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Introduction
Despite several commonsense reforms enacted by lawmakers over the past few years, Florida’s property insurance market remains on a downward spiral. Dozens of insurers have dramatically reduced policies in the state through non-renewal, withdrawn from the market, or been liquidated in just the past two years, and the companies that remain have had to substantially increase their rates to levels almost three times the national average to compensate for massive, billion-dollar annual losses. Hundreds of thousands of policies have migrated to Florida’s state-run backstop insurer Citizens Property Insurance Corporation, whose policy count has more than doubled to 1.1 million policies over just the last two years.
There are many inherent risk factors unique to Florida that would justify somewhat more expensive property insurance compared with the rest of the country and a relatively more complex insurance system tailored to such circumstances. The most obvious is Florida’s unique geographic location as a low-lying tropical peninsula extending hundreds of miles into some of the warmest, storm-prone waters in the world, which makes it susceptible to more frequent largescale wind and flood events.
Another factor is Florida’s economic and population growth, which for decades has outpaced most other states: in 2018 Florida’s GDP surpassed $1 trillion making it the 17th largest economy in the world and, last year, the state was awarded an additional congressional seat following the 2020 Census that found a population growth of 14.6 percent over the last decade. In 2020 alone, Florida experienced the largest change in net move-ins of any state largely due to the state’s aversion to onerous pandemic restrictions and lockdowns.
Although such growth is a “good problem,” it is a problem nonetheless as it further clogs roadways, increases housing costs, and concentrates more people and wealth predominantly in the state’s more desired coastal areas which are naturally prone to more storms and flooding, and where it is more expensive to build and repair. Indeed, these are legitimate cost drivers that would justify some gradual rate escalation, especially when combined with the increasing price of risk transfer products (i.e., reinsurance) after recent catastrophic losses globally and inflation spikes domestically.
But none of the inherent cost drivers mentioned above can account for the ongoing dramatic double-digit insurance rate increases Floridians are feeling or the multiple years of net profit losses leading to insurer insolvencies even in hurricane-free years. As such, it is evident that these are being propelled by other cost drivers disconnected from the state’s natural risks, global reinsurance prices, and other organic factors.
In 2019, Florida accounted for 76 percent of all insurance litigation nationwide, even though the state only accounted for 8 percent of all insurance claims filed during the same period. When these figures are broken down further, the data show that just about every other state averages under 1,000 such lawsuits annually, while Florida hovers around 100,000 lawsuits. Therein lies the principal driver of massive profit losses for insurance companies despite the double-digit rate increases imposed on consumers to offset those losses.
Florida lawmakers have taken steps to address this problem in recent years. However, many of the reforms either came too late or were too modest. Had some of those very reforms been implemented just a few years earlier, it would be unlikely Florida’s insurance market would be in the dire state we find it today.
The following report revisits the steps the Florida Legislature has taken in recent years to shore up the state’s property insurance market, why the timing of meaningful reforms matter, and how it must build upon past reforms during this year’s upcoming special session and 2023 regular legislative session to stabilize the insurance market and hopefully promote more investment, competition, and lower rates for consumers.
