There’s a storm brewing down in Florida and this time it isn’t a hurricane but rather a storm created by a perfect concoction of bad public policies.
But, similarly to storms in the wild, this one poses a real threat to homeowners in the Sunshine State. Florida’s home insurance market is reportedly in “crisis” mode, “freefall,” and heading towards a complete collapse. In the past year alone, the average costs rose sharply to an average of $1988 in the state. The national average is $1272.
On top of that, a shocking number of providers have either folded or left the state, calling the market unsustainable. These withdrawals have led to hundreds of thousands of policies being canceled. Another provider raised rates by 100% in order to stay open. And as a result, Citizens Property Insurance Company, a state-backed corporation, has been flooded with new policies. Their President and CEO, Barry Gilway, estimates they’ll add 1 million policies by the end of the year.
Surprisingly, the instability in Florida’s insurance market is not caused by the ongoing threat of hurricanes or other natural weather disasters as one might expect in a coastal state. And a quick look at the housing insurance markets in other states prone to natural disasters, like Colorado, Nebraska, or Oklahoma, does not reveal the same volatility. Rather the blame falls primarily on the state’s litigation laws.
Florida is responsible for approximately 8% of all lawsuits in the nation but about 80% of all property insurance lawsuits, which illustrates how its system is set up to allow for massive litigation. This of course must be dealt with and paid for by the insurance companies, a cost that gets passed onto consumers.
This could easily be rectified through better litigation policies in the state that hedge against bad faith lawsuits. As a reminder, losers are not required to pay damages in the US court system, which leads to many bad actors filing bogus lawsuits they can never win. But while they may get thrown out eventually, the company being sued still has to bear the brunt of paying to defend themselves.
Other culprits for the crisis trace back to more bad government policies. For one example, the state currently has a 25% rule for roofing in place. What does that mean? Glad you asked, bear with me—because while a little dry, this is the kind of silly government policy that makes everything harder and more expensive.
Current law for the rule states that a roof has to be brought up to the current code if it incurs more than 25% damage. This is a silly requirement that forces people to waste resources and that makes insurance much more expensive.
And lastly, Florida needs to create a pathway to privatization for its Citizens Property Insurance.
Right now, Citizens is supposed to be the insurer of last resort. What that means though is that they are on the hook if an insurance company pulls out of the region, and therefore, so are taxpayers. This is not sustainable.
Why should you care about this if you don’t live in Florida? Because these kinds of policies often get passed in other states, and even when they don’t lead to a crisis, they do make the cost of housing far more expensive in the long run.
Florida will have a chance to address these problems in a special session this summer. Let’s hope they work to free up their market and create conditions that lower the costs of homeownership.
Disclaimer: Hannah is a media consultant for Americans for Prosperity, which works on this issue.