How can we solve the insurance problem in Florida?
 

People are complaining about insurance costs going up. However, insurance is merely spreading the risk of losses over a large number of people. The chance of a single home burning down in a year is quite slim so insurance companies can sell home insurance to everyone in a city and use the premiums from those whose homes are not burned down to compensate the few policy holders whose homes are burned down. That is how it works in theory.

However, I am not sure if that works in the case of catastrophic losses such as hurricanes that hit thousands of homes and businesses. Hurricane Ian caused about $100 billion in damages in Florida. The population in Florida is about 21 million people and the average household is about 2.5 people. If you divide $100 billion by 21 million, that is about $4700 a person. If you multiply that by the number of households, each household would have to pay $11,750 just to pay for Ian.

Ian is a bit of an exception since Florida doesn't get an Ian every year. However, Florida gets hit with a hurricane about once every two years and seems to get hit with a major hurricane at least once a decade. Irma cost about $30 billion in 2017.

I am not an underwriter or an actuary but I don't see how people in Florida can pay enough insurance to cover their losses. Hopefully, there are some insurance people on this board that may have solutions.

Stopping the roof scam would help. Make the homeowner pay for second opinion on whether roof needs to replace under insurance.

Stop the roof scam and restore insurance regulations.

I agree with that. I would think that the roof scam would be a relatively easy fix.
Maybe the $100 billion damages number is 75% fraudulent but I have not seen any evidence of that.

But if you have legitimate losses of $100 billion, how can 21 million people pay for that?

I think you are comparing apples to oranges. The total damage included more than just private homes. Much of the damage was commercial and Government buildings, roads and bridges, etc. Also, the Federal and State Government provided funds and loans to cover much of the damage and cleanup work.

Insurance is increasing nationwide, a good deal of it is at least partially due to the plethora of natural disasters. Not just a Florida problem.

Things can only be changed within the ability to control them. Nobody can change natural disasters. What can be changed?

- People living inland, who have significantly lower exposure to natural disaster risk, should not have their premiums jacked up to subsidize those who choose to live closer to harms way. If people living close to the shore can’t afford, or get, insurance then that shouldn’t be others problems for their riskier choices.
- Do something about the roofing scam, like pro-rating replacement based on age.
- Regulations on insurance companies needs to strike a delicate balance between protecting both the customers and the insurers. If the regulations are too onerous for insurers, they will simply pull out of the market. Insurance Companies are all about diversifying risk, unfortunately hurricane risk is next to impossible to diversify. It’s critical to have as many Companies as possible willing to write policies in the market to keep any individual company’s exposure to the region down, resulting in lower premiums. The opposite is happening in Florida, as evidenced by Farmers pulling entirely out of the state. That leads to thousands of homeowners looking for policies from a limited number of remaining insurers who have little or no appetite for more correlated risk that can’t be diversified away. Under that scenario, premiums can only go in one direction.

IMHO, the legislators need to actually INVITE the insurance companies to the discussions about proposed changes and then come to a common ground and understanding of the situation, unfortunately, I am sure this will never happen.

I am not a legislator and I do not work for an insurance company but I assume that the insurance companies have lobbyists in Tallahassee and that they are in contact with the legislators.

Makes sense

I just pulled my insurance policy and looked at it. 75% of the premium is for hurricane exposure!! And my hurricane deductible is $6500.

Insurance companies prorated roof claims, and there is always self insuring.

Self insuring is always an option. If you are paying $6,000 a year for property insurance, you would spend $180,000 over the next 30 years. If you get hit with a hurricane and have major damage to your house, the damage would probably far exceed $180,000. However, if you don't get hit and have no damage or claims over the next 30 years, you have wasted $180,000.

+1 tophcfa

"- People living inland, who have significantly lower exposure to natural disaster risk, should not have their premiums jacked up to subsidize those who choose to live closer to harms way. If people living close to the shore can’t afford, or get, insurance then that shouldn’t be others problems for their riskier choices."

If folks want to live on the Florida coast or adjacent to the San Andreas Fault in California, they should be in their own group. I do not want to subsidize their risk at all. Here in Central Florida any one of us could have our house hit by lightening or a tornado, not as a result of our foolish decisions.

Prorate roof claims based on age of the roof. No one should get an old roof replaced for only the cost of a deductible.

