ORLANDO, Florida. – As the peak of hurricane season approaches, Florida still faces a property insurance crisis.
More than 400,000 Floridians have had their policies discontinued in the past two years and the average premium has more than doubled.
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Tom Cotton, owner of Hugh Cotton Insurance in Orlando, sat down with anchor Justin Warmoth on “The Weekly” to break down the impact a major hurricane would have on the struggling market.
“The impact it will have will depend on the severity of the storm and the duration of the storm,” Cotton said. “A major storm – a Wilma, Andrew, something like that – could put multiple carriers in jeopardy.”
There are a number of reasons for the crisis, but Cotton says the main driver has been excessive lawsuits related to roof repairs.
In 2019, Florida accounted for just 8.16% of all homeowner claims opened against insurance companies in the United States. However, 75% of the nation’s lawsuits against carriers have been filed by Floridians.
“If your roof is destroyed by a hurricane, no matter how old it is, you are always entitled to a new roof,” Cotton said. “The problem is these people going around the neighborhoods saying, ‘Let me inspect your roof. Oh, you have storm damage. They then go to the weather data center in South Carolina, plug in the address, and backtrack it until a super cell passes by. They use it to give you a new home.
Florida carriers shelled out more than $1 billion in underwriting losses in 2021, in addition to paying claims. As a result, five carriers that operated in the state went bankrupt this year and a number of others stopped writing new policies.
“The government regulates insurance companies with premium-to-excess ratios,” Cotton said. “If their premium increases, their surplus must increase. The surplus has been used up because of senseless litigation, so they have to cut their premiums. Otherwise, they become financially jeopardized.
Governor Ron DeSantis called a special session of the Florida Legislature in May to pass insurance reforms after the state’s main rating agency, Demotech, warned of downgrades of about two dozen businesses.
“What they created was a RAP (reinsurance to help policyholders) program, which would prevent a catastrophe,” Cotton said. “If Demotech downgraded the carriers, the real estate market would shut down, the mortgage market would shut down, and we’d be in a real crisis.”
Lawmakers essentially passed a safety net where the Florida Insurance Guaranty Association, or FIGA, provides additional reinsurance that carriers might not have been able to buy or might not have been able to afford when renewing their reinsurance treaty.
Businesses will also have access to capital from Citizens Insurance, a public insurer that covers more than a million policies.
“It’s a temporary fix to avoid the crisis of a downgrade,” Cotton said. “Citizens were not meant to be a solution or a destination. It is intended to be a market of last resort that is not competitive with the private market.
Watch the full interview in the video player above.
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