The Florida Home Insurance Crisis

The Sunshine State is grappling with a dark cloud over its home insurance sector in 2023. A critical situation has been brewing in Florida’s property insurance market for years, manifesting through a series of troubling developments. A number of insurance companies have made the decision to retreat from Florida, discontinuing business operations, or choosing not to renew policies, particularly in areas deemed high-risk. This exodus has set off a domino effect, propelling a steep hike in policy rates and casting a shadow of uncertainty over the future of Florida home insurance market.

Many experts on the subject capture the severity of the situation, pointing out that this is far from an isolated issue—it's one that is currently impacting tens of thousands of homeowners across the state.

Despite the challenging circumstances, several insurers like State Farm, Travelers, First Florida, and Nationwide are maintaining their presence in the market. Yet, the trend of insurers backing away is unmistakable and troubling, with Farmers and AAA being some of the largest that announce their departure by either pulling out of the state or not renewing certain policies due to heightened risk concerns.

This crisis has prompted in-depth investigations by financial experts and industry observers alike. Our Citizens Insurance experts have delved into the systemic issues plaguing the Florida insurance industry, providing crucial insights and guidance for homeowners who might find themselves on the receiving end of a cancellation or nonrenewal notice. In this article, we will explore the intricacies of Florida property insurance crisis, dissect the new legislative efforts, and provide actionable advice for homeowners navigating this turbulent landscape.

Characterizing the Florida Home Insurance Market

As Florida homeowners face skyrocketing insurance premiums in 2023, the underlying factors contributing to the state’s fateful home insurance landscape are multifaceted. 

Vulnerability to Natural Disasters: A Geographic Challenge

Florida’s picturesque 1,350 miles of coastline may be perfect for postcards and vacations, but it also places approximately 77% of its population in the crosshairs of hurricanes and flooding. The state’s flat topography and limestone bedrock only exacerbate this risk, creating a unique challenge for homeowners and insurers alike.

The Ripple Effects of Inflation and Supply Chain Woes

The national economic climate has not spared the home insurance sector. Inflation has surged the cost of labor and building materials, necessitating repairs or rebuilding of homes damaged by frequent natural disasters. As these costs climb, insurance companies have no choice but to pass these expenses onto policyholders through increased rates.

A Shrinking Pool of Insurance Providers

A significant shift occurred around 2005 when major insurance providers began retracting their stakes in Florida, leading to a marked reduction in carrier options for homeowners. This retreat opened the market to smaller, regional insurers, but it also created a supply-and-demand imbalance. With fewer companies to choose from, insurance costs have inevitably climbed, compounding the financial burden on homeowners.

The Vicious Insurance Circle

In an unfortunate dilemma, those in moderate to high-risk areas, or homeowners with a history of prior claims, find themselves in a precarious position, often deemed too risky to insure. Those who have maintained long-standing relationships with insurance firms are now receiving nonrenewal notices, as companies revise underwriting criteria or exit the Florida market entirely to limit their financial exposure.

For many Floridians, the dream of owning a home in the Sunshine State is now shadowed by the practical realities of ensuring and protecting that investment.

In essence, Florida’s home insurance market is a complex web of geographic destiny, economic trends, and industry dynamics. As the situation continues to evolve, stakeholders are urgently seeking solutions to safeguard the homes and lives of those who reside in this hurricane-prone paradise.

Timeline of Events Leading Up to the Florida Home Insurance Crisis

The crisis in Florida’s home insurance market has been unfolding over several years, marked by a series of significant developments:

• 2017 to 2023: This period saw the liquidation of eleven property and casualty companies in Florida. Notably, five of these companies liquidated in 2022, and United Property & Casualty Insurance Company followed in 2023.
• 2022: The situation escalated with multiple major events:
  • In June, Southern Fidelity was ordered into liquidation, impacting around 80,000 homeowners.
  • In early August, Weston Property & Casualty Insurance was placed into receivership, leading to the cancellation of all policies by September 7.
  • In late August, United Insurance Holdings Corp. (UPC) announced plans to exit the Florida market, affecting over 200,000 policies.
  • On September 23, FedNat entered insolvency just before Hurricane Ian, after already reducing its business in the state.
• 2023: In July, Farmers Insurance withdrew its Farmers-branded policies from Florida, affecting 100,000 homeowners, though its subsidiaries continued operations in the state.