First, you are overlooking the fact that MOST people have insurance on their home that would cover hurricane damage. Typically, this doesn't cover FLOOD or STORM SURGE damage, but it does cover damage that is a direct result of the wind and any subsequent damage that may be done if the wind causes a roof leak or window breakage or other wind related damage.

Second, you are overlooking the fact that property insurers have RE-insurers which provide insurance to them in case of catastrophic losses. In other words, the insurance companies have insurance too to protect them against unusually large losses.

Third, not all hurricane damage losses are covered by insurance. Much of it is due to flood losses which (usually) aren't covered unless the person or business bought flood insurance which is very expensive. It's expensive because not everyone shares equally in the threat of flood damage.

People who live on high ground have no need for expensive flood insurance, so they don't buy it. People who live in flood-prone areas NEED flood insurance, but since the cost is usually quite high, many people don't buy it even though they may need it.

And finally, we can be thankful that an "Ian" level storm doesn't hit us every year. So, even if the insurance companies may lose money in one year, they can make it up in other years in which their losses are less. It's kind of like the gambling in Las Vegas. Occasionally the house may get hit for a big loss, but they make it up by winning many small bets... and most of the big ones too. :)

Correct but no one can accurately predict the weather and it's ramifications. As I write this there is a large hurricane in the Atlantic which is expected to have winds in the 160MPH range. It probably will not hit the US. In 2019 Hurricane Dorian missed Florida by 90-100 miles and it had windspeeds in the 150mph range and it stalled. That storm would have been much worse than Ian since it missed a more populated area of Florida. Florida did make some good legislative moves that will get the attorneys out of the insurance adjusting biz. That and stopping roof claims will only make a small dent in the problem. Full disclosure I was an adjuster in Florida for 40 year.

Agree, and in Central Florida our rates are much less than if we lived on the coast. In Palm Beach County our premium was 5K and when we moved to Central Florida price went down to $1200 and we had much more hurricane protection in S. Florida. We should be paying less here but suspect that our rates are going to sky rocket.

Even if an insurance company has reinsurance, that is just passing the losses onto another insurance company.

The reinsurance company has to pay so whether 50% of the losses are paid by the insurance company and 50% are paid by the reinsurance company, the premiums have to come from somewhere.

As for Ian being a rare occurrence and the insurance companies can make it up in previous years or future years, the fact is that insurance companies have been losing money over the long haul. I don’t think they would be pulling out if property insurance were profitable in Florida. And as I understand it, to get rate increases, insurance companies have to get approval from the state regulators. They can’t just raise your rates.

So if you were king, how would you fix the problem?

I don’t see a solution because insurance companies have to charge enough in premiums to cover claims - and some of them are over $100 billion. The money has to come from somewhere unless we put an increase taxes on those people who “aren’t paying their fair share.”

I didn’t mention reinsurance in my previous post because it’s something many folks aren’t familiar with, and I didn’t want to muddy the waters. In its simplest form, reinsurance is just insurance risk traded in a private market between insurance companies. Reinsurers typically don’t actually write policies, they just assume risk, for a price, from other insurers that actually do write policies and need to offload risk to balance their portfolios overall risk profile. The property and casualty insurance business is all about properly pricing and diversifying risk, so statistically they will make a reasonable profit in the long run after cashing premium checks and paying out claims. Diversifying risk is of the absolute most paramount importance, so no single, or sequence of, unpredictable events will cause the entity a catastrophic loss. Reinsurers are no different than regular insurance companies in that they want to hold a very well diversified portfolio of properly priced risk. Unfortunately, tropical storms have become both more severe and less predictable, so pricing and managing the risk has become more problematic. At the same time, populations have migrated to areas like the Florida coastlines increasing the number of insured properties, while insured property values have skyrocketed, and insurers (both traditional and reinsurers) have no additional appetite for assuming more tropical storm risk without HUGH increases in premiums. Why did Farmers make the difficult decision to totally pull out of the Florida market? Because it got too expensive to reinsure the risk they needed to offload to have what they considered a properly diversified portfolio.

I’ll stop there, except to say that the insurance market is totally saturated with its ability to continue to absorb more tropical storm risk, without a very large corresponding increase in premiums. Think of in terms of a stock portfolio, which people can more easily understand. No one wants to own a portfolio of a few stocks, all in the same risky industry, with no diversification. If one event happens that totally rocks that particular industry, their portfolio would be toast.

