As California deals with major insurance carriers leaving the state, another state is facing an insurance crisis. The state of Florida is facing a severe insurance gap as major carriers and other smaller carriers are either pulling out or going insolvent over the increase in rates and numerous natural disasters that have befallen the state in recent years.
Florida’s insurance crisis can be traced to two big issues facing the state, natural disasters and corruption. Florida is one of the most disaster-prone states in the nation, with flooding, tornadoes and wildfires happening regularly throughout the year. However, its hurricanes that have caused the most damage to the state, especially with global warming making them more destructive. Last year Hurricane Ian tore through the state, causing $50-60 Billion dollars in insured losses and billions more in uninsured losses. (1)
If this was the only issue, Florida might not see a bigger exodus. But a State Supreme Court ruling in 2017 has created another issue. In GEICO vs Mecade, they ruled that all judgements would include attorney’s fees awarded to the plaintiff if they won. This created an avalanche of frivolous lawsuits that only increased the burden on insurance carriers, forcing them to jack up the rates at a time when inflation is harming many families bottom lines. (2)
According to USA Today the insurance crisis is not entirely caused by disasters but by manmade obstacles. “The crisis is manmade because it is largely fueled by frivolous lawsuits and fraudulent insurance claims, Friedlander said. A 2017 Florida Supreme Court ruling in favor of plaintiffs opened the door for a large volume of roofing scams and claim litigation. During the last three years, 80% of property claim lawsuits in the country have been in Florida, compared to just 9% of the claims. The litigation costs proved to be too much for local, residential-only insurers and prompted seven of them to become insolvent. For national insurers, the costs have translated to higher premiums or fewer policy offerings.” (3)
The losses have prompted insurance giants like Farmers and AAA to being to deny coverage to homeowners in the state over the increased payouts. AAA pulled out this week, denying new auto and home coverage to over 100,000 customers in the state. When pressed, the insurance giant said to CBS. “Unfortunately, Florida's insurance market has become challenging in recent years," the company said in a statement emailed to CBS MoneyWatch. "Last year's catastrophic hurricane season contributed to an unprecedented rise in reinsurance rates, making it more costly for insurance companies to operate.”(4)
With the disasters and the payouts increasing, most companies are starting to increase the premiums on many of their property accounts. As a result of this, companies like Farmers, AAA and State farm see the writing on the wall have begun the process to exit or limit the amount of business in the state. Other smaller insurance carriers however are not so lucky. The amount of coverage they need to provide and the damages they have to payout have led to some to non-renew their coverages and jack their rates up, putting beyond most people’s financial means. Some companies however have decided to liquidate their practices as they cannot maintain their coverage levels or they lost their status as a top graded insurer, a requirement in the state of Florida.
Even though some of the big names are leaving the state, others are sticking around, such as Allstate. There are also still smaller insurance companies that operate in the state that could handle the claims and necessary litigation. But like California, Florida is facing an insurance crisis that it may have a difficult time recovering from.
