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The past 2 years have been the most dramatic in changes I’ve seen in how homeowners insurance can have an effect on purchasing, and even current homeowners residing in homes. This week for our Realtor sales meeting we are going through what is happening in the insurance industry. I asked Ross Komarinetz (owner of Brightway Insurance) to come talk to us about what Buyers and residents of the area must be aware of when purchasing and just residing in their homes. Ross wrote the following for our agents at Echo Fine Properties. It’s something us agents need to be aware of when representing clients in a transaction, and in keeping information up-to-date for past clients as well. Most important on the Buy side will be getting quotes in advance and being cognizant of the age of the roof.
Changes in Florida Homeowners Insurance
Insurance used to be fun, or at least as fun as insurance can be. Much like our lives now, Florida Homeowners insurance can be classified into two categories: pre-2020 and post-2020. Prior to 2020, things were great! There were at least 30 carriers offering some sort of property coverage in Palm Beach County. When clients came to my agency for quotes, we would not only save them money, but we would also provide them with better coverage. Most carriers accepted shingle roofs up to 20 years old and some even accepted 50-year-old tile and metal roofs. Full water damage coverage was standard on policies, regardless of the age of the home. Then, in October of 2019, Florida Specialty, a relatively small carrier, went out of business. More than anything, it seemed to be a poorly run company. At the time, we weren’t that alarmed, but we did not know what was to come. In late 2019, we did start to notice one particular carrier experiencing a substantial rate increase on their renewals and new business policies. In April of 2020, it was like someone had flipped a light switch. All of a sudden, we noticed that our quotes, on the same types of homes in the same areas, were about 30% higher than they were in Mid-March. Throughout 2020, most carriers not only experienced rate increases but also began to tighten their guidelines. Those changes included minimum year-built requirements, roof age changes, as well as restricting water damage coverage on homes more than 40 years old.
In 2020 alone, we saw:
Since then, things have only gotten worse. Everyone has had at least one rate increase per year, each year. That means some carriers are having multiple rate increases per year. Some as much as 200%. Also, guidelines have only gotten tighter each year. We’ve also seen 5 additional carriers go out of business, with more teetering on the edge right now. On top of regular non-renewals, carriers have had to early terminate nearly 100,000 policies in an effort to remain solvent.
Many of those policies are being written by Citizens. In the last two and a half years, Citizens has doubled their policy count from 442,000 at the beginning of 2020 to 843,000 in mid-2022. No one wants to offer coverage. The Florida homeowner’s insurance industry is the only industry on the planet that does not want any new customers and is actively trying to get rid of the ones they have. Pre 2020, there were at least 30 carriers offering coverage in Palm Beach. Now there are only 10.
How did we get here? Why are our premiums higher and higher? Why is it so difficult to get home insurance? Hurricanes, reinsurance, assignment of benefits, fraudulent claims and expensive litigation fees as a result of those claims.
Most people don’t know that you have three years to file a hurricane claim. Hurricane Irma struck in September 2017 and Michael in October 2018. By late 2020 all of Irma’s claims had been filed and a majority of Michael’s. These 2 hurricanes resulted in over 30 billion dollars in damage across Florida. Another thing that most people don’t know is that insurance carriers insure their books of business with reinsurance. When there is a catastrophic loss, the carriers file a claim with their reinsurance company to recoup a portion of their losses. Reinsurance companies are large international companies with names such as Lloyd’s of London, Berkshire Hathaway, etc. In 2019, we had 409 natural catastrophes worldwide, including 158 flooding events, 114 severe weather events, 33 tropical cyclones, 32 earthquakes, and many losses from winter weather claims and wildfires, totaling 71 billion dollars. Because of this enormous amount of cash that had been paid out in losses, there is less capital available for reinsurance. This increase in global catastrophes and the resulting unavailability of capital has caused reinsurance companies to tighten their guidelines and increase their rates. Our insurance carriers are paying more for their insurance and so are we.
After the catastrophes caused by hurricanes Andrew, Frances, and Jean in Florida, insurers seemed to be convinced, more than anything else, that hurricanes were the main cause of concern. But, a new, equally, or more harmful issue for the home insurance market: Fraud. More specifically, fraudulent water claims and Assignment of Benefits (AOB) abuse, work hand in hand, in disrupting home insurance. The assignment of benefits works like this: Your hot water heater explodes and you call someone to repair the damage. The contractor says he’ll handle the claim and has you sign the paperwork. One of those forms is an Assignment of Benefits form that hands over authority to the contractor to make all of the decisions regarding the claim, as well as to be paid on your behalf. And guess what? A Contractor will make more money if he has to do more work. This results in small water damage claims that should have been reported as minor repairs being inflated and contractors determining a need for entirely new kitchens and bathrooms, for example. With more and more people participating in defrauding a faceless insurance company, it is being viewed as social inflation. This is a large contributor to why insurance carriers have tightened their year-built guidelines and/or restricted water damage on policies.
