By RON HURTIBISE

SOUTH FLORIDA SUN SENTINEL |FEB 06, 2021 AT 8:00 AM

​Florida’s home insurance market is “spiraling toward collapse,” a newly released study warns. You can help it avoid that fate by starting to save money to pay a share of your next roof replacement.

To reduce financial incentives for lawyers to sue them and prevent consumer rates from skyrocketing further, insurers are pushing for changes to state laws that would include no longer being required to pay the full cost to replace damaged roofs.

Lawmakers are debating surprising new data that illustrates the price consumers are paying for rampant insurance litigation.

An average of $656 out of each premium paid by Florida’s 6.5 million property insurance customers in 2019 went to legal costs, according to an analysis of the state’s property insurance industry. In 2020, that average cost will be around $800.

Of $15 billion that went to litigated claims since 2015 — claims that resulted in lawsuits — only 8% was paid out to policyholders, the study found. Plaintiffs attorneys got 71%, and insurers spent 21% on defense attorneys.

Runaway litigation costs over roof claims and other damage are threatening the stability of not only Florida’s insurance market, but also its real estate marketplace, noted the study by Guy Fraker, owner of the consulting firm Cre8tfutures, which advises insurance companies, regulators, and others in the industry. He lives in the Florida Keys.

The study, titled Florida’s [Property & Casualty] Insurance Market: Spiraling Toward Collapse,” will soon be published by the James Madison Institute. It was commissioned by a political action committee called Floridians for Lawsuit Reform and spearheaded by state Sen. Jeff Brandes, a Tampa Bay-area Republican who supports the proposed legislative changes. But Fraker said in an interview that he was given free rein to look at the industry from the perspective of how it’s hurting consumers.

He found a combination of well-meaning court rulings and changes in state laws over the years created what he calls a “litigation economy” that provides financial incentives for attorneys to file lawsuits against insurers.

“It’s easy to get trapped in an insurers vs. lawyers mindset,” he said. “But this is people taking advantage of the rules of the game. Not in a bad way. It’s capitalism.”

Fraker said he conducted dozens of interviews with industry officials and analyzed reams of claims and litigation data from public sources and from numerous Florida insurance companies.

Among his other findings:

• Of $12 billion Florida property owners spend each year on property insurance premiums, 35% is “a hidden tax” that covers costs of the additional litigation that occurs in Florida compared to other states.
• Lawsuits filed against all Florida-based property insurers increased from 27,416 in 2016 to 60,328 over the first 10 months of 2020. A big reason is Florida’s generous system for awarding legal fees, often giving attorneys an incentive to file multiple lawsuits over damage to different areas of a single home.
• Combined, Florida-based property insurers posted $929 million in net losses over the first three quarters of 2020. It will be the fifth-straight of multimillion-dollar losses for the industry.

Insurance costs have been steadily rising in Florida since Hurricane Irma struck in 2017. Over the past year, homeowners have seen their bills climb by up to 40% as insurers pass along the costs of settling ever-increasing numbers of lawsuits. If those costs are allowed to continue growing, the price of insurance could make the monthly cost of homeownership so expensive that fewer and fewer people will be qualified financially to buy a home, Fraker said.

If that happens, home values in Florida could stop appreciating or even decline, creating havoc in the real estate industry, he said.

Proposals filed in the state Senate in advance of the spring legislative session are focused primarily on removing financial incentives for attorneys to sue insurers. But they would affect homeowners by reducing what insurers would pay out for roof damage, providing less time for policyholders to report those losses, imposing a waiting period before they can sue over disputed claims, and reducing potential financial rewards that would induce attorneys to represent them.

A Senate bill that includes the proposals below was advanced out of the Banking and Insurance Committee and must still be debated by two other committees before it can get to the full Senate after March 1. A similar bill in the House still faces scrutiny by three committees. Lawmakers said they expect revisions as discussions proceed.

Those proposals are:

Roof replacement

Currently, if more than 25% of a roof is damaged in a storm or other covered event, Florida’s Building Code requires replacement of the entire roof. Insurers must pay for the replacement, minus any deductible.

Insurers say this has been abused by roofing contractors who canvass neighborhoods and offer incentives to homeowners who let them inspect their roofs.

Under the proposal, full replacement coverage would be limited to roofs less than 10 years old.

For roofs 10 and older, policyholders would receive between 25% and 70% of the replacement cost, depending on the type of roof, minus their deductible. They would have to pay the remaining replacement cost out of their own pocket.

Sen. Jim Boyd, the bill’s sponsor, said policyholders with older roofs might have to “put a couple hundred dollars a year away” to be able to afford a new roof if theirs gets damaged and must be replaced.

“I get it that consumers think [roof replacement] should happen because it’s been happening,” Boyd said in a recent Senate Banking and Insurance Committee meeting. “But it’s gotten to the point where we have to take action to protect the insurance market.”

Insurers could still sell full roof replacement coverage to consumers if they wanted to, but currently the bill does not require them to offer the option.

