Why are insurance rates going up? Sometimes you have a good idea of why your rates increased; maybe you made multiple claims or switched carriers recently. Other times the answer may not be so cut and dry. Nothing has changed with your situation, yet your rates are still going up. Here we will be breaking down the different factors that are primarily causing nearly all Floridians homeowners insurance rates to increase, and what you can do to help stop it.
The Real Reason Your Insurance Rates Are Going Up in Florida
The insurance rate you pay is calculated from a variety of factors. These factors typically include your claims history, credit score, and the carrier you are using. The main driver for unexpected rate increases normally has to do with a rise in expenses to your insurance provider. Let’s say claims in a given year are significantly higher than previous years, this surprise increase in costs for a carrier will trickle down to the insurers to help them cover these expenses.
But why does it seem like rates have increased in 2021 more than in previous years? The answer is now clear, Frivolous Lawsuits, Lawyer Fee Multipliers, and general exploitation of insurers.
Frivolous Lawsuits and Lawyer Fee Multipliers
In recent years, insurance rates have risen in the state of Florida specifically from a larger number of frivolous lawsuits against property insurance companies. Frivolous lawsuits are cases where individuals file lawsuits intended to primarily be a burden on an individual or company. These suits are designed to be more expensive to fight than to resolve, so they result in a settlement. It has been documented by the Florida Department of Financial Services that lawyers in Florida file an estimated 50,000 new lawsuits each year over property insurance disputes.
In addition, Florida lawyers can charge what are known as “Attorney Fee Multipliers”. These multipliers allow attorneys to collect up to 30 times the fee that their client is collecting from a lawsuit in a property insurance dispute.
The incline in frivolous cases against insurance companies, with such an extreme fee collection for attorneys, are creating huge expenses. These expenses cause insuring clients in the state to become more expensive, creating a cascade of higher rates that homeowners bear the burden of.
The Litigation Economy
These skyrocketing frivolous lawsuits were made possible by what can be described as a “perfect storm” of legislation in Florida. A recent report on Florida’s insurance market found that four individual Florida statutes governing assignment agreements, mandatory replacement cost coverage for residential roofs, the multi-year statute of limitations to file a first notice of loss, and the one-way attorney fee statute were passed between 2011 and 2019 “individually and in an isolated form without real consideration for how they might someday form a relationship.”
These statutes, combined with the Florida supreme court rulings of Joyce vs. FedNat (2017) & Sebo vs. American Home Assurance (2016), heavily worked together to propel this crisis. Joyce vs FedNat allowed for the expansion of fee multiplier use, and Sebo vs American Home Assurance allowed for damages caused from covered losses such as wind, to stack with damage from non-covered causes of loss.
Roof Replacement Exploitation
In addition, these Florida statutes have created abuse in other realms of insurance as well. The recent exploitation of roof replacement has become a heavy influence on increased cost for insurance providers. One prime example is contractors who canvass neighborhoods and offer incentives to homeowners who let them inspect their roofs.
An even stickier situation is that Florida building codes require a roof to be fully replaced if more than 25% of it is damaged by a covered event, and new legislation has extended the period by which someone can make a claim. This has caused a boom in both catastrophic and non-catastrophic damage claims. Delayed first-notice-of-loss claims related to Hurricane Irma have now been filed nearly three years after the fact, as a result of these new statutes. This comes as a direct result of these new Florida statutes. Late-catastrophic claims, along with exploitation by local contractors, influenced a significant increase in expenses for insurers.
Insurers are also passing along to consumers the cost of hefty rate hikes for their own coverage, known as reinsurance, which kicks in after insurers pay a set amount of claims. “Insurance carriers understand that their role in our marketplace is to pay claims,” Florida Insurance Commissioner David Altmaier told Reuters. “The challenge is when those claims are so much more expensive than they expect, it creates uncertainty, it creates turmoil – and that has to be addressed.”
The Impact of Frivolous Lawsuits on Consumers
The cost of these lawsuits, as well as extra expenses to insurers, has not only increased year to year but has been staggering in size. Since 2013, insurers in Florida have paid 21 billion in fees to attorneys alone. In just 2019, Florida consumers paid between $2 billion and $2.7 billion in costs allocated to these lawsuits in the form of increased premiums.
The increase in premiums to cover these litigation costs can be viewed as a “hidden tax” paid by consumers. 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.
Not only are individual premiums increasing, but these increased costs also make becoming insured and reinsured more difficult. This can cause major impacts on the housing market because as the cost to insure raises, the bar for qualifying for homeownership rises as well. With fewer buyers being available the entire housing market can turn downward and even collapse.
In total, whether it’s raised premiums or a strained housing market, the impact to consumers from this financial exploitation of insurance agencies in Florida cannot be understated.
What is Being Done About it?
House Bill #305 and Senate Bill #76 are currently being drafted to attempt to combat these frivolous lawsuits, but the perfect storm that has allowed people to take advantage of the Floridian legal system may not easily be reversed. You can visit FlTortReform.com to learn more about the different actions being taken to stop these extensive lawsuits, and to sign a petition to take action.
Dealing with Higher Insurance Rates
If you have experienced a rate increase, get a free quote from Florida Best Quote today. We have access to over 40 home insurance carriers, so we can shop your coverage to find an option that offsets these increases. We also offer full insurance reviews to see if there are additional savings or discounts to get you the best rates possible.