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Ian is likely to cause more insurance company bankruptcies – InsuranceNewsNet

The Florida insurance market was in meltdown mode for two years before Hurricane Ian inundated Southwest Florida as a catastrophic Category 4 storm with 155 mph winds and a surge of record storm.

According to industry analysts, fraudulent roof replacement schemes and rampant litigation have been to blame for this scourge, depleting insurance companies of capital and forcing them to raise rates, drop policies or fall back completely.

Six insurers have been declared insolvent so far this year, even with three relatively calm hurricane seasons. Annual insurance rates in the Sunshine State are three times the national average at $4,231, said Mark Friedlander, spokesman for the Insurance Information Institute (III).

Which begs the question: What now?

On the heels of Ian – as parts of the Gulf Coast including Naples, Fort Myers Beach and Sanibel were underwater before the storm’s eyewall reached the peninsula – industry analysts say more companies are expected to falter. In July, the Florida Office of Insurance Regulation placed 27 companies on a watch list because they feared they were not financially stable.

“It’s very possible that some of these insurers will go bankrupt because of Hurricane Ian,” Friedlander said.

A former state insurance official adds that last week’s catastrophic storm may well cost everyone much more to properly insure their properties in the future.

“In Florida, for a variety of reasons, our rates don’t match the risk,” said Lisa Miller, Florida’s former deputy insurance commissioner. “This storm is going to reveal that mismatch.”

Ian is expected to become one of the costliest storms to make landfall in the United States. By comparison, Hurricane Katrina caused the most insured damage at $89.7 billion in 2021 dollars; Ida left $36 billion in damage; Super hurricane Sandy caused $35.1 billion in losses; and Harvey and Irma left $33 billion in insured losses, according to data from the III.

A major Wall Street firm, Fitch Ratings, said Hurricane Ian-related losses, which will be mostly recorded in Florida, will land between $25 billion and $40 billion. It is not yet clear how much of this bill Floridians will pay.

Asked about potential damage costs, DeSantis on Thursday pointed to federal supports such as the National Flood Insurance Program and U.S. Federal Emergency Management Agency assistance programs. He also noted that home insurance policies cover damage from strong winds, but losses from flooding are generally covered by the national scheme.

“There are a lot of people who have a homeowners insurance policy. And sometimes they’re told it could also be for flooding and they’re just different policies. Homeowners insurance is for wind, damage direct from the storm; flood insurance is obviously due to the rising waters,” the governor said.

Later that day, President Joe Biden pledged the federal government would cover the full cost of debris cleanup and rescue efforts, as well as the cost of rebuilding public facilities such as schools and military barracks. state firefighters.

The federal government, Biden said, would help cover insurance gaps for damaged homes, up to $37,900, as well as up to an additional $37,900 for “lost items.”

“My message to the people of Florida and the country is this: In times like this, America comes together,” Biden said. “We’re going to come together as one team, as one America.”

As news reports and social media posts have shown, the wind isn’t the only danger Florida homeowners face. About 13% of homeowners in Florida have flood insurance, so many will most likely have to rely on FEMA grants, which won’t cover the full cost of damages, Friedlander said.

If the reserves of Citizens Property Insurance Co. are wiped out, the state-run “insurer of last resort” that currently has more than a million policies, Florida residents could face multi-year surcharges on their home insurance or their auto policies, Friedlander added.

Additionally, many undercapitalized Florida insurers rely on reinsurance to make sure they pay claims, but much of those costs are passed on to consumers, others pointed out.

If Ian hadn’t made landfall in Florida, analysts still doubt that the measures adopted at the special session to deal with property insurance would have finally righted the ship.

“Even without Ian, we didn’t expect the legislation to stabilize the market,” Friedlander said, noting lawmakers said the changes could take up to two years to have an effect. “Now that we have perhaps one of the biggest hurricane losses in US history affecting Florida, the market is just going to get worse.”

State Sen. Jeff Brandes, R-St. Petersburg, said the property insurance market in Florida was in “a state of collapse.”

