a crisis in the Florida property insurance market, that an insurance company would decide it could improve its bottom line by focusing solely on the storm-plagued Sunshine State?

FedNat Insurance, formerly known as Federated National, is planning to do just that, according to a third quarter financial report from the Florida-based carrier’s holding company. The publicly traded firm (Nasdaq: FNHC) said it is pulling out of all other states after being battered by major storm losses in Texas and Louisiana in the last two years.

“I wouldn’t say it’s a smart move; more of a necessary move,” said Paul Newsome, an insurance industry analyst with Piper Sandler investment bank.

FedNat, founded in Florida in 1992, has been ranked as the fourth-largest homeowners’ carrier in the state in recent years. It expanded into other Southern states, including Texas, Louisiana, Mississippi, Alabama and South Carolina, in 2013. The company accelerated that expansion in 2019 – just in time for a devastating winter storm in Texas early this year and Hurricane Ida, which struck Louisiana this year and left as much as $30 billion in industry claims in its wake.

“The impact of these significant catastrophe weather events has put a strain on FedNat’s capital position and further action is now appropriate. We are therefore exiting the non-Florida markets and refocusing on the improving Florida homeowners’ market…” FedNat CEO Michael Braun said in a report to investors, posted Monday.

Despite recent signals from some Florida-based insurers that they are facing continued losses and “a sea of red ink” from storms, roofing claims and litigation, the Florida market may have improved somewhat for FedNat in the last two years. State lawmakers approved measures designed to reduce assignment of benefits agreements and litigation, and regulators have allowed several significant rate increases for struggling carriers. FedNat has been allowed rate increases amounting to 70% over the last four years.

FedNat also has pared back its Florida book of business by a third, from 272,000 policies in force in 2017 to 168,000 at the end of the third quarter this year. But premiums remained stable at $430 million, due to the rate increases, the company explained.

“As a result, we believe now is the right time to focus on writing policies in Florida, where FedNat continues to have significant market share, strong underwriting and claims handling capabilities, and strong agent relationships,” Braun said in the statement.

The move does not necessarily mean Florida’s market is stabilizing or that FedNat is out of the woods.

“It’s definitely been a challenging quarter for FedNat,” Newsome said.

Braun could not be reached for comment Tuesday. But the financial release said FedNat Insurance Co. was propped up with a $20 million infusion capital from its holding company in September. The company also experienced a net loss of almost $25 million for the third quarter, compared to a loss of $21 million in Q3 2020.

Total revenue decreased by 31% in the third quarter this year and the combined ratio stood at 165.4, well above the U.S. property and casualty industry average of 97.5 for 2020, according to Statista research.

Losses and loss adjustment expenses actually decreased by $39 million – almost 40% – for the third quarter of this year, FedNat reported. The quarter included about $20 million in catastrophe losses from Hurricane Ida. But the numbers were an improvement over this time last year, when the carrier saw $38 million in catastrophe losses due to Hurricane Laura, which struck part of Louisiana, and from Hurricane Sally, which hit the Florida Panhandle.

FedNat may have run into other issues with its Louisiana claims. The company was listed as having 157 complaints from homeowner policyholders in early 2021, the second-highest number, behind the much-larger State Farm Insurance, according to the Louisiana Department of Insurance. In Florida, FedNat ranked fifth, with 339 complaints or about half as many complaints as the state-backed Citizens Property Insurance Corp., the Florida Office of Insurance Regulation reported.

One industry source wasn’t convinced that FedNat’s retreat to Florida will help it in the long run, particularly if Florida is hit by more intense hurricanes in coming years, as expected.

“If thinly capitalized (firms) cannot survive in Texas and Louisiana, it’s hard to see how better pricing in Florida would make a business more sustainable if that state also experienced a few more multi-billion industry loss storms,” wrote Artemis, a reinsurance and insurance securities analysis firm.

FedNat may be able to expand its Florida book as Citizens moves to depopulate, Artemis suggested. Citizens is the largest carrier in Florida and is expected to reach more than 1 million policies by the end of next year. The company has taken several steps to move homeowners to other carriers, including the launch of an aggressive property inspection program over the next four years.