Main Reasons for Insurance Companies Leaving Florida

The exodus of home insurance companies from Florida is driven by several intertwined factors:

• Litigation Costs: The Insurance Information Institute (III) highlighted the massive impact of litigation costs. A 2017 State Supreme Court decision allowed for substantial awards to plaintiff’s attorneys, leading to a surge in property policy suits. Florida accounts for 79% of the country’s insurance lawsuits, significantly inflating the insurers’ costs.
• Reinsurer Retreat: The increasing number of reinsurers pulling back from Florida due to litigation risks has been a crucial factor. Companies like UPC have cited this uncertainty as a primary reason for their exit.
• Fraudulent Insurance Claims: The prevalence of insurance fraud, especially fraudulent roofing claims, has put immense pressure on insurers. Scams involving roof damage and litigation have become increasingly common, leading to substantial financial losses for insurance companies.
• Legislative Environment: Florida’s former “one-way attorney fee” system compounded the issue, as insurers had to pay the legal fees of plaintiffs in successful lawsuits. Recent reforms in 2022 aimed to address these issues by banning assignment of benefits forms and changing the attorney fee system.
• Natural Disaster Risks: Florida’s vulnerability to hurricanes and storms adds inherent risk to insuring properties in the state. However, this factor alone is not the sole driver of the crisis, as other states with high risk, like Oklahoma, do not face similar insurance market challenges.
• Financial Losses: Due to the combined impact of these factors, Florida property insurers have experienced significant financial losses, with cumulative underwriting losses reaching billions.
• Policy Restrictions: Some companies are tightening policy restrictions or non-renewing policies to mitigate risk. For instance, limitations based on roof age have been introduced, although recent legislation now prevents denial of coverage solely based on this factor.

The crisis in Florida’s home insurance market is a complex issue caused by a combination of legal, environmental, and market factors. These challenges have led to a significant reduction in available insurers and increased premiums for homeowners, profoundly impacting the state’s insurance landscape.

Insurance Companies Exiting the Florida Market

The home insurance market in Florida has been experiencing a significant exodus of insurance providers. This retreat is marked by a growing list of companies either completely exiting the market or significantly scaling down their operations in the state. Key players that have made notable exits include:

• Bankers Insurance: Known for a broad range of coverage options, Bankers Insurance has opted out of the Florida market.
• Lighthouse Property Insurance: This company, which offered specialized property insurance, is also among those that have left.
• FedNat Insurance: A significant player in the market, FedNat’s departure adds to the growing list of insurers pulling out.
• Avatar Property and Casualty: Avatar’s exit further narrows the options for Florida homeowners seeking insurance.
• Lexington Insurance: As a subsidiary of AIG focusing on high-value homes, its departure leaves a gap in the market for premium property insurance.
• St. Johns Insurance: Another casualty in the market, St. Johns Insurance’s exit further compounds the issue.
• Southern Fidelity, Weston, UPC, and Farmers: These companies had previously announced their exit or scaling down in Florida, significantly impacting the market.
• Progressive: One of the nation’s largest insurers, Progressive, has also made a significant move by non-renewing about 60,000 policies in Florida, starting in the second quarter of 2022.
• AAA: Although not leaving the state entirely, AAA has announced non-renewals of some policies in Florida.

Florida State Government’s Efforts to Mitigate the Home Insurance Crisis

The Florida state government has taken several significant steps to address the escalating home insurance crisis in the state. These measures aim to stabilize the insurance market, reduce fraudulent claims, and protect homeowners. Key actions include:

• Senate Bill 76 (July 2021): This bill includes provisions to reduce fraudulent claims, particularly targeting the solicitation tactics used in insurance scams.
• Special Legislative Session (May 2022): Governor Ron DeSantis convened a special session, resulting in a $2 billion injection into a Reinsurance Assistance Program (RAP), actions to limit skyrocketing attorney fees, and the establishment of a new program to improve home safety against hurricane damage.
• Legislative Changes (December 2022): The state legislature approved changes to home insurance laws, including mandating many homeowners to purchase flood insurance and encouraging the transfer of policies from state-run Citizens to private insurers.
• Hurricane Ian Aftermath Laws: In response to Hurricane Ian, new laws were passed focusing on flood insurance requirements and reinsurance fortification to prevent insolvency.
• Insurance Reform Bill (May 2022 Special Session): This legislation includes setting up the My Safe Florida Home Program, prohibits the denial of coverage based solely on roof age if certain conditions are met, and restricts attorney rates for property insurance claims.
• Senate Bill 2-A (December 2022): This significant reform package focuses on eliminating one-way attorney fees and the assignment of benefits scam, aiming to alleviate financial pressures on insurers and reduce fraudulent lawsuits.
• Expansion of My Safe Florida Home Program: This program now offers matching grants of up to $10,000 for homeowners to undertake hurricane readiness upgrades, which can also lead to insurance rate discounts.
• 2023 Legislative Session: Several new laws were introduced, including Senate Bill 1102, which updated motor vehicle glass damage claims, and House Bill 799, which modified rating factors and flood coverage requirements for different property types. House Bill 881 extended the My Safe Florida Home Program, increasing the eligible home insured value and grant amounts.

