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Monday, September 12, 2022

Florida Homeowners’ Insurance Surcharges Coming

 By Sam Sachs

As insurance providers in Florida leave the market and some companies fold, residents themselves are footing the bill from companies pulling out of the state.

TAMPA, Fla. – Florida homeowners will see their bills go up as the state’s property insurance crisis continues. Multiple insurance providers in the state have left the market, even after a special legislative session was held to address business and homeowner needs. Now, residents themselves are footing the bill from companies pulling out of Florida.

In August, another insurance company was added to the list of providers that became insolvent, the 10th since April 2021. The Florida Insurance Guaranty Association is the state-created non-profit, which “establishes and maintains a service-oriented operation for processing covered claims of insolvent members.” FIGA was established by the Legislature in 1970.

For the second time in 2022, FIGA has issued a surcharge to homeowners on their insurance policy premiums, in order to cover claims from companies that have entered receivership. It’s the third time this has happened since 2020, according to FIGA. So far in 2022, FIGA assessments have approved surcharges to go up a collective 2%, with 1.3% added in March and another 0.7% added in August.

The 0.7% increase was approved on Aug. 19 after the Florida Office of Insurance Regulation ordered a levy.

Citing Florida statutes, FIGA said “members will be able to recoup the .70% assessment from their policyholders over the Assessment Year starting January 1, 2023, through December 31, 2023.”

According to the request for new levy by OIR, “the liquidation of Southern Fidelity Insurance company resulted in FIGA receiving in excess of 5,000 claims with unpaid losses and return premium in excess of $178 million.”

FIGA reported to OIR that their forecasted cash flow would be “materially impacted” by the insolvency of Southern Fidelity. Thus, the non-profit said they need the collection of surcharges to continue into 2023. The letter from FIGA to OIR said the surcharge collections will “result in approximately $168 million in assessments for FIGA policies” through Dec. 31, 2023.

The insolvencies across Florida’s property insurance companies comes amid a potential downgrade to company ratings for 17 providers, which was only delayed, not withdrawn, and the possibility of homeowners being on the hook if their companies are downgraded or fully fail.

While Florida has instituted a temporary fix for the Demotech ratings downgrade, another insurance company is weighing an exit from the state as well. Demotech’s president Joe Petrelli told WFLA.com that the downgrades were delayed “until further notice,” after pressure from Florida’s government. However, The state insurance commissioner, David Altmaier, has also put nearly 30 insurers on a watch list, according to previous reporting by WFLA.

At the end of July, OIR announced a temporary reinsurance arrangement with Citizens Property Insurance Corporation while the ratings downgrade was weighed. The solution, according to OIR, would “allow insurers to meet an exception offered by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation,” letting Floridians keep their homeowners coverage during hurricane season.

“OIR’s greatest priority is ensuring consumers have access to insurance, especially during hurricane season; and because of the uncertainty with the status of Demotech’s ratings, we've been forced to take extraordinary steps to protect millions of consumers,” Altmaier said in July.

Altmaier said the quick fix was an “innovative arrangement” that would let consumers keep coverage while allowing insurance agents to avoid moving policies, which would let lenders “have confidence that these insurers continue to meet mortgage qualifications.”

According to American Family Insurance, a national insurance company, property insurance is not technically, legally required for homes that are fully owned and no longer subject to mortgage payments, which are a loan. If a resident owns their home outright, there is no lender requiring payment, and thus, the insurance itself is optional. Many mortgage lenders do require insurance policies.

As of July, more than 30% of homes sold in Florida were paid for in cash, meaning there is no mortgage policy attached to them.

Bankrate, a consumer financial service company, says many insurance policies use a type of coverage known as replacement cost to calculate the monthly and yearly rates for coverage plans used by homeowners. However, the replacement cost refers to the cost to replace or rebuild a home that becomes damaged.

During the ongoing inflation issues facing the national and global economy, the prices of materials, a skilled labor shortage, and other supply chain problems have increased the costs for construction and repair. This has resulted in policy premiums increasing.

The median sell price for Florida homes was $412,303, according to Florida Realtors. This means that if you have a mortgage, your replacement cost, depending on the type of insurance plan you have, would cover about what you paid to purchase the home.

To handle the failing insurance companies, the assessment levies from FIGA have added the surcharges to fund payments to insurance claims filed by those losing the policies from the folded insurers.

While the total assessment for levies was increased a collective 2%, in 2020, the Florida Legislature allowed a potential for bigger increases due to emergency needs. “Emergency Assessments were increased from 2% to 4% annually during the 2020 legislative session,” according to FIGA. Before 2015, insurance companies paid assessment fees to FIGA, then added a surcharge to each policy until the money spent was recouped.

FIGA said in 2015, the assessment statute was amended by the Legislature to allow FIGA to “obtain funds quickly, but also introduced an option for insurers to remit assessments” when they’re collected over a yearlong policy term. From 2013 to 2020, no assessments were levied, according to information from FIGA.

Since 2020, assessments were levied three times.

But, even with the added levies and subsequent surcharges, FIGA reports that they will only cover up to $300,000 in claims costs. This means that, at least for median prices of homes sold in July, Florida residents won’t be able to get a full replacement cost recouped for themselves if they need to file a claim. Instead, they'll be shorted $112,000 on average, based on current market data.

The Florida Chief Financial Officer's office reports there are currently 15 companies in liquidation and receivership, with 11 of the companies property insurers.

By current policy choices, the costs of failing property insurance companies are now passed on to Florida residents, so a state-run insurance nonprofit can recoup the costs of paying out claims for the companies that have folded.

“A public workshop will be held on Sept. 21, 2022, by FIGA to provide members with information on how to report and remit surcharges collected for the 2022 Assessments,” according to the company.

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