A FedNat spokesman said Tuesday that the carrier would only accept Citizens customers who will pay FedNat’s rates and meet its underwriting standards.

Other industry experts said that while the Florida property insurance market may be more troubled than other states’ markets, many coastal areas are producing big losses for insurers. Florida’s insurance regulator, who is appointed, may have allowed the recent rate hikes while elected insurance commissioners in other states have not.

“They’re cutting their losses and refocusing on their core business in Florida,” Michael Carlson, president of the Personal Insurance Federation of Florida, said about FedNat. “But it’s unfortunate to hear of their financial situation. We need a healthy market here. We need a whole mix of companies writing in the state.”

Despite the problems in the Florida market, FedNat appears to be positioned to survive in the state, said Paul Handerhan, president of FAIR, Federal Association for Insurance Reform, which is based in Florida. He noted that FedNat has sufficient surplus and reinsurance needed to achieve a favorable rating from Demotech, the financial rating service, and to withstand at least two significant storm events in the same year.

To unwind its operations in other states, FedNat said it will “commence an orderly runoff” of its subsidiary, Maison Insurance Co., and will soon file a withdrawal plan with state regulators. Nonrenewals of Maison policies will begin in January in Louisiana, in February in Texas, and in June in Florida.

Demotech recently informed FedNat that it has withdrawn its rating for Maison.

FedNat’s non-Florida book of business has been written through SageSure, a managing general underwriter. By next month, SageSure will work with policyholders to move policies to other carriers, FedNat’s report said. The runoff and transfer should take about 18 months.

“We expect the benefits of this transition to begin to materialize immediately in the form of lower capital requirements and lower exposure to catastrophe weather losses,” Braun said.

In recent weeks, pressure has mounted on lawmakers to do something – anything, really – about the rapidly deteriorating home insurance market in Florida. Homeowners across the state are getting policy cancellation notices in droves, forcing them to hunt desperately for any company that will ensure the house where they live. An easy solution to this growing problem, though, remains elusive.

But the first step toward solving a problem, as the saying goes, is to admit you have one.

On that front, Florida leaders, from Gov. Ron DeSantis to Senate President Wilton Simpson and House Speaker Chris Sprowls, have at least acknowledged that Florida has a crisis on its hands. It’s a crisis that has been hard to miss: six property and casualty insurance companies have become insolvent since 2017, and six others have taken drastic steps to reduce their exposure in Florida, with some pulling out of the state completely, others canceling their riskier Florida policies, while the rest have simply refused to take on new Florida customers.

Why are Florida insurers in such dire straights?

Big storms cause big problems

A combination of factors is to blame, starting with the simple and unavoidable fact that Florida is a gigantic peninsula jutting out into the warm, hurricane-friendly waters of the mid-Atlantic Ocean and Gulf of Mexico.

The state has gotten clobbered with its fair share of extremely devastating hurricanes since 2016: Hurricane Hermine trashed the state’s capital city and surrounding communities in 2016, followed almost immediately by Hurricane Matthew. And although Matthew technically missed landfall, it nevertheless brushed violently along the entire length of Florida’s east coast, close enough to cause significant damage to homes and businesses along 250miles of some of Florida’s most expensive beachfront property.

The very next year, Hurricane Irma slammed into the Florida Keys and then took the absolute worst possible path, straight up the center of the state, engulfing vast swaths of residential areas in heavy rains and wind. To this day, it remains the most expensive storm in the history of the state, causing billions of dollars in wind and flood damage, and devastated citrus crops and other industries.

Then, in 2018, Hurricane Michael tried to wipe Mexico Beach off the map. The Category 5 storm tore a path of destruction 100-miles wide by 80-miles long through the heart of the state’s panhandle.

Hurricanes weren’t the extent of the damage, either. There are the tropical storms which bring heavy rain and damaging winds that other states experience far less frequently.

Those damages add up. A billion here, a billion there. Pretty soon we’re talking about real money.