Now, the hot topic: roofs and fraudulent roof claims. Out of the ten available carriers in Palm Beach, here is what they are willing to insure. Citizens will insure a roof as long as the roof has at least 3 years of useful life left. American Integrity will only insure homes 5 years old or newer with a minimum dwelling coverage of $350,000. Bankers will insure homes 10 years or newer. Edison will cover a 10-year-old flat roof, a 20-year-old shingle roof, or a 30 years old tile/metal roof but it better be perfect with no flaws. FL Pen is the same as Edison. Olympus will only cover a 40 year old or newer home with a roof no more than 10 years old for shingle, 15 years old tile roof or 20 years old metal roof. Tower hill allows for a 12-year-old shingle roof or 15 years for tile roof and 30 years for metal roof. Progressive will only cover a home built 2017 and newer roof unless bundled with auto, but if bundled with auto, the roof can’t be more than 5 years old. Southern Oak will insure a home built 2012 or newer, but the roof cannot be more than 8 years old. Security First has just been crazy-expensive.
The reason why all of these carriers are restricting their roof age is due to an overwhelming number of roof claims ending up in litigation. While there are plenty of legitimate claims that result in litigation, we have seen such a major increase that it raises concern about the morality of the cause of the filed claim. As you have probably already been made aware, roofers and public adjusters have been canvassing neighborhoods and offering homeowners free roofs. They inform the homeowners that due to a past storm, they were able to provide the homeowner’s neighbor with a new roof due to damage caused by the storm. They convey that it is likely that you, the homeowner, have damage as well and can qualify for a new roof from your insurance company with minimal out-of-pocket expenses and ask if they can check out your roof for you. You oblige and guess what? They found damage. All you have to do now is sign some paperwork, with an Assignments of Benefits form included, and they will file the claim on your behalf and handle everything for you. It sounds amazing. But, in actuality, the roofer or PA files the claim and it gets denied. The roofer or PA then goes to his attorney friend and they sue the insurance company. If the insurance company loses the lawsuit, they will be responsible to pay both sides of the Attorney’s fees. This process is referred to as litigation for profit.
Florida accounts for 9% of all claims filed nationwide but nearly 80% of all property insurance lawsuits, nationwide. In 2019, there were 15 billion dollars spent on claims that resulted in litigation. Of that amount spent, only 8% went to pay for actual property damage, 71% went to the plaintiff’s attorneys, and 21% went to the insurance company’s lawyers. Carriers don’t want to end up in court and argue whether an 18-year-old shingle roof, that has been baking in the Florida sun is nearing the end of its useful life or has legitimate damage from a covered peril. Due to this common occurrence, carriers began restricting the roof ages they will insure, and it is reflected in today’s difficult home insurance market.
Due to this rise in roof claims, the carriers, using advanced software, are able to view an extreme close-up of the roof in almost real-time. If they find any blemishes or flaws, they will ask for the roof to be replaced or they will cancel the policy. If this happens, typically the next or only option would be to be covered by Citizens. As mentioned earlier, Citizens has nearly doubled their policy count in the last two and a half years. Most of the quotes that we are doing today, Citizens is the only one to offer coverage. If another carrier does offer coverage, typically their premium is significantly higher, making Citizens the best option financially. This is because citizens is regulated by how much they are able to increase their rates each year. They are also fairly wide open, guidelines-wise, accepting most homes as long as they are in decent condition. They will accept a 20-year-old shingle roof as long as it has at least 3 years of useful life left. They will also allow the “bad” breaker boxes as long as the overall electrical system is in good condition. However, their maximum dwelling coverage is $700,000, which in the Tri County area can be restrictive. Due to these artificial rates and wider guidelines, Citizens is no longer the carrier of last resort, but pretty much the only game in town available to the average Floridian homeowner. Citizens, like other carriers, is struggling to find reinsurance at a competitive rate and have only been able to reinsure about 36% of their needs. They have a $6.5 billion surplus so unless we were to face many large hurricanes, they should be okay. If we were to have a busy season and their surplus and reinsurance were depleted, there are provisions within Citizens policies that allow for assessments or surcharges to Citizens policyholders. With the large increases in rates and tighter guidelines, not only is it more difficult to find insurance, but if you can, it’s expensive and unaffordable for most Florida homeowners.
What’s being done?
In late May, a special legislative session was called to tackle these issues. They created two billion dollars in free reinsurance for carriers to “buy”. They offered grants of up to 10,000 dollars to fortify homes against hurricane damage through the “My Safe Florida Home” Program. They required that carriers insure roofs that are 15 years old as long as they had at least 5 years left of useful life and also have limited attorney’s fees in insurance-related cases. Although these measures are a good start, most experts predict that we won’t see much relief for at least 18 months. In order to qualify for reinsurance, the carriers have to file for a rate decrease, which no one has done yet. So far, I have not seen any significant signs of how the money from the “My Safe Florida Home” Program is going to be distributed, but if someone is able to receive impact glass or hurricane shutters through that program, it could be greatly impactful saving them thousands of dollars. I believe that if a carrier is going to be required to offer insurance on a 15-year-old roof, they will charge for it. So, while it will be insurable it will most likely be unaffordable. I believe the most impactful change implemented, is the limiting of attorney’s fees for the plaintiffs. Hopefully, this discourages attorney’s from “throwing mud at the wall to see what sticks”.
873 Donald Ross Road
Juno Beach, FL 33408
Jeff Lichtenstein is owner and broker of Echo Fine Properties, a luxury real estate brokerage selling real estate in Jupiter and homes in Palm Beach Gardens, Florida. He has 20 years of real estate experience, has closed over 1,000 transactions, and manages over 70 agents in a non-traditional model of real estate that mimics a traditional business model. Some publications he has been quoted in.
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