Dam, I need a beer, I’m glad I retired from that $hit. I much prefer worrying about getting a good t time or an empty lane in a sports pool to swim laps. The important things in life : )

Florida did pass new legislation for insurance reform. Some law firms might not be pleased.

Florida insurance regulation creates big changes | Grant Thornton

Florida is known to be a an overly litigious state with respect to insurance. Florida’s insurance regulators estimate homeowner claims account for 9% of all claims in the U.S., but 79% of all insurance litigation. Florida has now eliminated one-way attorney fees. Now, if an insurer and an insured end up in court and the insured wins, the insurer does not need to pay for the insured’s legal fees. This move by regulators should drastically reduce the insurance companies’ costs.

A big portion of the expense/loss is infrastructure related borne by the state and local governments and utilities, not individual home owners.

Much of Florida is over populated and under engineered. The Miami-Dade standards alleviate much of the wind mitigation issue, but fall short when it comes to water intrusion, and roof ventilation. Fortunately we in The Villages, at least in the north districts, have adequate storm water control. Attic ventilation could be improved, so roofs would more likely last to their design lives.

The same thing happened with "health insurance" when we quit calling it "hospitalization" and demanded that insurance companies pay for our doctor visits and prescriptions instead of merely life-threatening catastrophes.

It's got nothing to do with hurricanes, which have hit Florida every year since the beginning of time. It's about human avarice and idiots who demand that someone else pay for their life -- and roof, and doctor, and dentist, and oil changes, and vet bill -- and the moment some crook offers to insure against it, their groceries and tee time, too.

And EVERYONE suffers. You couldn't afford your roof before someone offered to replace it every time you lost a shingle. Now NOBODY can afford their roof OR their insurance. You couldn't afford to go to the doctor every six months without insurance, and now NOBODY can afford a doctor without insurance, and the insurance costs 10 times EVERY MONTH what your doctor used to cost for one visit a year before some crook offered to "insure" you. But lucky you! Now you're old and the gooberment pays that $1,500/month for you.

How to fix Florida insurance? Fix Florida residents so they quit asking insurance companies for handouts.

People living on the coast should pay more for insurance than people living inland. These should not be statewide rates for everyone.

The roof scam was started by the insurance companies and it backfired on them.

I admit to not being very knowledgeable about how the insurance system works. I am in pretty much the same boat as many others, dealing with significant (more than significant?) increases in my insurance costs. And not just home insurance but auto, car, golf cart, etc. as well.

I am also paying the price of my own inattentiveness. Moving here three + years ago everything was happening at once, and in the space of three days we took care of every business item related to purchasing our new home, including insurance. Our quote was (for the time) pretty reasonable; we would be paying a little less for homeowner's insurance here, on a property valued at 30% more, than our home in Minnesota. However since then we have experienced two significant jumps in cost; one last year that totalled about 25% more than the annual cost of the insurance, and one just a couple of weeks ago where the premium increased by over $1,400.00 per year--and the only "explanation" was a blurb in the notification that the increase was per decision of the legislature allowing the jump, or some such.

We have an appointment with our local agent this morning to see what can be done. I expect no miracle fixes, but I DO expect that the possibility of losing all our business will be incentive enough for the agent to help us streamline things. I did notice among other things that my hurricane deductible for the policy was $500, and I do know enough about insurance to understand that lower deductibles mean higher premiums. If our agent is willing to work with us and go over the policy to help us trim the fat, we'll stay with them. Otherwise, I will be insurance shopping very soon.

This is something, I think, that all of us can do.

They already pay more. Our best friends have a home in Bonita Springs very similar to ours. They pay 3 times what we do. Probably going to be more when they renew.

Perhaps the insurance industry could make roof replacement a RIDER on the normal homeowner's insurance policy. Maybe make the rider a $1000.00 option. That way, the homeowner who has a new or newer roof can opt out of roof replacement for several years and take his/her chances. Also roof shingle manufacturers have a warranty.

You are not considering Federal support - FEMA - in you calculations. Insurance companies are making record profits - greed!

The problem is that the insurance company doesn't really care as much about a roof replacment. They are more concerned about the damage to the rest of the house and contents when an old roof blows away. That is why they require some homeowners to buy a new roof before they will insure them.