The math doesn’t add up for Florida insurers

On average, insurance companies across the nation pay out an average of $100.70 on every $100 of premiums they take in. While that may sound like a financial loser for the insurance company, they actually make a profit because they invest those premiums before paying them out. Typically, insurance investments make about 7 percent, which is how the companies are able to stay in business and provide homeowners protection from catastrophic damage.

But compared to the rest of the country, Florida is a significant outlier. According to R Street Institute, in 2016-2019, the Florida homeowners insurance market reported a combined ratio of 117.5 percent. This means that for every hundred dollars of premium received, insurers paid $117.50 in losses and expenses. Florida insurers actually outperformed other insurers on the investment side, making about 9 percent, but that still means they ended up losing almost 9 percent overall for every homeowner they insured.

Soaring premiums haven’t kept pace with insurance company losses, and homeowners simply can’t afford much more. No wonder insurance companies are saying they’ve had enough of doing business in the Sunshine State.

The Citizens Insurance: a ticking time bomb

With so many insurers packing up and leaving customers in the lurch, homeowners are increasingly turning to the state’s so-called insurer of last resort: Citizens Insurance, which is subsidized by the state. In late March, Citizens President and CEO Barry Gilway reported that his company would likely have more than one million policies by the end of 2022, and Citizens is adding policies at a clip of 5,500 per week.

A single storm similar to Irma, that takes out a broad swath of residential areas, could cause a financial catastrophe for Florida. In order to manage that much exposure, Citizens is considering a massive 11 percent hike in premiums, but property owners in some areas of the state, like South Florida, would likely pay substantially higher rates than elsewhere.

The rate hikes could lead to their own financial problems for homeowners who simply can’t afford to pay their mortgage and a significant increase in insurance costs. With rising interest rates, Florida’s home market could cool off quick.

Litigation exacerbates the problem

With so many storms, a high number of insurance claims are bound to be filed. And inevitably, more claims means more litigation. But Florida remains an outlier there, too. According to National Association of Insurance Commissioners (NAIC) data mined by the Florida Office of Insurance Regulation, while Florida homeowners insurance claims accounted for just over 8% of all homeowners claims opened by U.S. insurers in 2019, homeowners insurance lawsuits in Florida accounted for more than 76% of all litigation against insurers nationwide.

Simply put, that’s insane, and it’s unsustainable.  Something’s got to give.

Fraud and abuse

From sinkholes fears to fake roof damage, to allegedly leaky pipes, there seems to be no shortage of ways bad actors can take advantage of the insurance system to make false or exaggerated claims to bilk policies and drive up costs for insurers and homeowners alike.

Nationally, experts estimate that more than $80 billion in fraudulent insurance payments are made annually. Given Florida’s outsized role in the insurance market, there’s little doubt that a good chunk of that number can be traced back here.

Among the most common fraud schemes: claims for wind damaged roofs after a hurricane, when only normal wear and tear is present. Last month, Florida CFO Jimmy Patronis announced the arrest of two men who were charged with nine counts of fraud in connection with this type of scheme.

Lawmakers have attempted to address the fraud issue in recent years but more can still be done.

Bottom Line

Lawmakers will need to consider a broad range of actions that seek to reduce litigation, cut costs, install stiffer penalties for fraudulent claims, bolster the resources for fraud investigation claims, and revamp Citizens Insurance so that Florida taxpayers are not on the hook after the next major storm.

Florida Gov. Ron DeSantis said Monday that he will call a special session of the legislature to address rising property insurance rates in the state.

The Republican governor said the special legislative session will occur in May and focus mainly on the “reform of the property insurance market" but could address other topics. He said he would sign a proclamation this week containing meeting dates and additional details.

DeSantis said the goal on property insurance would be to “bring some sanity and stabilize and have a functioning market.”

The announcement comes amid growing consensus among lawmakers to address spiking rates and other problems in the state's property insurance market. Attempts to pass legislation around property insurance failed during the regular legislative session in the GOP-controlled statehouse earlier this year.

“After months of public outcry, newspaper headlines, and Democrats raising the alarm all session long, the Governor has finally addressed the growing homeowner’s insurance crisis," said Sen. Jeff Brandes, a Republican who has been pushing for a special session on property insurance.