These efforts by the Florida state government represent a comprehensive approach to tackling the complex challenges facing the home insurance market. While the full impact of these measures is yet to be seen, they signify a proactive stance in addressing the crisis and providing relief to both homeowners and insurance providers.

Home Insurance Companies Still Operating in Florida

Despite the challenges, several insurers continue to offer home insurance coverage in Florida. These remaining providers are crucial for homeowners in the state. Some of the notable companies include:

• State Farm: As one of the largest and most recognized names in insurance, State Farm remains a steadfast provider in Florida, offering a range of home insurance options.
• Travelers: Known for its comprehensive coverage options, Travelers continues to be a significant player in the Florida home insurance market.
• First Florida:  A regional insurance company, First Florida caters specifically to the needs of Florida residents, showcasing its commitment to the local market.
• Nationwide: With a wide array of insurance products, Nationwide continues its operations in Florida, providing another option for homeowners seeking insurance.

Another Crucial Player: Citizens Property Insurance Corporation

The Evolution into a Last Resort Insurer

Citizens Property Insurance Corporation, initially established as a property insurer of last resort, has significantly evolved in its role within the Florida insurance market. As the second-largest insurer of property in the state, Citizens now serves about 1.4 million policyholders. This transformation highlights the dynamic nature of the insurance landscape in Florida, where Citizens has stepped in to fill the widening gap left by other insurers.

Unprecedented Growth of Citizens Property Insurance 

Since 2018, Citizens has witnessed a remarkable growth trajectory. The number of policies under its management ballooned from 414,000 in 2018 to over 1,000,000 by August 2022. This rapid expansion is largely attributed to the exodus of other insurers from the Florida market, placing Citizens in a critical position to meet the growing demand for property insurance in the state.

The retreat of many carriers from the Florida market has thrust Citizens into a vital role, with the corporation writing between 5,000 to 6,000 new policies weekly.

This surge has established Citizens as a primary insurance option in many regions of Florida, reflecting the increasing reliance on this insurer of last resort by homeowners.

Potential Risks to Face

Despite its growth, Citizens faces similar challenges as other insurers: the company insures many high-risk homes, leading to concerns about the impact of a major hurricane on the company and the industry. As a result, the company has had to increase rates.

Citizens also faces risks associated with its reinsurance offerings. Particularly concerning is the potential impact of rating downgrades by agencies like Demotech, which could have far-reaching implications for the company’s stability and reputation in the market.

Transitioning to Private Insurers

In response to the overwhelming demand for its policies, Citizens initiated a transition process for over 304,000 policyholders, offering them the option to switch to private insurers. This move, however, comes with higher rates, reflecting a 61% premium increase. The October 10th, 2023 deadline for this transition marks a significant shift in Citizens’ strategy, aimed at balancing its portfolio and encouraging a more diverse insurance market in Florida.

Why can Home Insurance Companies in Florida Deny Coverage?

Home insurance companies in Florida can deny coverage for various reasons, which are often related to the risks associated with insuring properties in the state. Some of the primary reasons include:

1. Location: Insurance companies may deny coverage if they deem a property to be at high risk for weather events, especially if it’s located in areas that are particularly vulnerable, like coastal regions or flood zones.
2. Condition of the Property: Insurers often assess the condition of a property before providing coverage. If a home is in poor condition or has not been properly maintained, it may be viewed as a higher risk. For example, homes with outdated electrical or plumbing systems might lead to a denial of coverage.
3. Roof Age and Condition: In Florida, the age and condition of the roof are critical factors due to the potential for hurricane damage. Insurance companies may deny coverage if the roof is old or in disrepair. New legislative measures have, however, put some restrictions on denying coverage solely based on roof age, provided the roof has a certain remaining lifespan.
4. History of Claims: Homeowners with a history of frequent insurance claims may be viewed as high-risk clients. Insurers might deny coverage to avoid the potential for future claims, especially if previous claims were related to issues that could recur, such as water damage or mold.
5. Non-compliance with Building Codes: Florida has strict building codes, especially related to hurricane preparedness. Homes that do not comply with these codes, or have not been updated to meet current standards, may be denied coverage due to the increased risk of damage.
6. Fraudulent Activity: If a homeowner has a history of fraudulent insurance claims or activities, insurers will likely deny coverage. This is part of a broader effort to combat fraud in the Florida insurance market, which has been a significant issue in recent years.
7. Insurance Company’s Capacity: Sometimes, a company may deny coverage simply because it has reached its capacity to insure additional homes in a certain area. This is often a risk management strategy to avoid overexposure in high-risk zones.

Insurance companies assess various factors to determine the risk associated with insuring a property. In Florida, where risks are often higher due to environmental and regulatory factors, these assessments can lead to denials of coverage more frequently than in other states.

Top Tips to Face the Crisis in the Home Insurance Market in Florida

How to Lessen Your Risk of Nonrenewal?

To reduce the likelihood of your home insurance policy being nonrenewed, consider the following steps:

1. Maintain Your Property: Regularly inspect and maintain your home, especially the roof, plumbing, electrical systems, and other structural components. Address any repairs promptly.
2. Mitigate Risks: Install safety devices such as smoke detectors, burglar alarms, and water leak detection systems. Consider wind mitigation features if you live in a hurricane-prone area.
3. Review and Update Your Policy: Ensure your policy reflects the current state of your home. Update it if you make significant improvements or changes.
4. Avoid Small Claims: Filing frequent small claims can flag you as a high-risk customer. It’s often better to handle minor issues out of pocket.
5. Pay Premiums on Time: Consistently pay your insurance premiums on time. Set up automatic payments if possible to avoid accidental lapses.
6. Stay Informed About Local Risks: Understand the specific risks in your area (like flood or earthquake zones) and take appropriate measures to mitigate them.
7. Build a Good Relationship with Your Insurer: Regular communication with your insurance provider can be beneficial. Ask for advice on how to reduce risks and ensure you are meeting their requirements.

What to Do if Your Home Insurance is Canceled or Nonrenewed?

If your home insurance policy is canceled or nonrenewed, take these steps:

1. Understand the Reason: Ask your insurer for the specific reason for the cancellation or nonrenewal. This information can guide you on what actions to take next.
2. Rectify Any Fixable Issues: If the cancellation is due to a fixable issue with your home, address it as soon as possible.
3. Shop Around for New Coverage: Start looking for a new policy immediately. Use online comparison tools, or consult with an insurance agent to find suitable options.

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4. Consider State-Run Insurers of Last Resort: If you’re having trouble finding coverage, check if your state offers an insurer of last resort, like Citizens Property Insurance in Florida.
5. Review and Compare Policies Carefully: When choosing a new policy, compare insurance quotes, coverage options, premiums, and deductibles. Make sure the new policy meets your needs.
6. Act Quickly: It’s crucial to avoid a lapse in coverage, as this can make getting a new policy more difficult and expensive.
7. Address Any Risk-Related Concerns: If the nonrenewal is due to high risk, take steps to mitigate those risks before seeking a new policy.
8. Consult with Insurance Professionals: An insurance agent or broker can provide advice and assistance in finding a new policy, especially if you have unique or challenging insurance needs.
9. Consider a FAIR Plan: If you’re in a high-risk area and unable to find coverage, a FAIR (Fair Access to Insurance Requirements) Plan might be an option. These are state-mandated insurance pools designed to offer basic coverage for high-risk properties.

What To Do If Your Home Insurance Company Went Out of Business?

The possibility is unsettling, but many in Florida have experienced it firsthand: insurance companies can indeed become insolvent, meaning they go bankrupt or cease operations. In such instances within Florida, the responsibility to handle outstanding claims from these defunct insurers falls to the Florida Insurance Guaranty Association (FIGA). Following this, if your insurance provider fails, you’ll need to embark on the journey of securing a new insurance carrier. But, what’s the best way to do it?

