How to survive the collapse of Florida's home insurance industry

“It's beyond crisis mode,” says Mark Friedlander of the Insurance Information Institute, but Florida homeowners still have options.

Tanza Loudenback

By

Tanza Loudenback, CFP®

Tanza Loudenback, CFP®

Contributing Reporter & Certified Financial Planner™

Tanza Loudenback, CFP® is a contributing reporter and Certified Financial Planner™ at Policygenius, where she covers personal finance and insurance news. Previously, she was a senior reporter and correspondent at Business Insider.

Published|4 min read

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Natalie Nelson

Florida homeowners can’t catch a break. In the first half of 2022, three Florida insurance companies became insolvent, and in a desperate bid to stay in business, a fourth company dropped almost 50% of its customers last month [1] , just a few weeks shy of hurricane season.

At the same time, home insurance premiums have become 50% more expensive in Florida over the last two years.

“The Florida market is on a trajectory of coverage collapse,” says Mark Friedlander, a spokesman for the Insurance Information Institute and a Florida resident. With so many private insurers failing, he says a state-run insurance group called Citizens has become the largest home insurer in Florida.

“They are the backstop for these situations,” Friedlander says. But with more than 850,000 customers and counting, Citizens is growing at an unsustainable rate. And if hurricane season turns out to be as destructive as predicted, [2] Citizens could run out of money to pay for claims, Friedlander says, which would require the Florida Hurricane Catastrophe Fund to step in. To replenish that fund’s reserves, Floridians would have to pay several years of surcharges on their insurance bills.

Lawmakers in Florida met in a special session at the end of May to triage the crisis, but Friedlander says they didn’t do enough to bring short-term support to struggling insurers and price stability to homeowners.

“It's beyond crisis mode,” he says. “Now it's all hands on deck.”

How did Florida’s insurance market get so bad? 

Ironically, natural disasters aren’t the primary cause of Florida’s insurance market meltdown. Friedlander says the problem is manmade.

“It's the door-to-door roof repair solicitations,” he says, “combined with what we call runaway litigation — the litigation filed against insurers for these very questionable roof claims” that has brought private insurers to their knees. 

Under major financial pressure, Florida property insurance companies pass their costs on to customers by raising premiums. And when the increased cash flow isn’t enough to keep an insurance company above water, insolvency happens. Since 2017, according to an investigation by an NBC affiliate in Orlando, [3] nine Florida-based insurance companies have been liquidated.

As a result, homeowners in Florida have seen their premiums rise by 25% in each of the past two years. They now pay one of the highest average home insurance premiums in the US, at $2,643 a year, according to our analysis of 2022 home insurance rate data across the country.

What can Florida property owners do? 

It’s usually a good idea to shop around for insurance coverage to make sure you’re getting the best deal. But Florida’s volatile insurance market is making it hard for some people to find cheaper alternatives, Friedlander says. 

“Most likely, if you try to shop your coverage with other insurers, you're gonna get quotes that are excessively higher than what you're paying now,” he says, adding that some people are getting quotes for new policies that are 50% to 100% more expensive. Still, it’s worth comparing quotes with Florida's best home insurance companies to see if you can find a more affordable alternative.

You could also consider getting surplus lines insurance, Friedlander says, which are policies offered by non-Florida based insurance companies. The downside is that those insurers aren’t covered by Florida’s backup fund if they fail, so you could be left with unpaid claims or no coverage.

If you can’t find a more affordable policy somewhere else, the best thing to do, Friedlander says, is stay put. If your current insurer drops you, chances are you’ll be placed with Citizens, the state-run insurance program. Citizens agreed in December to an 11% rate increase [4] for all policyholders to curb excessive growth, but it will still be one of the least expensive options for home and business property coverage.

And even though weather isn’t the main driver of the insurance crisis, it can make things worse. Hurricane season runs from June 1 to November 30.

Friedlander also recommends calling your insurance company to review your policy’s replacement cost coverage. If your home sustains damage from a storm, the insurer will only pay up to the policy limit. The cost of materials and labor has far outpaced inflation lately, Friedlander says, so most people should be bumping up their limits.

Separately, review your flood insurance coverage, or consider buying a flood policy even if you don’t technically live in a high-risk flood area. Florida is very vulnerable to flooding, Friedlander says. If you aren’t prepared, “you’ve got a big problem financially.”

Corrections

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  • June 9, 2022: Due to an editing error, a previous version of this story called Florida's average annual home insurance rate "the highest in the country" in 2022. While the Insurance Information Institute's 2021 data put Florida as the highest average annual premium at $3,600, Policygenius data from 2022 puts it as "one of" the highest, ranking 11th out of all 50 states plus the District of Columbia.

Author

Contributing Reporter & Certified Financial Planner™

Tanza Loudenback, CFP®

Contributing Reporter & Certified Financial Planner™

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Tanza Loudenback, CFP® is a contributing reporter and Certified Financial Planner™ at Policygenius, where she covers personal finance and insurance news. Previously, she was a senior reporter and correspondent at Business Insider.

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