Joseph Petrelli, president of Demotech, a company that rates the financial stability of insurers, said one prime factor driving up Florida’s homeowner rates is state court rulings that have made it highly profitable for lawyers to sue insurance companies even if the amount won is relatively small.

Petrelli added that Florida's premiums are also driven up by its rules governing roof replacement, with the state requiring that any roof incurring damage of 25% or more in a storm or other event must be fully replaced.

But Amy Boggs, a St. Petersburg attorney who chairs the Florida Justice Association's property insurance committee, disputed Petrelli's contentions. She said one problem is that the insurance companies are claiming they aren't profitable, but their financial records are not made public so it is impossible to test the veracity of their claims. She said the Legislature passed a law last year limiting attorney fees, so that is no longer an issue.

For roofs, she said, if insurance companies are not going to have to fully cover older roofs, they should be required to tell consumers how much they are covering and how much that will decrease the premium.

She said the only reason the number of lawsuits in Florida is high is that insurance companies often try to stiff their customers out of tens of thousands of dollars. She said in one recent case she handled involving a home destroyed in Hurricane Irma, the property insurer tried to pay about $2,000, saying the damage was caused by flooding that its policy didn't cover. She said arbitrators disagreed and ordered the company to pay $233,000.

“No one is suing over a couple thousand dollars,” Boggs said.

If the Florida homeowners’ insurance market were in a medical exam, the diagnosis would find the patient in dangerously poor condition. The patient’s vital signs—its financial results—are troubling. What is more, there are multiple co-morbidities. The welter of symptoms collectively reveal the patient to be one step away from the emergency room. Consider seven signs of sickness below:

1. Red Ink. Insurers operating in Florida overwhelmingly report unprofitable results. Insurance companies collectively lost $1.5 billion of their Florida business in 2021, a year in which no hurricanes struck the peninsula.

In 2016-2019, the Florida homeowners insurance market reported a combined ratio of 117.5 percent. This means that for every hundred dollars of premium received, insurers paid $117.50 in losses and expenses. This compares to the overall insurance industry reporting a combined ratio of 100.7 percent. The industry’s investment income ratio—investment income divided by net premium—of 7.9 percent renders the results of the overall industry profitable, with a seven-point profit margin. The investment income is not, however, sufficient to pull Florida homeowners business into the black, as figuring in investment income resulted in an operating margin of 109.6 percent, which means Florida homeowners insurers on average lose $9.60 for every hundred dollars of premium revenue.

2. Administration of Last Rites. Several Florida insurers have become insolvent in recent months and years. The common denominator in these companies’ corporate obituaries is claims costs far outpacing premium growth. The most recent casualties include Gulfstream, Avatar and Johns.

3. Be a quitter. Several property insurers are realizing that continuing in the Florida market is throwing good money after bad, and are strategically withdrawing from the state. The most recent such announcement, in March, was from Lexington Insurance Company, part of the American International Group family. What makes Lexington’s departure troubling is that Lexington is an excess and surplus (E&S) lines insurer. E&S companies concentrate on high-risk business no standard insurer will touch. Whereas standard insurers run out of burning buildings (figuratively), E&S carriers run into burning buildings. Because they are willing to insure business others won’t, regulators allow E&S insurers the freedom to charge premiums and issue insurance contracts as they see fit, without having to abide by the guardrails established by state-based insurance regulators overseeing standard lines insurer rates and forms.

4. Limit your losses. Insurers continuing to operate in the Sunshine State are taking defensive tactical measures, cancelling policies, restricting coverage and raising rates (see table below).

5. Those who fight and run away live to fight another day. The growth and profitability strategy for insurers with a Florida footprint is to increase their business outside of the state while shrinking their Florida portfolio. For example, Heritage insurance, 86 percent of whose 2021 business was in Florida, reported in its Q4 2021 earnings call that it had a 10.9 percent decrease in Florida personal lines policies and a 10.7 percent increase in personal lines outside of Florida.

