An issues brief published by the Insurance Information Institute has affirmed that the turmoil in Florida’s homeowners insurance market is due to the state’s outsized number of lawsuits and its commonplace fraud schemes.
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The net underwriting losses for Florida domestic property companies exceeded $1bn. Insurance Information Institute’s issues brief stated that this is leading to insurer insolvencies and rating downgrades.
Insurers who were able to withstand these negative financial trends have reduced their exposure to Florida’s homeowners market by issuing non-renewal notices to existing policyholders or restricting the writing of new business in the state.
Floridians are seeing homeowners’ insurance become costlier and scarcer because for years the state has been the home of too much litigation and too many fraudulent roof-replacement schemes.
These two factors contributed enormously to the net underwriting losses Florida’s homeowners’ insurers cumulatively incurred between 2017 and 2021.
III’s analysis indicates homeowners in Florida pay the highest average property insurance premium in the U.S. at $4,231, nearly three times the U.S. average of $1,544.
Insurers are experiencing net underwriting losses in large part because Florida is the site of 79% of all homeowners insurance lawsuits over claims filed nationwide, while Florida’s homeowners insurers receive only 9% of all U.S. homeowners property insurance claims, according to the National Association of Insurance Commissioners.
Floridians For Lawsuit Reform estimates 130,000 property claim lawsuits will be filed in 2022, largely due to Florida’s favourable litigation environment.
Florida has one of the most generous attorney-fee mechanisms in the country—sometimes resulting in insurer payment of plaintiff attorney fees far greater than the damage awards given to the policyholders who are the plaintiffs themselves.
A 2017 state Supreme Court decision allows courts to award plaintiffs’ attorneys 2-2.5 times their hourly billing rate when courts rule in favour of policyholders. These “contingency fee multipliers” can result in attorneys receiving several hundred thousand dollars for a simple lawsuit.
The homeowners insurer pays the plaintiff’s attorney fees as well as damages to the plaintiff, the insurer’s policyholder, in the event of a court ruling in favour of the policyholder.
The brief also highlights the steps taken by unethical roofing contractors, who ask homeowners insurance policyholders to sign an assignment of benefits (AOB) forms or direction to pay agreements, giving the contractor the right to collect claim payments directly from the insurer and file a lawsuit without the knowledge or consent of the policyholder.
These lawsuits require insurers to allocate resources to defend themselves in court, with the policyholder often unaware the signed AOB form has set into motion potential litigation.