The insurance companies do have lobbyists. I handle the finances for several COA's and HOA's in Florida. All of the Associations are paying in excess of 1,000,000.00 on insurance, with the highest breaking 2,000,000.00.
If you breakdown the cost of paying claims vs legal expenses, you may be shocked. While there are many people and groups abusing the system, the insurance companies are not innocent. I was at on meeting between the BOD and the insurance company. As you would expect everything was the blame of roofing companies, laws etc.. I pointed out the capital this specific provider spent in the prior year for legal expenses. I then asked him to confirm that over 70% of those cases (denial cases) were lost by the insurance company.There is plenty of blame to go around. Another COA I represent pays over 900k for Wind insurance. They have 21 buildings. Instead of one policy for 21 buildings we are required to have 21 policies, each with a 200k deductible. On top of that, we are spending large amounts to assure our roofs. Should there be a storm, the carrier does pay based on the remaining life of the roofs. Their issue is that they put a new membrane down on all 21 buildings, for which there are 12 years remaining on the material and labor warranty. The insurance providers show the value of each roof to be 0, as they do not recognize anything other than a new roof to reset the life expectancy. So many people, especially the elderly who have been living in these units for decades, are not able to afford the 1,500. monthly fees being driven mostly by insurance.

We/they do pay more. Much more.

The Insurance chain
 

I'm sure there is someone here who is an insurance expert. Please, if possible, help me to understand. To obtain insurance we do not go to the provider, we go to an agent who then sends out requests (effectively blocking, which I will explain in a moment) to multiple providers and obtain quotes. Once a provider gives a quote on a property to an agent, they will not provide a quote for that property to a different agent. This suppresses competition from agents. It is important to see the request for a quote sent to the provider by the agent as many times I have found errors which resulted in higher premiums. So now we have quotes from one agent that he obtained from providers. The providers will then reinsure the policy with another provider like Minich, Swiss or Everest reinsurance. SO, we, the end user go to an agent who goes to a provider who goes to a reinsurance company. Is it necessary to have an agent. I know they make good money, as the one I deal with has several Tesla's, multiple homes, and wears Brioni. I can understand that we are not large enough to go to the final step, a reinsurer, but why can we not go directly to the provider, eliminating the agent. It can not be that he/she negotiates for lower rates better than we can. It is the agent's best interest when rates go up. X% of 1m is better than x% of 100k.

Farmers serves 100,000 customers in Florida but said there will be no impact to customers who use Farmers' owned subsidiaries like Foremost Signature and Bristol West.
The major insurance companies own smaller subsidiary companies that can file for bankruptcy if their exposure to natural disasters is too high .
They’re collecting your premiums with no intent to pay out claims if they can’t make a profit .

IF they can renew. Many people and organizations/associations are now with Citizen's Insurance, the insurer of last resort (namely the state insurance). During the past 5-10 years million dollar homes and hundreds of millions of dollar associations are now writing with Citizens. I urged my clients to go with Citizens 5+ years ago not because they are a great company (they are not) but because they have a reasonable cap on annual rate increases.

Part of the problem is sites like this (and others) where people (or perhaps roofing trolls) have posted instances of insurance cancelations due to the age of their roof. If that is the case, I feel insurance companies should inspect and recertify roofs based on their structural integrity, not so much their age. I am pretty sure there have been some perfectly good 15, 20, or 25-year-old roofs that have been claimed and replaced because the homeowner felt the threat of being canceled, and of course, roofing company scammers prey on these folks.

Just a thought -- Would it be helpful long term to have more stringent coastal restrictions that prevent or restrict rebuilding or new building in the high risk areas and/or require that more "hurricane and flood resistant" structures be adopted and existing structures modified?

Can existing ground-level home or business owners be required to modify their structures to a more hurricane-resistant design? For example, could all homeowners or business owners of ground level structures of one or two stories in high risk areas be required to modify their structures within 10 years so that they are elevated (on stilts) above a certain minimum height and resistant to specified high-level wind forces?

Are there infrastructure changes that would help reduce the damage from hurricane/tidal surge - such as the addition of break-waters, barrier islands, dunes, marshland, etc?

Those costs may not be paid for by our home insurance but we still pay for them either in taxes or rate increases.