6. The Swelling of Citizens. Citizens Property Insurance Company (Citizens), the state-run “insurer of last resort” is becoming the “insurer of first resort” as private market insurers refrain from offering coverage to customers who cannot find insurance elsewhere. In late March, Citizens President and CEO Barry Gilway projected his company could have more than one million policies by the end of 2022. Citizens is adding approximately 5,500 new policies per week. At the end of March 2022, Citizens had 801,341 policies, up from 570,000 one year ago.

7. Litigation Gone Wild. In a recent Citizens report, Gilway also noted a “disturbing trend” in year-to-date litigation through June of 2021—the number of lawsuits against insurers, excluding Citizens, increased 51 percent year-over-year to 50,951 versus 33,800 in the first six months of 2020. The longer-term picture is disturbing—the same report reveals that the rise in Florida homeowners’-related lawsuits more than tripled from 27,416 in 2013 to 85,007 in 2020.

Litigation, Litigation, Litigation

Unlike several Louisiana insurers that succumbed to losses from Hurricane Ida in 2021, Florida insurance failures and pullouts were not driven by natural catastrophe losses. The cause of the Florida woes is excessive litigation.

Although excessive litigation is the proximate cause of Florida’s property insurance issues, it’s not appropriate to blame the lawyers. Lawyers litigate—that’s their job. The problem has arisen from the unintended consequences of a cluster of laws and state Supreme Court decisions that created loopholes enabling contractors, lawyers and homeowners to inflate the number and the value of claims payments. A comprehensive report by Guy Fraker on the dire condition of the Florida insurance concurs with this assessment, finding that “everybody’s just leveraging the rules of the game.”

The Florida Office of Insurance Regulation 2020 annual report presents the striking statistic that “in 2019 Florida accounted for 76.45% of all homeowners’ suits opened against insurance companies in the U.S. despite only accounting for 8.16% of all homeowners’ claims opened by insurance companies in the U.S.”

The Cure

Reform of the broken Florida homeowners insurance market requires resolve in the state legislature to pass a sweeping set of reforms. In the legislative session ending March 2022, the only significant bill to be presented was SB 1728, which was temporarily postponed, and ultimately failed due to never being reconsidered in the final days of the 60-day regular session. This bill takes aim at unscrupulous roof contractors, but it is medicine too thin for a patient seriously ill that may go on life support if this year’s hurricane season is rough.

Just as operating on a patient suffering from multiple diseases is complex, solving the Florida insurance issues is no easy undertaking. We suggest the following legislative initiatives be introduced:

• Slay the roof replacement monster. Roofs should be valued on an actual cash, rather than replacement cost basis. A homeowners’ insurance policy is not a maintenance agreement. The natural wearing out of a roof is not a covered cause of loss.

SB 76, approved in the 2021 legislative session, took aim at unscrupulous roofing contractor solicitation practices, including contractors making promises for “free roofs” when any damage is the result of roof age rather than wind damage. A federal court blocked that portion of the bill, alleging that roof contractor solicitations are a form of protected free commercial speech.

SB 1728, as introduced in the 2022 legislative session, would allow contractor solicitation and advertising provided the contractor present a statement to the homeowner clarifying that the homeowner is responsible for paying the deductible. The statement also stipulates that it is a felony for the contractor to waive the deductible or file a claim with false information. It would also introduce a roof-only deductible for new policies.

• Direct high-hazard properties to E&S market. Properties exposed to high hazards because of location or because their construction is not stormproof should not be artificially subsidized by the broader market. In California, which has its own homeowners insurance issues from wildfires, the volume of E&S homeowner premium has tripled since 2018.
• Eliminate one-way-attorney fees. Assignee plaintiffs in the form of service providers repairing insured damage account for approximately one third of lawsuits filed against insurers. There is a high degree of concentration in just a few plaintiff attorney firms.
• Introduce lodestar fee. A lodestar fee is an attorney’s fee calculated by multiplying a reasonable number of hours spent on a case by a reasonable rate. A bill (SB 1910) was introduced to achieve this reform in 2022, but it died in the Banking and Insurance committee.
• Reform Citizens. Citizens should have rates reflective of the inherent risk of a property. Citizens’ rate increases are artificially capped at a maximum of 11 percent increases. In the private market there is no such cap on rate filings, which present the actuarial justification for requested rate change to the state regulator.

