Florida homeowners, already facing an anxious few months because of the COVID-19 pandemic, face a new threat — the prospect of major cost increases for property insurance.
As the Sun Sentinel reported Sunday, the increases could range from 30% to 40%. They would come just as Gov. Ron DeSantis has ended the moratorium on mortgage foreclosures. It also seems likely that Senate Republicans won’t pass a second COVID-19 stimulus bill that could help laid-off homeowners pay their insurance premiums.
How will the Florida Legislature respond? If history is a guide, the priority will be to please the insurance industry, not policyholders.
That’s because we have been here before — after Hurricane Andrew in 1992 and after the active hurricane seasons of 2004 and 2005, which culminated in Hurricane Wilma. Now we are here after Hurricane Irma in 2017 and Hurricane Michael in 2018, even though neither storm made a direct hit on one of Florida’s major population centers.
The cycle of shocking rate hikes for homeowners insurance began after Andrew devastated southern Miami-Dade County in 1992. Over the previous two decades, insurers had competed for business in the nation’s fastest-growing state. Hurricanes had brushed the state or struck less-populated areas.
After Andrew, though, the market collapsed. Large national insurers such as Allstate and State Farm began fleeing the state. Thus began three decades of the Legislature trying to prop up the private windstorm — hurricane coverage — market in particular and the homeowner market in general.
The list of favors for the industry is long and significant. The Legislature allowed companies to drop coverage for mold and sinkholes as part of standard policies. The Legislature created the Hurricane Catastrophe Fund, funded by assessments on all policies, to offer subsidized reinsurance, which insurers buy to guard against major losses, like bookies laying off bets.
When a state appeals court ruled that homeowner policies had to pay claims for wind-driven rain damage, the Legislature passed a law freeing insurers from that requirement. Home insurers can file for rate increases up to 15% without a full hearing before the Office of Insurance Regulation.
And the Legislature created Citizens Property Insurance Corp., a state-run insurer of last resort. Homeowners who can’t find coverage elsewhere can get it from Citizens.
All those favors, however, haven’t been enough. The insurance industry regularly offers reasons why rates can’t go down. The companies blame public adjusters, who pursue claims on behalf of homeowners, and lawyers who pursue those claims. They blame the cost of reinsurance, which is rising because companies have suffered big losses from COVID-19 business interruptions.
To varying degrees, each side has a point. The industry has documented predatory practices by some lawyers, especially in South Florida. But some homeowners must resort to lawyers and public adjusters because insurers shortchange them. Some companies have invented ways to drop policyholders when they file a claim.
So how does the state get relief to homeowners and preserve the semblance of a private market in a state whose economy relies on real estate sales?
One good option is out of Tallahassee’s control. Congress could create a catastrophic insurance program for natural disasters, like the one for terrorist attacks.
A worst-case hurricane scenario in Florida, such as a Category 5 storm striking Miami or Tampa Bay, is what the industry calls an “uninsurable peril.” Only premiums unaffordable to most homeowners and business owners would cover the damages.
A national program such as the one the House passed 13 years ago would build on a system like Florida’s, but shift that worst-case layer of coverage into a national pool. In addition to hurricanes, it would include earthquakes, tsunamis and other “uninsurable perils.”
Unfortunately, we don’t have a functioning Congress. So we offer an idea to the state Legislature from recent history, with a very important change.
In 2012, Tallahassee tried to deal with another insurance issue — auto coverage. As with homeowners insurance, bad actors — lawyers, chiropractors, massage therapists — were largely to blame for inflating costs that insurers passed on to customers.
So legislators capped or eliminated many of those costs. But after heavy lobbying from the industry, the bill did not require insurers to share those savings with policyholders.
We recommend that Tallahassee weed out the fraud in the homeowners insurance market. In return, however, companies must reduce the cost of policies by a proportionate amount.
This change alone might not deal with the reinsurance problem. Here again, Congress could help. In May, Rep. Carolyn Maloney, D-N.Y., introduced legislation that would create a federal backup for business interruption insurance. The next Congress could follow up.
But the Legislature can’t wait. Though Republicans like to boast that Florida has no state income tax, the spiraling cost of homeowners insurance represented a threat to the Florida economy in normal times. Higher premiums now could not only make buyers think twice, it could cost people their homes.
Not since 2007, when Charlie Crist was the newly elected governor, has the Legislature tried to take on the insurance industry. After a special session, Crist promised that rates would “drop like a rock.” They didn’t, even during a period of mild hurricane seasons.
It’s time for a new effort. Despite the governor’s attempts to make everyone feel good about the pandemic, many Floridians are hurting and will keep suffering until the state’s tourist-dependent economy recovers. Without help, their fortunes could drop like a rock.
©2020 Sun Sentinel (Fort Lauderdale, Fla.)
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