The Challenge of Repairing Florida’s Troubled Homeowners Insurance Market

The news about Florida’s property insurance market is not particularly sunny these days. Headlines are full of insurers pulling out of the state, premiums shooting up, and homeowners with insurance bills higher than their mortgages. But for all the doom and gloom, there are signs that the Sunshine State is turning its dysfunctional insurance market around.
Its geography makes Florida, a low-lying peninsula jutting out into hurricane-prone waters, a hard place to insure under any circumstances. Of the $165 billion in natural disaster–caused damage the U.S. experienced in 2022, $116 billion of it was in Florida. Average annual home insurance premiums are triple the national average, according to one estimate.
It makes sense that insurance would be expensive under those conditions, but price signals are muddied and costs are inflated by the state’s rules allowing policy holders to assign insurance benefits to third parties like contractors.
This creates a perverse incentive. While homeowners just want their roofs fixed, contractors are looking to maximize their profits. That leads them to charge higher prices for unnecessary repairs, secure in the knowledge they can sue the insurance company for a payout.
Contractors have been known to offer homeowners free inspections and even gift cards to get them to assign benefits to them. The state’s insurance consumer advocate runs informational campaigns to warn homeowners of the more fraudulent elements of these practices.
The result of all this is that insurance litigation has exploded in the state.
The Insurance Information Institute (III), an industry group, reports that 80 percent of the nation’s homeowners insurance lawsuits are in Florida, despite only 9 percent of the nation’s insurance claims existing there.
The Citizens Property Insurance Corporation, a state-established insurance nonprofit company, has a $100 million annual legal defense fund and 20,000 open lawsuits pending, reports III. The institute blames litigation costs for driving up prices and driving insurers out of the state, swelling the rolls of Citizens—intended as an insurer of last resort. Efforts by insurance companies to limit their exposure to these lawsuits by limiting the assignment of benefits in their policies have been struck down repeatedly by Florida state courts.
Enter the Florida Legislature, which passed a slew of reforms in December 2022 to crack down on litigation costs and limit the state’s involvement in the property insurance market, including a ban on a third-party assignment of benefits for new insurance policies signed after January 2023. That’s hardly an ideal free market policy. In a better world, insurance companies would be allowed to unilaterally condition their policies on homeowners waiving their rights to assignment of benefits. Given the string of court decisions preventing them from doing just that, this is the second-best means for getting insurance costs under control.
These reforms also require people to renew their policies with private insurers if the costs of doing so are less than 120 percent of a Citizens policy.
These policies aren’t retroactive, meaning the state will still see a lot of litigation and a lot of people still with state-sponsored insurance policies. But in time, they should fix some perverse incentives bring down the costs of insurance for everyone.