Florida’s insurance market is in dire need of reform. In a recent state legislative committee meeting, Florida Insurance Commissioner David Altmaier describes Florida’s insurance market as being unstable and unsustainable. Here’s why:
Steve Pociask
While Citizens Property Insurance was intended to be only a “last resort” insurer for homeowners who could not get coverage from private insurers, the struggling private insurance market has left Floridians with few options for coastal and inland communities to find private insurance coverage. In addition, solicitations from some unscrupulous contractors promising homeowners new roofs when there has been no storm damage to their homes, has led to a proliferation of lawsuits and high litigation costs. This has left homeowners to pay higher rates and receive less coverage, while insurance companies continue to suffer extreme losses.
These industry-wide losses have incentivized private insurers to cap insurance policies in some areas of the state, leaving Floridians with fewer private insurance options.
In 2018, Citizens had 427,000 policies and now carries 532,000 policies. They are expected to gain an additional 100,000 policies by the end of 2021. With so many private insurance companies turning away from our state, Florida could face immense financial burden should a major hurricane hit, as Citizens carries more policies than it can afford to support.
In an effort to reintroduce private insurers to a friendlier insurance market and make the insurer of last resort more actuarially sound should a storm hit our state next hurricane season, Citizens has proposed raising rates by an average of 7.2 percent, depending on the type of home and where it is located.
A Citizens rate increase would help the landscape for private insurers in Florida and give Floridians additional competitive private insurance options. With more Floridians looking to purchase from private companies, insurers would expand coverage in areas they previously considered leaving. Establishing Florida as a healthy private insurance market would encourage competitive rates between private insurers and better policy protections for homeowners.
Raising Citizens’ rate, while restricting the number of new Citizens policy holders, would allot Citizens the necessary funds to cover damages should a natural disaster occur. Citizens needs to cover its losses, should additional funds be needed.
At the very least, raising Citizens rates would reinforce Citizens as the last resort insurance provider, and that would make the Florida market a better place for insurers to do business, which would encourage private insurers to put more of their capital at risk instead of putting taxpayer dollars on the line.
In addition, there needs to be an end to the growing lawsuit abuse, questionable insurance claims, and promises of “free roofs” that have resulted in generous awards for attorneys, high litigation costs, and higher premiums for consumers. Ideally, a healthy private insurance market would result in less homeowners relying on Citizens, more coverage both per policy and geographically, while lowering costs for homeowners.
Though there is no easy fix to resolving the issues in our insurance market, Florida leaders need to act quickly. Florida was lucky to have survived the 2020 hurricane season without major catastrophe, but with climate change on the rise, storms are becoming more prevalent and stronger. The state may not be so fortunate next time.
Though legislators and homeowners would like to see rates decreased, Florida must look ahead and make sure it is protected from financial distress. If Citizens continues to grow as projected, Florida may be stuck with financial damages it cannot afford to fix.
Steve Pociask is President and CEO of the American Consumer Institute, a nonprofit educational and research institute that promotes consumer welfare by improving the understanding and impact that public policies and regulations have on consumers in a free market.