Insuring a home in Florida got a little bit more difficult this week after AAA joined a growing list of companies that are ending some homeowner insurance policies in Florida.
The Florida-based insurer will not renew package policies that combine home, automobile and optional umbrella coverage, according to the Palm Beach Post, part of the USA TODAY Network. With hurricane season around the corner and drastically fewer insurance offerings, this could leave some vulnerable.
While AAA’s move will only affect a “small number” of policyholders, the news was almost swept away in the deluge of news following Farmers Insurance’s surprise announcement that it is pulling out of the state.
The back-to-back announcements underscore the insurance crisis Florida residents have been facing for the past 18 months.
And it’s a crisis that’s largely manmade, according to Mark Friedlander, spokesperson for the Insurance Information Institute, as several local insurance providers folded and three national insurers have withdrawn from the state. Despite recent legislation intended to alleviate the problems fueling the crisis, he said the market volatility persists.
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“Case in point, insurers are making decisions to pull back on risk and AAA is certainly a recent example of that,” said Friedlander.
Here is how Florida got to this point and what it could mean for residents.
How did Florida’s insurance crisis start?
- 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.
- Florida’s hurricane risk has also played a role, as extreme weather has in many other states. Hurricane Ian in September 2022 posted the greatest insured loss after Hurricane Katrina according to CNBC.
Which companies have decreased Florida insurance coverage?
- Three major companies have voluntarily withdrawn from the state since last year: Farmers Insurance, Bankers Insurance and Lexington Insurance, a subsidiary of AIG.
- AAA is not renewing a “very small percentage of higher exposure homeowner’s policies,” it told the Palm Beach Post. It has also released a statement saying that it is continuing to write new policies in the state.
- Friedlander said there are also 15 businesses that have stopped writing new policies but declined to name them.
- Seven local insurance companies have become insolvent since February 2022.
How does it affect premiums?
Florida homeowners already pay more than the national average, and the premiums are only on the rise.
According to an analysis by the Insurance Information Institute, homeowners in Florida pay $6,000 a year on average for homeowners insurance, up 42% from last year. The average in the US is $1,700.
A depleted supply is partly responsible for driving up those costs, but not as much as litigation according to Friedlander.
How are homeowners responding to the insurance crisis?
The crisis is pushing more homeowners to “go bare” or decline purchasing homeowner’s insurance. In Florida, nearly 15% of homeowners do not have insurance, double the national rate. Friedlander attributed this to the crisis. This is only an option for those without a mortgage.
Florida homeowners are also opting to enroll in the state-backed, backstop insurer Citizens Property Insurance Corporation. Friedlander said that Citizens’ market share has doubled in the last 18 months as it averages 30,000 new subscribers each month.
While state-operated insurers are common, he said that typically the rates are higher than private insurance to keep them as a last-resort option. In Florida, Citizens’ premiums are lower than private insurers, which have skyrocketed past the limit that Citizens is legally allowed to charge. As a result, Citizens is taking on more risk than it can fund in the face of a major disaster.
Should Citizens experience a payout shortfall, all taxpayers in the state would be on the hook to bail it out with a multi-year hurricane surcharge on their tax bill.
“So it’s a bad situation,” said Friedlander. “We never want to be in that situation.”
Contributing: Hannah Morse, Palm Beach Post; Brandon Girod, Pensacola News Journal
