FL Property Insurance Loopholes A Roadmap To Fraud, Says U.S Expert

FLORIDA — In the wake of increasingly desperate and angry Florida homeowners facing a hurricane season with no property insurance, Florida Senate Democrats called a meeting on Tuesday with Florida’s Insurance Commissioner Michael Yaworsky, former Democratic Chief Financial Officer Alex Sink and Citizens Property Insurance President/CEO/Executive Director Tim Cerio to discuss solutions to the state's property insurance crisis.

The town hall meeting led by Senate Democratic Leader Lauren Book, D-Davie, and State Democratic Leader Pro Tempore Jason Pizzo, D-Hollywood, was livestreamed on the Florida Senate Democratic Caucus Facebook page on Aug. 22, at 6 p.m.

The latest insurance company to declare insolvency on Feb. 16, United Property and Casualty, is also the ninth, and largest, property insurer in Florida to go bankrupt since 2021.

That's just a drop in the bucket when it comes to claims the Florida Insurance Guaranty Association is responsible for closing, however, said Mark Friedlander, director of corporate communications for the Insurance Information Institute, a nonpartisan insurance think tank.

The insurance companies are claiming in court that they don't have enough money to meet its insurance obligations.

In an interview, Friedlander said 56 property insurance companies were operating in Florida at the beginning of 2022. Six insurance companies went insolvent this year alone. Now there are only 47 property insurers writing policies in the state.

In May 2022, FedNat Insurance Co. canceled 56,500 policies and reached an agreement to transfer about 83,000 policies to another insurance company in June.

Also declaring insolvency in 2022 were Southern Fidelity Insurance Co., Weston Property and Casualty Insurance Co.; Lighthouse Property Insurance Corp., Avatar Property & Casualty Insurance Co. and St. Johns Insurance Co.

Others are either pulling out of Florida or refusing to write any more policies in the state, resulting in suddenly-uninsured property owners flocking to Citizens Property Insurance Corp., the state-run property insurer of last resort.

Policyholders say they've not only been dropped by their insurance companies but the property insurers have failed to cover their existing claims including devastating damage following Hurricanes Ian and Nicole last fall, leaving the state-run Florida Insurance Guaranty Association to foot the bill. As a result, the association will have to pay out more than $600 million for UPC's 22,000 outstanding claims.

Desperate to stem the tide of 7,500 additional policies a week, Citizens is tightening its requirements for property owners and requesting a rate hike to cover the rising demand for coverage.

It's asked the Office of Insurance Regulation to approve a 13.3 percent rate increase, with 12 percent hikes for “multi-peril” policies on primary residences.

Under a law passed last year, rates could increase up to 50 percent for homes that are not primary residences.

Citizens originally asked for the rate increases to take effect Nov. 1 but later changed the date to Dec. 9, and the Office of Insurance Regulation agreed with the change.

Not only is Citizens struggling to pay out losses but Michael Peltier, director of legislative and external affairs for Citizens, said Citizens' lower rates will ultimately drive private insurers out of the Florida marketplace.

Currently, Citizens insures nearly 1.4 million properties, making it the largest property insurance provider in Florida. And Citizens estimates it could add another 80,000 policies by the end of the year.

However, a group of private insurers offered an alternative earlier this month that could relieve Citizens.

Yaworsky signed orders approving proposals by Slide Insurance Co., Safepoint Insurance Co., Southern Oak Insurance Co., Florida Peninsula Insurance Co. and Monarch National Insurance Co. to take more than 100,000 Citizens policies off the state insurer's hands starting Oct. 17, although property owners may have to pay more for coverage.

The Crux Of The Crisis

Before property owners cast stones, claiming the fault is stingy insurance companies that won't pay claims and keep raising rates or hurricanes that have resulted in widespread property devastation, Friedlander said the blame for Florida's property insurance crisis is much more endemic.