1. Contact Your State’s Insurance Guaranty Association: They will typically step in to cover outstanding claims and policyholder obligations of insolvent insurers.
2. Look for New Coverage Immediately: Start searching for a new insurance provider as soon as possible to avoid any gaps in coverage.
3. Review Your Current Policy: Understand your current coverage to ensure your new policy meets or exceeds these standards.
4. Consult with an Insurance Agent: An agent can help you navigate the process of finding a new insurer and provide advice on suitable coverage options.
5. Keep Records of All Correspondence: Document all interactions with your former insurance company and the state guaranty association for reference.
6. Monitor Announcements: Stay updated on any information released by your state insurance department or the guaranty association regarding the situation.

Final Words on Florida Home Insurance Crisis

Florida’s home insurance market is undergoing a significant crisis, marked by the withdrawal of numerous insurance companies and skyrocketing policy rates. This situation, affecting thousands of homeowners across the state, is driven by a combination of factors. High litigation rates, with Florida accounting for 79% of the nation’s insurance lawsuits, and fraudulent claims are major contributors. These issues, compounded by the state’s vulnerability to natural disasters and the economic impacts of inflation and supply chain disruptions, have led to substantial financial losses for insurers. 

As a consequence of the described scenario, over 30 home insurance providers have either exited the market or reduced their coverage in the last three years, leaving homeowners with limited options and often facing abrupt policy cancellations. While the Florida home insurance market faces significant challenges, the presence of established insurers like State Farm, Travelers, First Florida, Nationwide, and the expanding role of Citizens Property Insurance Corporation offers some stability and choice for homeowners. 

The crisis in Florida’s home insurance landscape remains a complex issue, highlighting the intricate interplay between legal, environmental, and market factors, significantly impacting homeowners and the broader insurance industry. The road to recovery is expected to be complex and gradual, with the market remaining sensitive to factors like hurricane seasons and other unforeseen events.

FAQs About the Florida Home Insurance Crisis

1. How many insurers have left Florida in the last few years?

In the past few years, Florida’s home insurance market has experienced a significant exodus of providers. By July 2023, four major insurers, including Farmers Insurance, Progressive, and AAA, had left the state. Additionally, in 2022, at least six insurance companies went insolvent in Florida. Some notable examples include Southern Fidelity, Weston Property & Casualty Insurance, United Insurance Holdings Corp. (UPC), and FedNat. Furthermore, in total, fourteen smaller insurance companies are now in liquidation.

2. Is it difficult to get homeowners insurance in Florida?

Yes, it can be challenging, especially in coastal areas. The level of difficulty largely depends on your location within the state. Areas at greater risk of hurricane damage, such as coastal regions, often find it harder to secure coverage.

3. Why is homeowners insurance so expensive in Florida?

Florida’s susceptibility to tropical storms and hurricanes, due to its long coastline and subtropical climate, inherently makes it a high-risk state for insurers. Additionally, an increase in fraudulent claims and litigation related to the assignment of benefits has put considerable financial strain on insurance companies. These factors have led insurers to significantly raise rates to maintain financial stability.

4. Is home insurance mandatory in Florida if my policy is not renewed?

In Florida, home insurance itself is not legally mandatory by state law. However, if you have a mortgage on your property, your lender will typically require you to maintain a home insurance policy as a condition of the loan. Therefore, if your policy is not renewed, you must find new coverage to comply with your mortgage terms. 

Additionally, if you’re insured with Citizens Property Insurance, state law mandates carrying flood insurance. For homeowners who own their property outright, insurance isn’t legally required but is highly recommended due to the state’s high risk for property damage.

5. Will my Florida home insurance policy get canceled?

The likelihood of cancellation varies based on several factors, including your insurer, the condition and specifics of your home, and your claims history. Actions like nonrenewal due to a home’s age, construction materials, or an insurer’s decision to exit a region or state are generally beyond your control. However, maintaining your home, minimizing small claims, and installing wind-mitigation features can reduce the risk of policy cancellation.

6. Will my home insurance rates go up?

Yes, it’s likely. Home insurance rates are rising nationally and particularly sharply in Florida. Between 2022 and 2023, Florida’s average home insurance premium increased by 20 percent. While some of this increase can be attributed to inflation and higher building material costs, individual circumstances, such as the addition of wind mitigation features, could influence your specific rates.

While part of this increase can be attributed to inflation and higher building material costs, state-specific circumstances, including the exit of several home insurance companies from the market in recent years, could negatively influence your specific rates.