On Aug. 24, 1992, Hurricane Andrew hit southern Florida as a Category 5 hurricane and devastated many areas. 25,524 houses were destroyed and 101,241 were damaged, leaving about 250,000 people homeless. At the time, it was the costliest natural disaster in the United States, with an estimated $27.3 billion in insured losses. This disaster forever changed the way Americans prepare for natural disasters. Hurricane Andrew led to stronger building codes and greater investment in resilience – both of which have undoubtedly saved many lives.
Now, 30 years later, we are witnessing a major new disaster in the Florida property insurance market, except this one is man-made. Florida has not experienced a hurricane since 2018, but the state has seen seven insurers go insolvent in the past two years. In order to avoid the same risk of solvency, 14 companies have stopped writing new policies, leaving hundreds of thousands of people with policies who want to be protected by the limited options in the market. To make matters worse, the average homeowner’s insurance premium in Florida will rise by nearly $3,000 in 2022, nearly twice the annual US rate.
The reason for this man-made disaster is the widespread abuse of Florida’s laws and fraudulent roof replacement practices that are all too common. According to the Florida Office of Insurance Regulation (OIR), Florida accounted for 79% of the homeowner’s insurance claims filed while producing only 9% of the homeowner’s insurance claims. Although the governor of Florida and the legislature have implemented positive changes in the private sector earlier this year that it is the right way, it will take time and other changes to stabilize the Florida property insurance market.
Unfortunately, the rapid decline in the Florida property insurance market is not unique. Concerns about the stock market and market damage continue to grow in several states, most notably Louisiana and California, as reports decline and home insurance premiums decline.
Rising lawsuit rates are having a major impact on the cost of insurance for American families. For example, top jury awards have grown significantly over the past few years. The National Law Journal’s Top 100 Verdicts rose 350% from $64 million in 2015 to $225 million in 2020. And it’s not just the number of written verdicts, as one analysis showed that there were 30% more cases during this period that were overturned. That’s $100 million more than in 2015. Ultimately, the cost of criminal justice and high jury fees weighs heavily on every American family.
Fraud related to property insurance claims is another issue that harms policyholders. According to the Federal Bureau of Investigation, the cost of non-health insurance fraud is estimated to exceed $40 billion annually, which translates into $400 to $700 per year in insurance premiums for the average US family.
Insurers are also facing increasing challenges in risk management due to government intervention and interference. Regulatory actions are amplifying the effects of natural disasters by exacerbating losses and prolonging market disruptions. This is especially true in California and Louisiana, where laws have made it difficult and expensive for insurance companies to operate and pay premiums, and where laws restrict insurers’ ability to deal with solvency risks through their entire exposure to high-risk areas.
To fix the broken insurance markets in states like Florida, California and Louisiana, insurers are urging state lawmakers and regulators to focus on addressing what is causing the markets to harm consumers, including implementing legislative changes and anti-fraud measures, and strengthening regulation. . sustainability and disaster mitigation to help reduce future losses.
Insurance is an important part of society as it provides the financial protection necessary for families, businesses and communities to survive and rebuild in the event of a disaster. As natural disasters continue to increase in frequency and severity due to climate change, government leaders must act on policies that will help create a healthy and sustainable insurance market so that consumers can continue to protect the things that are most important to them. Because that is what is most important to us.
David A. Sampson is president and CEO of the American Property Casualty Insurance Association.