The Law Offices of John Caravella, P.C. does not own this content. This content was created by Rob Wile and Jasmine Cui and was published to NBC News on June 17th, 2023. To view the full article, please click here.
As big-name homeowners insurance companies pack up and leave, customers are forced to pay higher premiums for the few insurance options that remain. Droughts and wildfires. Floods and hurricanes.
As the losses from these natural disasters skyrocket, a growing number of insurance companies are declining to offer or renew coverage in California and Florida, leaving 60 million Americans with dwindling options to comprehensively and affordably protect their livelihoods.
The numbers tell part of the story: In California, there have been eight disaster events since 2020 that have caused between $20 billion and $50 billion in damages combined.
In Florida, 16 severe storms or hurricanes since 2020 have caused between $100 billion and $200 billion in damages. That includes Hurricane Ian, which has emerged as the third-costliest storm in U.S. history.
The retreat of household-name insurance companies is one reason homeowners in Florida and California are seeing eye-watering increases in premiums — raising fresh questions about whether the already soaring cost of living in these two states is sustainable for its residents.
The financial toll is real.
In California, the average annual home insurance premium is $1,300 today — up 16% from 2019 levels, according to the Insurance Information Institute, a group that represents the insurance industry. As more insurers have exited California’s borders, the state’s FAIR Plan Association, which was established for California homeowners who are not able to find insurance in the traditional marketplace, has seen enrollment numbers approximately double since 2019.
If that sounds like a lot, it’s got nothing on Florida, where the average homeowners insurance premium is now $6,000 — up 200% from 2019, according to data from the Insurance Information Institute.
Today, the Citizens Property Insurance Corporation, Florida’s state-run plan funded by its customers’ premiums, now serves as the largest and fastest-growing insurer in the state. The company now has some 1.4 million policies and counting — comprising roughly 1-in-8 Florida households — and up from fewer than 500,000 policies in 2019.
How did this happen?
A confluence of factors has gotten California and Florida to this point — some unique to each state and others disputed by the insurance industry. But the consensus generally comes back to climate risks and the rising cost of rebuilding homes, experts say.
“When you have rising construction costs and then the potential for widespread losses, that’s what exacerbates problems in these areas,” said David Blades, associate director for industry research and analytics at AM Best, a global credit agency and data group.
Blades said that from 2016 to 2020, U.S. construction costs increased between 1% and 3%, “a very moderate amount of inflation.”
But during and after the Covid-19 pandemic, supply chains were disrupted, real estate prices skyrocketed and interest rates surged. As a result, Blades said, construction costs soared 13.4% in 2021 and 9.3% the year after.
As home prices surged in Florida and California, so has the potential cost of repairing them.
“When you have economic factors amplifying risk-related factors, that’s where you get insurance companies that don’t want to make these decisions,” Blades said. The calculus then shifts to whether it’s worth it for the company to keep doing business in the state or “look at their bottom line and assess that their risk appetite needs to change,” Blades added.
Florida’s state-run insurer teeters
Even as Florida has seen a post-pandemic population boom, more insurance companies are leaving. In a statement to NBC News, Farmers Insurance confirmed it has stopped writing new homeowners insurance policies in Florida. The news was first reported by The Wall Street Journal.
“With catastrophe costs at historically high levels and reconstruction costs continuing to climb, we implemented a pause on writing new homeowners policies to more effectively manage our risk exposure,” a Farmers spokesperson said in an email.
Farmers is one of more than a dozen insurers that have decided to no longer write new business in the Sunshine State, alongside at least six companies that became insolvent in 2022 alone.
Citizens makes money through rates and premiums, and this month, the group requested the “maximum rate increase allowed,” with the average cost to customers expected to rise by as much as 12%.
Michael Peltier, Citizens’ media relations manager, said that, at the moment, the company has enough financial cushion to absorb the new policies, assuming the rate increase is approved. But if enrollment growth continues, Peltier said Citizens may be forced to levy additional assessments not just on its own policyholders but also anyone with any kind of insurance in Florida, including auto.
“It’s not a healthy environment,” Peltier said. “This growth we have is not sustainable.”
Despite the prevalence of frequent and severe storms alongside the aforementioned cost increases, the industry blames Florida’s rising insurance costs on the state’s legal environment.
Until recently, homeowners could assign insurance claims to third-party contractors, like roofers. Some of those contractors would then pursue false damage claims against the insurer and sue them if they refused to pay. The scam left insurance companies on the hook for any legal costs, even if they ultimately won the case. The Insurance Information Institute estimates that, in just the one month prior to the passage of a Florida state bill ending the practice, some 280,000 lawsuits were filed.
Overall, the organization estimates the financial impact of legal system abuse in Florida between 2012 and 2021 caused Florida property insurers to pay out $51 billion just to settle litigated claims, with 71% percent going toward legal fees and public adjusters.
John Caravella, Esq
John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: [email protected] or (631) 608-1346.
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The Law Offices of John Caravella, P.C. does not own this content. This content was created by Rob Wile and Jasmine Cui and was published to NBC News on June 17th, 2023. To view the full article, please click here.