Without a special session focusing on addressing the pressing Florida property insurance problems, it appears likely that the situation will only get worse. June 1 is the date for renewal of reinsurance treaties protecting Florida insurers. Expectations are for reinsurance rate increases, which will be passed on to homeowners, pushing Florida homeowners insurance premium levels to yet higher nosebleed levels. June 1 is also the official start of the Atlantic hurricane season. If there is a silver lining to this cloud, it is that additional pain may spur legislators to take action and support needed reforms, and to do so with dispatch.

In yet another ominous sign for Florida’s failing property insurance market, Tampa-based Lighthouse Property Insurance Corp. lost its financial stability rating, which means it will likely be placed under state receivership and dissolved.

On Wednesday, ratings firm Demotech announced the withdrawal, effective Tuesday, of Lighthouse’s former A rating.

“Despite a substantial capital contribution in the fourth quarter 2021, the operating loss in 2021, which reflected the evaluation of losses and loss adjustment expenses associated with Hurricane Ida, resulted in a level of capitalization below what was needed to sustain [its stability rating] at the A level,” Demotech president Joseph Petrelli said in a brief news release.

Lighthouse reported having 13,200 policies in Florida at the end of 2021. Of those, 947 were in Broward, Palm Beach and Miami-Dade counties. Those policyholders will have to find new carriers or go into state-owned Citizens Property Insurance Corp. if the state Office of Insurance Regulation seeks a court order to put Lighthouse in receivership.

Hurricane Ida, the fifth-costliest hurricane on record, struck the Gulf Coast on its way toward the Northeastern United States. Lighthouse also wrote policies in Louisiana, North Carolina, South Carolina and Texas.

Demotech, in a letter signed last week by Petrelli and the company’s other top executives, warned Gov. Ron DeSantis, Senate President Wilton Simpson and House Speaker Chris Sprowls that failure to call a special session to address financial instability of the state’s insurance market would likely force Demotech to withdraw financial stability ratings of “a number” of companies.

Demotech withdrew Lighthouse’s stability rating just hours after DeSantis called a special session to address congressional redistricting but not the insurance crisis.

DeSantis later told reporters that he expected property insurance reform to be dealt with by the legislature “sometime this year” and possibly not until after the 2022 election in November. That’s when Sprowls, who refused to take up several reform bills considered in the Senate, will be replaced as House speaker.

Loss of Lighthouse’s rating follows failure of four Florida-based property insurers since April 2021.

In February, state officials announced that Orlando-based St. Johns Insurance, a former top-10 insurer with more than 200,000 policies as recently as 2019, went into receivership after losing its financial stability rating.

Slide, a newly formed insurer, agreed to absorb 147,000 of the St. Johns policies, preventing those homeowners from having to find new carriers willing to take them.

Earlier this month, about 37,000 customers of Avatar Property & Casualty weren’t so fortunate. They were given until April 13 to find new insurers after that company lost its rating.

A spokeswoman for the Florida Office of Insurance Regulation, which typically oversees initial steps in insurance company liquidations, did not immediately respond to a request for comment about the Lighthouse rating withdrawal.

But when an insurer loses its financial stability rating, “it’s highly likely that the state will put it into receivership,” said Paul Handerhan, president of the consumer-oriented watchdog group Florida Association for Insurance Reform.

Federally-backed mortgage guarantors such as Freddie Mac and Fannie Mae will not approve mortgage loans if properties are insured by carriers without Demotech’s A rating.

Together, about 50 Florida-based insurers reported more than $1 billion in operating losses in 2021. Insurers say the industry is being torn apart financially by severe weather claims, roof replacement claims, contractor fraud, and excessive litigation.

State records show that Lighthouse was sued 116 times in 2020 and 269 times in 2021. Since Jan. 1, 41 suits have been filed against the company.

More than 100,000 lawsuits were filed against Florida insurers last year. Florida accounts for 76% of all property insurance litigation in the country, state insurance regulators said last year.

Florida’s home insurance availability crisis continues to claim new victims, and worries are mounting that more companies could be declared insolvent as this year’s hurricane season draws near.