“We can’t be the most hurricane-prone state and the most contentious state in the country and expect rates to go down,” Brandes said. “Hurricanes are an act of God, but the issue is the failure of the Florida legislature to act.”

Brandes said lawmakers should focus on resolving one-way attorney fees to discourage lawsuits, limit the use of “assignment of benefits” by roofing companies, and enable the real monetary value of replacements. of roof.

Another problem affecting the private market is that, as Citizens swells, it is limited by law in how much it can raise fares, which puts additional pressure on competition in the market.

“Until steps are taken to deter prosecutors from filing massive volumes of lawsuits, the market is not going to stabilize,” Friedlander said. “There is no roadmap to stability until such action is taken.”

Miller agreed with eliminating the assignment of benefits contracts, which she called a “weapon.” The 2019 reforms to eliminate this practice did not work.

“I’ve been in the insurance industry for 40 years,” she said. “We don’t need them to settle a claim. It’s a barrier to resolving a claim because it ties the hand of the insurance company.”

Lawmakers also need to change tort laws to reduce litigation, Miller said, citing an April 2021 letter from Florida’s insurance commissioner that Florida sees 80% of insurance lawsuits from the country, but less than 10% of its insurance claims.

“That’s the most compelling statistic,” she said.

Finally, Miller said insurance coverages in the state needed to change. Basic policies should only cover “actual cash value” – that is, the value of what has been lost – versus replacement cost, the full cost to replace that item.

“In Florida, it’s automatic replacement cost,” Miller said. “I can’t really buy and save money.”

Replacement cost should be an added expense if the consumer “wants a richer policy,” she said. “We do it backwards. We do it backwards.”

A lawyer who has represented homeowners in lawsuits against insurance companies says non-paying insurers are to blame for Florida’s crisis.

“Insurance companies blame lawyers, but what if they paid claims as they should have?” said Nicole Shacket, counsel in charge of the insurance litigation group. “Instead of paying a defense attorney to fight it, and ending up spending two or three times more than they would have had to pay if they had paid the owner in the first place for the claim.”

Shacket, who has worked in the insurance business for a decade, said many homeowners who sue insurance companies are people who have never filed a prior claim. In these cases, she says, consumers have paid many thousands of dollars over many years for coverage and are simply seeking reimbursement for damages that are supposed to be covered by the policy.

“Then they have a claim and the insurance companies deny, deny, deny,” said Shacket, who said he has litigated hundreds of cases. “Deny and defend. That’s what they do.”

Shacket also said the changes to benefit-granting laws “have been awful for consumers.”

Prior to the changes, a homeowner without deep pockets could agree to have the insurance company pay the workers performing the repairs directly. Now, she says, people who don’t have the thousands of dollars on hand to pay deductibles are in a bind.

The next notch in the consumer insurance crisis is at hand, Shacket added. She said insurance companies would require people to replace roofs or appliances like water heaters as a condition of coverage.

“So now all these people who have nothing wrong with their homes…they’re going to be tied up. How are they going to pay for a new roof?” she says. “It’s horrible what’s happening. The insurance companies caused it all.”

And after Ian, predicts Shacket, those who suffered damage will find themselves caught in a standoff between the companies that sold them flood insurance and those that sold them wind policies.

The latter will point to a watermark, Shacket said, and refuse to pay for any damage to the dwelling below that stain. The owner, she said, will be caught helplessly between the two financial companies.

“The fight will be over who should pay for the damages, between flood policy and wind policy,” Shacket said.

Miller also said homeowners were approached by individuals claiming to perform roof inspections in connection with insurance companies. “There’s nothing illegal about it. It’s just very smart,” she said. “And it’s a hustle…and the hustle is real in Florida.”

Once the inspector is on the roof, he intentionally damages it or pretends you need a new roof. The contract that will accompany this notice will oblige the owner to pay the difference between the price of this new roof and what the insurance company will reimburse.

The discrepancy could cost owners tens of thousands of dollars in unreimbursed costs.

That heartburn and financial ruin can be avoided if consumers follow one simple tip, she said.

“Don’t answer the door,” Miller advised. “Don’t answer the front door.”