Florida regularly sits near the top of the list when it comes to home insurance costs. The average annual premium in the state is over $4,000 – or nearly three times the national average, according to the Insurance Information Institute (III).
That’s enough to create serious sticker shock if you’re a first-time buyer, but Floridians may feel even more dismay come renewal time. The III also reports the average percentage increase for home insurance across the state is 30%.
Please note that recent special legislative sessions addressed several of the issues Florida’s property insurance market faces. We hope these new laws will provide our Florida homeowners some relief from the rising cost of insurance. However, the impact might not be felt immediately.
How are homeowners insurance rates determined in Florida?
As a member-owned insurance company, we want our policyholders to understand what goes into determining fair rates. Some of the laws governing insurance rates in Florida are unique and strict. For example, Florida property insurers:
- Can’t just charge whatever rates they want.
- Can’t exceed a maximum profit of 4.2%.*
- Must set rates that cover reinsurance costs and the number of claims they expect.
- Must get any proposed rate changes approved by Florida’s insurance regulator.
- Must prove that any requested rate change is fair and necessary.**
We also strive to meet our members’ needs by providing home insurance at as low a price as possible while still ensuring we have the financial ability to pay claims and serve our members for years to come.
What’s causing Florida homeowners insurance rates to increase?
The reasons Florida homeowners insurance rates are going up are complex, but they all point to one general culprit: rising costs. Insurance companies exist to protect customers from the high cost of a devastating loss. But over time their rates have to be higher than their costs, or the insurance companies wouldn't have any capital left.
In fact, several well-known insurance companies have already gone insolvent or stopped selling home insurance in Florida because of this struggle, including:
- FedNat Insurance Company.
- St. Johns Insurance Company.
- United Property & Casualty Insurance Company.
- Gulfstream Property & Casualty Insurance Company.
- Southern Fidelity Insurance Company.
- Bankers Insurance Group.
So what’s happening in Florida that pushes home insurance rates so high? The reasons are complicated, but we’ve broken them down into five categories:
- Insurance fraud
- Litigation costs
- Catastrophic claims
Just about every state has issues with each of these to some extent, but Florida is currently struggling with all of them. Combine these with fees assessed by the Florida Insurance Guarantee Association (FIGA) in October 2021 and May 2022, and you can see why Florida homeowners insurance rates are on the rise.
Reinsurance rising for all
The most important factor contributing to Florida’s rising home insurance rates are recent increases in reinsurance costs. Essentially insurance for an insurance company, reinsurance is a necessary part of an insurer’s ability to pay claims ﹘ particularly in catastrophe-prone states like Florida. But sometimes the cost of reinsurance goes up, and when it does, so will homeowners insurance premiums.
Reinsurance cost went down between 2006 and 2017, in part because there weren’t many major storms in Florida. But recently, bigger storms have caused bigger losses, and that’s caused the cost of reinsurance to increase. In just the first part of January, reinsurance rates in the U.S. went up between 45% and 100%. That’s a cost home insurance companies have to cover when they set their rates.
Fortunately, the Florida legislature passed bills to create the Reinsurance to Assist Policyholders Fund (RAP Fund) and the Florida Optional Reinsurance Program (FORA). The RAP Fund provides some reinsurance to insurers for free, but only in either 2022 or 2023. FORA, on the other hand, is an optional program that lets insurers purchase coverage at reasonable rates. However, the amount of coverage from these programs is limited.
How catastrophic claims impact Florida homeowners insurance rates
More catastrophic claims cause reinsurance costs to rise, but they also directly impact the cost of homeowners insurance. Essentially, Florida insurance companies must price policies so that they have enough money to cover claims expected from catastrophic losses such as hurricanes.
Because Florida has the highest risk of catastrophe of any state, Florida homeowners insurance typically costs more than the national average. And unfortunately, climate change causes more severe hurricanes. This increases the chance of lots of homeowners experiencing claims all at once, forcing home insurance companies to raise rates to cover the potential claims.
Insurance fraud and home insurance rates in Florida
While increasing reinsurance costs is the main driver of Florida’s home insurance rate increases, litigation costs are another issue Florida insurance companies have to contend with when pricing homeowners insurance. And that problem is compounded by fraud, particularly insurance scams involving assignments of benefits (AOB) and repairs. The scenarios usually go like this:
Scenario 1: Manufactured damage
- A contractor sends a solicitation or knocks on an insured’s door saying that he or she has been able to get a “free new roof” for neighbors in the area and they’d like to inspect the insured’s roof
- The contractor goes on the roof and creates “damage” with a hammer or other method
- The contractor tells the insured that they have damage from a prior storm and that the contractor can get them a new roof from the insurance company
- The contractor submits an insurance claim
Scenario 2: Inflated damage
- A homeowner calls a contractor to fix roof damage.
- The contractor has the homeowner sign an assignment of benefits contract that allows the contract to manage the claim directly with the insurer.
- The contractor inflates the cost of repairs and sues the insurer.
