Florida has generated reams of feverish headlines lately for controversies about the teaching of sex and gender issues in public schools, and whether the Disney corporation should maintain special tax status after speaking out on the issue.
But there’s a crisis in the Sunshine State that does not involve Disney World or kindergarten classroom conspiracies, but rather the roofs on tens of thousands of Floridians’ homes, and the unsexy realm of homeowner insurance coverage.
“Florida is the most volatile property insurance market in the country and it is on the verge of collapse,” Mark Friedlander, spokesman for the Insurance Information Institute, an industry association, recently told NBC news.
There’s no such thing as a free roof
Insurance policies can either offer to insure a given item at its cash value or its replacement value. The former accounts for depreciation; a 10-year old roof isn’t worth what that same roof was worth the day it was installed. The latter policy pays the claimant what it costs to replace the depreciated item.
According to some in the insurance industry, unscrupulous roofers (and lawyers) have found a goldmine in policies that insure roofs at their replacement value. They have canvassed Florida neighborhoods, promising homeowners that they can get their insurer to replace their roof basically free, just for a small deductible.
That’s where the lawyers come in. Once the roofer gets the homeowner to sign over the right to negotiate with the insurance company (the “assignment of benefits”), the lawyers submit fraudulent storm damage claims and take the insurers to court to make them pay.
According to Governor Ron DeSantis, in 2019, Florida made up for less than 9 percent of insurance claims nationwide but accounted for a whopping 76 percent of property insurance litigation.
Every news report on the issue has a similarly shocking statistic. One insurer says in the other 49 states, there were 900 property claims filed for litigation in 2021, and a stunning 117,000 in Florida.
The insurance industry’s net losses have risen in each of the past five years, surpassing $1 billion in 2021, according to state officials.
Despite some 1,700 tips or reports of property insurance fraud, however, only 14 were arrested, reports an NBC affiliate.
Citizens insurance, paid for by citizens
What all this means for homeowners is that they’ve seen their insurance rates double or triple in the last year in the wake of those thousands of “free” roofs and all the court costs incurred in the process, which means that a roof costs four times as much to replace in Florida.
According to insurance.com, the average cost to insure a $300,000 Florida home is $3,600, as opposed to the national average of $2,300.
What it means for insurance providers is disaster. According to one recent ABC report, seven property insurers were in liquidation. And large national insurers, says one agent, won’t touch the Florida market.
Finally, what this means for the people of Florida is that more and more homeowners are getting policies from Citizens, the state-funded insurer of last resort.
University of Central Florida history lecturer James Clark says that number has grown from 400,000 to 700,000 and may soon surpass 1 million.
If a big hurricane hits, says Clark, Citizens could be on the hook for tens of billions of dollars.
A special session aims to find a fix
In July 2021, DeSantis signed a law that prohibits contractors from soliciting homeowners to repair a roof through an insurance claim, but it could take two years to see the bill’s effects, because pending litigation wasn’t affected. Nor were claims for losses that preceded the legislation, such as those caused by Hurricane Irma, in 2017.
A recent bill failed to pass that would have limited some annual rate increases by Citizens and would have pushed the system toward cash value roof replacements.
Lawmakers passed two bills in a special session at the end of May, convened, according to DeSantis, “to bring some sanity and stability and have a functioning market.” One was designed to reduce lawsuits and attorney fees, including placing new restrictions on so-called bad faith lawsuits.
It remains to be seen if the efforts by the lawmakers will encourage insurers to return to Florida, or the pressure will mount on the state-funded insurance pool.
Real estate investors considering the Florida market should take a close look at homeowner insurance policies before deciding on investments in the Sunshine State.