The industry’s financial storm clouds have prompted fears of collapsing companies and the massive growth of state-owned Citizens Property Insurance Corp., the insurer of last resort:

• Last week, the president and CEO of Demotech, which rates the financial stability of about 50 Florida-based insurers, sent a letter to the governor and leaders of the House and Senate imploring them to call a special session and enact reforms to stem financial losses and litigation. Without reforms, he said, Demotech will likely downgrade financial stability ratings of “a number” of insurers.
• About 37,000 customers of failed Avatar Property & Casualty are scrambling to find new insurers before losing coverage on April 13. But about 2,000 have open claims against the company that won’t be resolved for months. Just about all insurers, including state-run Citizens Property Insurance Corp., have underwriting guidelines disqualifying from coverage anyone with unresolved open claims.
• Meanwhile, Lexington Insurance Co., which specializes in covering homes with replacement values of $1 million or more, announced last week that it’s discontinuing its home insurance division, which will force 8,000 Florida property owners to find new insurers. Most of them are not eligible for Citizens, which only insures homes up to $700,000 in most parts of the state.

Last week, Gov. Ron DeSantis said he’d “welcome” a special session to enact insurance reforms, but indicated he would not call one on his own. Instead, he left the proposal up to leaders of the state Senate and House.

So far, there’s been no indication that Senate President Wilton Simpson and House Speaker Chris Sprowls plans to call a special session, said Sen. Jeff Brandes, a Tampa-area Republican who has repeatedly warned that the state faces an insurance crisis that could undermine Florida’s booming real estate market.

The Senate passed a bill in the recently completed regular session aimed at curbing the number of “free roof” claims and related lawsuits that insurers say are driving up costs for all of their customers. But the House refused to consider any major insurance reforms.

The foreboding letter

In Demotech’s March 23 letter to DeSantis, Simpson and Sprowls, five Demotech executives, including its president and co-founder Joesph Petrelli, warned that failure to enact reforms before the June 1 start of hurricane season would lead to grave consequences.

“The conditions of the property insurance marketplace in Florida are unsustainable,” the letter said, “and without the necessary corrective action, many Florida insurers will struggle to maintain adequate surplus, efficient capital sources will avoid the market, private reinsurance costs will become prohibitively expensive, and consumers will ultimately bear the cost.”

Longtime leaders in the insurance industry believe that some companies won’t have enough cash, financing, or investment capital to purchase reinsurance, which is required so insurance companies have the ability to cover claims likely to roll in after a 1-in-100-year storm event, such as a major hurricane.

Insurers that fail to maintain an adequate surplus of claims-paying capital could be declared insolvent by state insurance regulators, and their policyholders would likely be forced into Citizens.

Citizens’ growth always prompts worries: If it grows too much and cannot pay all claims after a major hurricane, assessments could be levied against nearly all insurance policies in the state to make up the shortfall.

Citizens, which was down to 419,000 policies in 2019, has been quickly swelling with new customers who can’t get covered in the private market. As of March 25, Citizens was up to 807,910 policies.

Four Florida-based insurers have been declared insolvent since April 2021. Many others have stopped writing policies in high-claims areas of the state, such as South Florida, and declined to renew policies covering older homes or homes with roofs older than 10 years.

Insolvencies could also result from Demotech withdrawing companies’ financial strength ratings or downgrading companies’ ratings from A for “acceptable” to S for “satisfactory.”

A downgrade effectively puts a company out of business, either by prompting state insurance regulators to declare the company insolvent and transfer it to a receiver, or, in the case of any rating lower than A, disqualifying the insurer from covering any property backed by a federal mortgage guarantor, such as Fannie Mae and Freddie Mac.

Demotech’s letter warned lawmakers to expect ratings downgrades if no special session is called. “If current market conditions remain in place, we anticipate that we will downgrade Financial Strength Ratings of a number of companies in the coming weeks,” the letter said.

Simpson has called the idea of a special session to address insurance “a possibility,” according to a March 11 statement relayed by a spokeswoman. Sprowls’ office on Monday did not respond to questions about a special session.

More companies might have to fail before the Senate and House leaders call a special session, Brandes said.

