Why are so many insurance companies pulling out of providing coverage in Florida?
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Lots of reasons but risk is the main driver in a place where people can’t afford to pay for the risk. Florida is a risky place to own a house and only rich people can afford to live in those places. Most of Florida is not rich.
It’s amazing how well insurance companies sold the lie that lawyers and litigation are the things stopping from doing the right things and paying claims. Lawyers, contractors, and insurance are all in the same racket but somehow insurance companies did enough lobbying to convince the public that if it weren’t for these bad attorneys everyone would just get their claims paid no problem. Just ask yourself if you really believe that.
Many are saying Florida is a uniquely insurer-unfriendly jurisdiction. Can someone fill me in on why? I’m an insurance lawyer (from Australia) so feel free to get technical.
It’s becoming unprofitable for insurance companies to operate n Florida for a number of reason, among others:
1) Florida always had natural disaster, but they are becoming more frequent due to climate change
2) housing prices are skyrocketing. $300k homes are now worth $500k+
3) inflation on all construction materials. Replacing a $10,000 floor now costs $30,000
4) not all are leaving. The ones staying are shooting their premiums through the roof.
“my business model is paying huge sums of money whenever a Florida Man does something crazy stupid, and it’s going very well” said no one ever. But seriously, as others said, natural disasters and things like that.
Former actuary here.
A major cause is that climate change is breaking some of the basic ideas behind insurance. Insurance works by pooling *unrelated* risks, charging the average cost of loss to each customer (plus a buffer for profit).
An example of this: say 1 in 100,000 people will get a rare disease that costs $1M to treat. An insurance company might charge $11 to insure against this risk ($10 expected claims +$1 expected profit). As long as everyone’s chance of getting the disease is unrelated, if the insurance company sells enough of those $11 policies, it’s practically guaranteed to make a profit and stay in business.
A funny thing happens when risks are related though. If our example disease was contagious, then it’s possible that a pandemic could happen, and lots of people catch this rare disease at the same time. Even if the insurance company is charging the “right” amount for the long run, they still have a limited supply of money, and one really bad year could run the company out of business, regardless of how many policies they sell.
Climate change is causing average weather damage to increase in Florida, but this doesn’t scare insurance companies away all on its own. After all, they could just raise rates an equal amount and continue business as usual. Higher sea levels and stronger hurricanes are also causing losses to be more closely related. This scares the insurance companies
To exaggerate just a little, no insurance company can afford to rebuild the entire state of Florida after a bad hurricane. Insurance companies think the chances of such a big/widespread loss are getting uncomfortably high. Rather than risk going out of business after one bad hurricane, the companies decide to stop selling insurance in Florida.
(I’m not clear on some of the legal challenges others are mentioning, but that could easily be a factor as well.)
Edit: typo, emphasis
…and then there are those skyscraper apartments that collapse from…not being built to code? Or what was that…
Costs too much to pay out when hurricanes destroy homes, vehicles, etc. and it’ll only get worse with climate change. So they could either increase rates astronomically to cover anticipated losses or they can pull out and focus on more lucrative states with lower claims.
Because they are limited in how much they can charge to stay profitable against FL’s State backed insurance’Citizens’.
And because l, frankly, some houses should not be eligible for insurance.
Citizens insurance was supposed to be an insurance agency of last resort. Meaning if you could not get insurance because of the high risk, then you could get insurance through them.
The problem is that the rates Citizens is allowed to charge is limited by the legislature. And they now have the lowest rates in the State. So actual insurance companies trying to compete in the free market have to try and compete against a State backed company that can’t charge accordingly. So people get Citizens insurance because it is lower than say State Farm.
So State Farm has to try and compete against a State backed, price controlled company and just can’t. So they lose even more customers to Citizens and it just gets worse.
Citizens is currently asking the FL office of insurance regulation to allow them to increase rates along the lines of what the market supports for competitors so they can move back into the option of last resort.
Citizens is supposed to be the ‘last resort’ for people that can’t get insurance on the free market, but from 3/2021 to today the number of police’s has gone from 569,868 to 1,223,204.
And again, some multi million dollar vacation home on the beach SHOULD be ridiculously expensive to insure or be impossible to insure. But people have said they need insurance and Citizens was created to cover them (basically taxpayers footing the bill).
A fix would be that a law that Citizens was only available for FL residents on their primary home. But a lot of people in high tax States have houses in FL to avoid State income taxes.
By Florida i think you mean Florida, Louisiana, and California. This is a nationwide problem
(says someone who pays more than double what she paid in insurance 2 years ago)
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