The bill would require policies to spell out in large type that consumers are buying less than full roof coverage. That’s not enough of a warning, said Paul Handerhan, president of the Fort Lauderdale-based Federal Association for Insurance Reform, a consumer-focused watchdog group. He wants the bill to require that consumers be alerted of the change before they purchase coverage and receive their policies in the mail.

Hurricane claims

The statute of limitations for filing a claim for hurricane damages would be reduced from three to two years. Insurers say too many Hurricane Irma claims were filed in the third year after the storm, which increased costs of reinsurance — which is insurance insurers pay to ensure they can cover all claims after a catastrophe — and helped drive up this year’s premiums for policyholders.

Supporters of the change say there’s no reason homeowners should not be able to identify and file damage claims within two years. Most other coastal states at high risk for hurricanes require claims to be filed within a year or less. But Richie Kidwell, president of the Restoration Association of Florida, a repair contractors’ trade group, argued at the committee meeting that storm damage is often hidden under roofs or behind walls and are not always apparent until other repairs are underway.

Waiting period before suing

Policyholders would have to provide insurers with at least 60 days written notice before filing suit, and they would have to wait until the insurer makes a decision on whether or not to cover the loss, and if so, for what amount. Plaintiffs attorneys called the provision unfair, saying that insurers are allowed up to 90 days to make these initial decisions. If the policyholder contests the decision, the insurer would get another 90 days to respond, potentially forcing the policyholder to wait six months before filing suit.

Attorney fees

Attorneys would no longer be automatically allowed to bill insurers their full legal fees for any lawsuit settled for $1 or more over the insurer’s initial offer. Instead, fees would be determined according to the difference between the amount of money initially offered by an insurer and the amount demanded in the policyholder’s lawsuit.

Attorneys would only collect their full fees if the final payout is 80% or more of what the policyholder demands. If the settlement is more than 20% and less than 80% of what the lawsuit demands, the attorney will be allowed to collect that same percentage of his fee. If the settlement is less than 20% of the demand, attorneys would get no fee.

In addition, the law would restrict attorneys’ eligibility to collect multiple times their fee. What’s called a “contingency fee multiplier” exists in Florida to enable attorneys to collect additional money as a reward for being willing to take cases that policyholders would normally be unable to persuade an attorney to take.

Plaintiffs attorneys at the committee meeting argued that the changes would make it more difficult for policyholders to find attorneys to represent them. Matthew Collett, a Jacksonville attorney, said fee multipliers are rare because they require a hearing and judge’s order.

But Fraker said that the mere threat that an attorney will seek a hearing is enough to persuade insurers to give into attorneys’ demands for inflated fees.

Fraker’s report warns of what could happen if legislators fail to act: Wall Street investors will stop investing in Florida companies and begin suing insurers for wasting their investments. Stronger insurers will diversify away from Florida and reduce the number of Florida properties they are willing to insure. Real estate values will begin to “drain.”

But if meaningful reforms are enacted, investors will increase their Florida insurance holdings and earn healthy returns again. The number of lawsuits will decline, and, in turn, reinsurance rates will return to levels of other hurricane-prone southeastern states. Insurers will begin to make money again.

Those outcomes might even reduce insurance costs in Florida — and the financial pain of your next roof replacement.

​You’ve negotiated a good deal on your new dream home.

It’s in the perfect neighborhood, and in great shape. Even better, those monthly mortgage payments won’t stop you from going out to nice dinner once in a while or even heading off on vacation.

But hold on. Did you factor in the cost of homeowners insurance? The cost of homeowners insurance typically doesn’t have a big enough impact that you end up stuck inside your new home without living it up outside of it. Still, it is extremely important to factor in insurance costs to figure out what’s right for your situation—and your budget.

Of course, lenders almost always require homeowners insurance before signing off on the loan. And even if you’re fortunate enough to not need a loan, you’ll need good insurance to protect your investment.

So you know you need it, but how much are you going to pay for it? According to TrustedChoice.com, the average annual premium costs about $1,993.00 in Florida.

But depending on your situation you could pay more or less than average. Just how much relies on several factors that we will explore – including your deductible, the value of your home and belongings, your history of claims, and other variables such as the cost and age of your home.

SELECTING THE RIGHT DEDUCTIBLE FOR YOU

Your deductible is one key factor in how much you will pay. If you select a policy with a high deductible, the annual cost for your insurance policy should be lower. Of course, when you go to make a claim, you will pay more out of pocket to meet that deductible. Conversely, if you pick a lower deductible, the cost of your insurance will be higher, but you won’t suffer sticker shock when it comes time to put in that claim. Figuring out your household expense (and entertainment) budget is one way to decide on whether to go with a higher or lower deductible. Whatever deductible you choose, it’s a smart idea to have that amount stashed away in your emergency fund so you’re financially prepared in case you need to file a claim.

HOW MUCH COVERAGE IS ENOUGH?

While we’re focusing on the actual cost of homeowners insurance, it’s essential that you get the right amount of coverage. Specifically, you need enough insurance that would allow you to rebuild your home in the event of a total loss. In other words, don’t pinch pennies by choosing a lower limit that will hurt you in the event of a catastrophe.