“The cost of bad actors and third parties filing false or inflated insurance claims is passed along to all of us,” according to Florida’s Insurance Consumer Advocate. In fact, the Federal Bureau of Investigation estimates insurance fraud costs over $40 billion per year. That translates into approximately $700 to $800 in increased annual premium per family.
And there’s no free lunch when it comes to insurance fraud – the cost almost always gets passed on to homeowners. That’s why we ask our members to help mitigate rate increases by contacting us directly if they have a claim and avoiding attempts by third parties to generate or inflate claims.
In the December 2022 special session, Florida legislators passed a law that could help reduce instances of insurance fraud. Senate Bill 2A (SB 2A) prohibits the assignment of benefits signed on or after January 1, 2023.
But that date means claims from Hurricanes Ian and Nicole aren’t affected. Those claims are still coming in, so insurers may still be paying for AOB-related insurance fraud.
The May 2022 special session also brought about a law designed to reduce fraud. Senate Bill 4D (SB 4D) intends to curb contractors’ ability to solicit policyholders by prohibiting contractors from encouraging policyholders to contact a contractor or public adjuster to make a roof claim unless the communication includes the following information:
- The policyholder is responsible for paying the deductible.
- It’s insurance fraud for the contractor to pay or waive an insurance deductible.
- Filing a claim with false, misleading, or fraudulent information is insurance fraud.
Litigation costs passed on to policyholders
Ever wonder why Florida has so many attorney advertisements on television and billboards that are focused specifically on suing insurance companies? Until the special session this past December, Florida’s incredibly high rate of insurance litigation was driven by a unique Florida law.
The law, F.S. sec 627.428, created a situation of “one-way attorney fees.” Basically, plaintiff attorneys were rewarded for filing lawsuits against insurance companies without any counterbalancing risk that these attorneys could owe legal costs if their lawsuits are unsuccessful. Because of this, Florida had over 76% of home insurance lawsuits, but only 8% of homeowners claims.
Worse? Between 2013 and 2020, Florida property and casualty insurers paid $15 billion in claims costs, but only 8% of that went to consumers. Lawyers fees, however, accounted for 71%.
SB 2A repeals one-way attorney fees. Each party is now responsible for their own attorney fees in many property insurance lawsuits, with a few exceptions.
Inflation hits everyone
One of the biggest factors in determining the insurance rate for an individual home is the amount of money it would take to replace that home if it were destroyed. This is currently being significantly impacted by inflation.
The supply chain issues that plague other industries also impact Florida homeowners insurance rates. Take the cost of lumber for an example. Limited supplies coupled with high demand forced lumber prices to skyrocket in 2021. In turn, those prices drove up homes’ replacement cost estimates. And if your home costs more to replace, then your home insurance is going to cost more too.
Between January 2021 and January 2022, residential reconstruction costs in Florida went up 12.4% as of April, according to insurance software company Value360. While that’s not the highest in the country, it does add to increasing Florida homeowners insurance rates.
What about FIGA?
Finally, Florida homeowners are also being hit with an additional fee from the Florida Insurance Guarantee Association (FIGA). This is the state-sanctioned organization dedicated to protecting insurance consumers in the event an insurer is unable to meet its obligations. To do this, FIGA periodically requires its members to collect fees from their policyholders.
The current 1.3% assessment, ordered on March 11, 2022, is specifically linked to St. Johns Insurance Company entering into receivership, according to a statement put out by FIGA. This is on top of a prior 0.70% fee assessed on October 11, 2021.
What can homeowners do to reduce insurance rates?
As we mentioned, the Florida state government is looking to make home insurance more affordable. In the meantime, there are ways for you to reduce your homeowners insurance premiums. For instance, you might want to:
- Ask for discounts. Every insurance carrier has its own list of discounts, so find out what your insurer offers so you can take advantage of as many as possible.
- Raise your deductible. Increasing your deductible often lowers your premium. However, you want to be sure you pick a deductible you can afford to pay.
- Take part in My Safe Florida Home. This program, which was bolstered by SB 2D, provides homeowners with funds for hurricane mitigation inspections and home-strengthening improvements. You can see if you’re eligible at the My Safe Florida Home website.
- Install wind mitigation features. Even if you’re not eligible for My Safe Home Florida, you may want to look into hardening your home against wind damage. The right window coverings and roof ties can make a big difference in a storm and could earn you a discount.
- Install security devices. Deterring crime is a good way to minimize claims, and that can help you lower your home insurance costs in the long run.
- Call your insurance company first. Don’t fall prey to fraudulent contractors or other parties who may create or inflate a claim.
Comparing rates from multiple insurance companies is also a good way to get affordable coverage. Just be sure you look at the entire offer, not just the price. Check out our guide to comparing home insurance companies for more tips.
Editor’s note: This article was originally published in May 2022. It has been updated for accuracy and comprehensiveness.
*Rule 69O-170.00003, Florida Administrative Code.
** F.S. 627.062