The Tale of Two States: Louisiana and Florida Homeowners Markets Face Challenges

There is a homeowners’ crisis in both the Bayou and Sunshine States, with property owners scrambling to find coverage as carriers raise premiums, reduce their appetites, cancel policies, leave the regions altogether, or go belly up. The states’ respective insurers of last resort are struggling to keep up with demand from policyholders looking for coverage to protect their homes. Both states share similar stories, with Florida having some additional factors affecting its market condition.

What’s Going On in Louisiana?

Louisiana over the last several years has been battered by severe storms. According to the

Independent Insurance Agents and Brokers of Louisiana, in the last two-plus years, storms Laura, Delta, and Zeta have cost insurers $10.6 billion, while Ida alone cost an estimated $40 billion. This has caused some carriers to be placed into liquidation.

For example, after Hurricane Ida, the state insurance department took over the finances of Access Home Insurance Co. and State National Fire Insurance Co., which together insured 28,000 homeowners. According to the Louisiana Insurance Guaranty Association (LIGA), a state-sponsored safety net for policyholders, Access Home Insurance received claims totaling approximately $180 million in the aftermath of Ida but had only $115 million in reinsurance and cash available. Meanwhile, State National Fire Insurance has received over $70 million in claims and has $41 million on hand. (Source: ABC News)

LIGA covers the claims for policyholders whose insurers become insolvent. LIGA recently announced that it is seeking to borrow $600 million through the sale of bonds to banks and investors.

Other carriers canceling coverage during the last month include Lighthouse Excalibur, which canceled 30,000 policies; Maison, which ended 12,000 policies; and Southern Fidelity, which canceled 42,000 policies.

Insurance Rates Are High

Private insurers that are still writing coverage are being more selective, and prices are skyrocketing. Insurance agents in Louisiana note that premiums in some cases have doubled, or even tripled, as compared to what they were before 2020.

Those who cannot find coverage in the private market turn to Louisiana Citizens Property Insurance Corp., the state’s insurer of last resort. The premiums are even higher with Louisiana Citizens, as the insurer doesn’t want to compete with private insurers.

Insurance Meltdown in Florida

Florida is in the same boat as Louisiana. Four insurers have been declared insolvent since February, with many other carriers not writing coverage in the state. According to Florida’s state-run insurer, Citizens Property Insurance Corp., the market is “probably 75% shut down.” To date, Citizens has 937,835 policies and could hit 1.2 million by year-end due to the inability of homeowners to get coverage in the private insurance sector.

Most recently, for example, more than 68,000 homeowners’ policies were canceled by troubled Sunrise-based FedNat Insurance Company and its sister companies Maison and Monarch National right before hurricane season (June 1 to November 1). The cancellations are designed to help FedNat survive after reporting $103.1 million in reported losses in 2021.

In addition, Demotech, Florida’s insurance rating agency, notified 17 domestic property insurance carriers that their ratings will be downgraded, according to a letter from the Florida Office of Insurance Regulation (OIR). Demotech sent the insurers letters advising that their ratings will be downgraded from an “A” meaning “Exceptional” to an “S” meaning “Substantial” or “M” meaning “Moderate.” Due to bank loan requirements, agents often can only place homeowners coverage with “A” rated carriers, according to the Insurance Information Institute (I.I.I.).

Catastrophic losses as a result of severe storms have plagued the Sunshine State. In the aftermath of Hurricane Irma, insurers paid out $20.6 billion in losses in 2017. Hurricane Michael caused $9.1 billion in insured losses in 2018. According to property data and analytics provider CoreLogic, approximately two million single-family homes on Florida’s coast are at risk of hurricane-related storm surge losses totaling nearly $600 billion in value.

Litigation Scams Run Rampant

But there’s more to the story in Florida. Litigation has played a huge role in carrier insolvency, carrier exits, and increased premiums. In 2021, 116,000 property insurance lawsuits were filed in Florida as compared to other states, which have not seen more than 900 lawsuits. Despite accounting for fewer than 10% of all nationwide homeowners’ insurance claims, Florida is responsible for 76% of all homeowners’ insurance litigation in the country, according to the I.I.I.

The flood of lawsuits is the unintended consequence of a slew of laws and court decisions that allowed contractors and attorneys to inflate the number and value of claim payments. For example, Florida’s Assignment of Benefits (AOB) allows a homeowner to turn over an insurance claim to a third party (such as a contractor). The contractor can file the claim, make repair decisions, and collect insurance payments without involving the homeowner. This has created a situation in which contractors solicit unwarranted AOBs from thousands of Floridians, perform unnecessary or excessively costly work, then sue insurance companies that deny or dispute the claims.

Roofer fraud is an example of this. Following a storm, roofing contractor scammers canvas neighborhoods, promising homeowners free roofs if they sign the AOB. Many roofing claims involve roofs that should still have a long life span. Even if the damage is minor, the roofer will file a claim, which results in insurers’ paying for full replacement of roofs that require only repairs, as well as significant legal fees if a lawsuit is filed as a result of a claim denial or dispute. The same strategy has been employed by condo associations.

Reforms Passed

In Florida, Governor Ron DeSantis in late May signed into law several measures in order to stem rising insurance costs, provide insurance claim transparency, and crack down on frivolous lawsuits which drive up costs for all Floridians. The reforms prohibit certain advertisement practices for contractors and rein in Property insurance bad faith litigation and litigation by assignees. 

Some reforms include a $2 billion reinsurance program to provide additional reinsurance to private insurers, grants to Florida homeowners for hurricane retrofitting, and a prohibition on insurers’ denial of coverage based solely on the age of a roof. Contractors are also prohibited from making written or electronic communications that encourage or induce a consumer to contact a contractor or public adjuster for the purpose of filing a Property insurance claim for roof damage unless such solicitation includes certain notices. The bill also limits the assignment of attorney fees in Property insurance cases, with the hope of disincentivizing frivolous claims.

The reforms in the law have been challenged by contractors.

There is a great deal of concern in Florida and Louisiana, as hurricane season is underway, and additional catastrophic losses could harm an already-battered Property insurance market. We’ll be keeping our eye on the storm.