“Sometimes you have to force a crisis to get the legislature to act,” he said.

Replacement policies hard to find with open claims

A former Avatar policyholder says she’s already facing a crisis.

Mimi Bright, a homeowner in Parkland, has been trying to find coverage since learning her Avatar policy would expire in mid-April.

But she has an open damage claim with Avatar, and her agent told her that no insurer, including Citizens, will cover her until the claim is resolved.

That could take several months. Under terms of Avatar’s liquidation, the company’s open claims will be resolved by the Florida Insurance Guaranty Association, which is working its way through about 2,000 open Avatar claims.

She doesn’t understand why state law does not require Citizens to offer coverage to policyholders left in limbo when their insurers are declared insolvent. “The state should be doing something to protect consumers,” she said.

Despite what its underwriting guidelines say, Citizens is willing to cover Bright and other Avatar customers with open claims if they provide documentation that the claim has been submitted and repairs are in progress, says Citizens spokesman Michael Peltier and Kyle Ulrich, president and CEO of the Florida Association of Insurance Agents.

“Obviously, [the Avatar dissolution] happened quickly, and we will be as flexible as we can be,” Peltier said. Homeowners will have to provide proof, such as a repair contract showing that repairs have been scheduled or proof that the repair process is underway, he said.

Agents have to be tenacious and offer to provide the documentation, which could also include price estimates from contractors, Ulrich said.

Citizens, Ulrich says, understands that “It’s in no one’s interest to have homeowners go without coverage for a period of time.”

Corey Neal, executive director of the Florida Insurance Guaranty Association, said FIGA is willing to work with agents to provide information needed to help displaced homeowners secure replacement coverage.

Some private-market companies, and not just Citizens, will cover a stranded homeowner when FIGA or a policyholder’s agent reaches out, Neal said.

“If the underwriter wants more information about a loss, we’ll absolutely help them. One of our first priorities is to help find replacement coverage. Hardship claims go to the top of the list.”

The key, he said, is for agents not to accept “no” for an answer from a company’s underwriting staff and to appeal to a higher level, such as an underwriting department manager. Agents needing help can reach out to FIGA directly, he said.

Information about the Avatar liquidation can be found at avatar-liquidation.com.

Paul Handerhan, president of the consumer focused watchdog group, Federal Association for Insurance Reform, said consumers whose insurers decline to renew them also face difficulties finding replacement coverage if they have open claims.

“It’s becoming a real problem, especially with the growing number of non-renewals,” he said. Progressive Insurance recently announced plans not to renew 56,000 Florida homes with roofs older than 15 years.

FAIR would like to see a state law requiring Citizens to cover displaced policyholders with open claims. The law could allow Citizens to exclude the damaged section of those homes from coverage until repairs are complete.

Lexington pullout to affect wealthy

Lexington Insurance Co.’s decision to stop insuring private homes as of Aug. 1 could be a signal that costly claims are also affecting viability of the so-called surplus lines market that typically caters to wealthier clients with homes worth $1 million or more.

Most of Lexington’s policyholders don’t have the option to get coverage from Citizens because Citizens only insures homes with replacement values of $700,000 or less in all counties except Miami-Dade and Monroe, which caps eligible replacement values at $1 million.

Lexington told agents last week that it plans to terminate its personal lines coverage program as of Aug. 1.

Lexington’s parent company, AIG, declined to comment on the decision.

Handerhan said he was told that Lexington is pulling out of the homeowner market across the country.

Lexington insures 8,000 homes in the state with replacement values totaling more than $90 million, Handerhan said.

Ryan Papy, president of the Palmetto Bay-based Keyes Insurance agency said Lexington’s decision could prove costly to the growing number of Florida homes valued at $1 million or more.

Lexington customers who must look elsewhere will find “that market is almost empty,” Papy said, adding other surplus lines carriers, such as Chubb and Pure “have no appetite for new business.”

Cost increases “could be substantial — 100% to 200% even,” he said. “Maybe more.”

“The market turmoil is going to begin to affect a different type of customer,” he said of the wealthier homeowners. “That may push things closer to reform.”