"Long before Hurricane Ian formed in the Atlantic, there were major problems in the Florida insurance marketplace," said Friedlander. "In fact, we considered Florida the most unstable property insurance market in the U.S. in 2022, caused by what we consider to be a man-made crisis. What do I mean by that? Two key factors: roof replacement claims schemes and excessive levels of litigation are why the insurance market in Florida is in such turmoil today and, unfortunately, even more so after the impacts of Hurricane Ian."

While Florida is undoubtedly disaster-prone due to its susceptibility to tropical storms and hurricanes, Friedlander noted that there were no direct hits by hurricanes in 2020 and 2021.

"Yet we saw an average cumulative industry underwriting losses of about $1.6 billion each of those years," he said. "You don't see this in any other states in the country when there are no major catastrophes contributing to these losses."

Instead, he said, the problem is greed.

"Florida has always been known as the capital of insurance fraud, whether it's auto insurance or property insurance fraud," Friedlander said.

These fraudsters take the form of unscrupulous roofing contractors and attorneys, he said. "

"I don't want to put a blanket over all roofing contractors but there are a group of unscrupulous contractors that are taking advantage of loopholes in Florida state regulations to solicit business door to door and basically scam homeowners into thinking they need their roof replaced when it really doesn't need to be replaced," he said. "They promise homeowners a free roof if they just sign over their property insurance claim to them in what's called an assignment of benefits. which is called assignment of benefits."

The contractor will then replace the roof but, with the assignment of benefits in hand, the contractor can go directly to the insurance company for reimbursement, he said.

"They will replace the roof but will charge the property insurance double the market rate," he said. "If the roof costs $20,000, for instance, they'll charge the insurance company $40,000. When the insurer refuses to pay the exorbitant cost, the contractors get together with unscrupulous trial attorneys to fight the property insurers in court."

Friedlander said Florida is famous for its unprincipled litigators.

"Florida leads the nation in unscrupulous trial attorneys that love to sue insurance companies. This is their livelihood. They're making millions and millions on these lawsuits," he said.

He pointed to one South Florida attorney who boasts about suing insurance companies.

"He shows checks he has received from insurance companies. He shows the yachts he's bought with those checks. He shows the private jets he's bought with those checks. It's unbelievable the volume of unethical attorneys in this state," he said.

The proof is in the number of property insurance lawsuits filed in 2021. There were 107,000 property insurance lawsuits filed, making up 81 percent of the total filed in the United States.

"We've looked at all the other states and the next state on the list is California with 3,600 lawsuits and California is double the size of Florida with a 40 million population versus 21 million residents in Florida," he said.

The difference is other states are better at regulating fraudulent roofing contractors and greedy litigators.

"It's regulations," he said. "California has much tighter, much stricter regulations and less loopholes. Most of these scammers are taking advantage of these loopholes so they're not even necessarily breaking the law."

Twice in 2022, Gov. Ron DeSantis called special legislative sessions to look at ways to restrict litigation and close these loopholes.

Florida Chief Financial Officer Jimmy Patronis even wants to enact a law to eliminate the assignment of benefits to contractors, and we are in complete agreement with Mr. Patronis, Friedlander said. "There is no benefit to an AOB. It's a roadmap to fraud."

Reforms Need Time To Work

In the meantime, DeSantis said the property insurance reforms passed in the special session in December will need time to take effect.

“The issues in Florida’s property insurance market did not occur overnight, and they will not be solved overnight," he said. "The historic reforms create an environment which realigns Florida to best practices across the nation, adding much-needed stability to Florida’s market, promoting competition and increasing consumer choice."

He said Senate Bill 2-A is the most significant property insurance reform bill in recent history. It will stabilize the property insurance market, increase competition and strengthen consumer protections. More on actions taken during the recent special session can be found here.

"We are all feeling the effects of inflation and rising insurance premiums, so we took action to deliver consumer driven reforms that expedite the claims process and curb frivolous lawsuits that drive up costs," he said.

He said SB 2-A builds on progress made during the special session held in May 2022 to address concerns with the property insurance market, enacting pro-consumer measures to help alleviate rising insurance costs, increasing insurance claim transparency and cracking down on frivolous lawsuits which drive up costs for all Floridians.