Ask your CIAG agent about replacement cost versus actual cash value. Replacement cost is typically the way to go because you could rebuild after a major loss without concern for depreciation. 

HOME IMPROVEMENTS COULD AFFECT COST (AND LIMITS)

​Is your new home going to be move-in ready, or a fixer-upper? If you are planning on doing major upgrades to your home that will boost its value, keep in mind that the cost to insure it  will likely rise, as well. If and when you do a home improvement project, report that to your insurance company so they can adjust the limit, if necessary.

If your ‘home improvement’ project is the result of major damage to your home… make sure you have what’s known as “loss of use” coverage. That coverage can reimburse you for hotel costs or apartment rental if your home is a total loss, or becomes uninhabitable after a covered loss. You would want that reimbursement if you’re forced out of your home while repairs are made.

MAKE SURE YOU HAVE ENOUGH LIABILITY COVERAGE

Lawsuits are pretty common these days, and can be extremely costly. That’s why you should make sure you buy an appropriate amount of coverage. When you buy homeowners liability coverage, you’re investing in peace of mind. Homeowners liability coverage protects your assets in case someone gets hurt on your property. You might not realize this, but it also provides coverage for some incidents away from the home. You might also want to consider a Personal Umbrella policy, which adds another $1 million to $5 million in liability coverage to your homeowners as well as your auto coverage.

THE VALUE OF YOUR HOME AND YOUR POSSESSIONS

It’s a pretty simple formula – if your home costs more, you’re going to pay more to insure it. You need a good, solid assessment of your home’s worth. It also helps to estimate the value of your personal possessions through a home inventory.
                
Also, you might want to consider an appraisal for high-value belongings and talk to your CIAG agent to see if you should consider any supplemental coverages to make sure your valuables are properly covered. 

YOUR HISTORY OF CLAIMS

When it comes to insurance, your past can influence your future. How much you pay for homeowners insurance can be significantly affected by how many claims you’ve made previously. It stands to reason that homeowners with fewer claims would pay less, and those with more claims would pay more. Those with more claims are proven to be a higher risk for insurers.

GEOGRAPHY

Geography — as it relates to frequency of natural disasters — also plays a role in your costs. If your home is near an area that is prone to hurricanes, tornadoes or forest fires, to name some examples, your homeowners insurance is going to be more expensive. Learn more about how named storms affect your insurance coverage.

CUSTOMIZE YOUR COVERAGE WITH ENDORSEMENTS

​Think of endorsements as added options to customize your policy. 

• Sewer or drain backup: You probably don’t think about your sewer or drains backing up and swamping your home – that is, until it happens. This coverage can help clean up the mess. Sewer and drain back up coverage covers loss caused by water or sewage that backs up through sewers or drains or overflows from a sump pump.
• Identity Recovery Coverage: Add on this coverage for a low annual fee to help restore your credit in the event of identity theft or fraud. You’ll also get your own dedicated case manager who will walk you through the process step-by-step. 

Available endorsements differ by carrier, check with your CIAG agent about which ones are the best fit for you and how much they cost.

WHAT ELSE CAN AFFECT THE PRICE OF MY HOMEOWNERS INSURANCE?

There are several other factors that could influence how much you pay for homeowners insurance.

• The age and condition of your home: Owning a newer home may cost less to insure than a similarly priced older home as it is likely equipped with newer equipment and more modern safety features. The condition of older homes can be pretty wide ranging, and includes the roof, pipes, heating system and electrical wiring. It’s important to note that equipment breakdowns are typically not covered by homeowners insurance, however damage caused by a breakdown is covered in some instances.
• Your credit score, age, and other personal information: No surprise here: A higher credit score usually results in a lower rate.
• Recreational and potentially risky amenities: Some features, such as a swimming pool, signal potential risk for insurers, and your premium could reflect that.
• Animals and pets: Your homeowners policy could be affected, either by a price difference or an exclusion, if you have pets or farm animals that are considered by some to be dangerous.  

HOW CAN I SAVE MONEY ON HOME INSURANCE?

You could reduce the amount of your premium if you have security features such as a security alarm system, carbon monoxide detectors and smoke alarms. 

WHAT’S A GOOD PRICE FOR HOME INSURANCE?

Shopping for insurance solely on price can end up being a costly mistake. You should compare costs of homeowners insurance, while making sure you have a clear understanding of what each insurer is covering. A great deal isn’t so great if you end up shelling out a lot more money in the event of a major claim.

And after you’ve done your research and assessed your specific needs, you should be worry free enough to relax and enjoy your new home knowing you’re covered with the right insurance at the right price. 

WANT TO CONTINUE LEARNING ABOUT HOW HOMEOWNERS INSURANCE WORKS?

Ask us the following:

• Do I Need Extra Protection for Underground Utility or Service Lines?
• Can Homeowners Insurance Cover Sinkholes?
• I Want To List My Home on AirBnB. How Does That Affect My Insurance?
• How Can I Add Equipment Breakdown Coverage To My Policy?

*Not all coverages are available from all carriers. Coverage is subject to terms, conditions, limits, exclusions and applicable deductible. See individual policies for specific coverage details and exclusions.