The policy allows three Florida home insurance agencies to cancel or refuse to renew the policies of people in “high risk” areas.
Tens of thousands of Florida residents could lose homeowners coverage after state regulators paved the way for three insurance companies to cancel or decline to renew supposedly “high-risk” policies.
CBS News reports that Florida approved the policy terminations after three insurance companies—Gulfstream Property and Casualty, University Insurance Company of North America, and Southern Fidelity Insurance—alleged that honoring the contracts would put them at risk of insolvency.
According to The Insurance Information Institute, one of the reasons that companies are backing out of their policy obligations is because they are facing over-the-top expenses. Last year, for instance, home insurance companies in Florida paid over $1.6 billion to resolve claims.
Mark Friedlander, who works with the Insurance Information Institute, said that many people have tried to take advantage of insurance companies after disasters.
“What led to those losses primarily were roofing schemes, door-to-door solicitations for roof replacements, where they don’t necessarily need to be roof replacement [sic],” Friedlander told Wink News.
Friedlander also said that lawsuits have posed problems for the industry.
“More than 100,000 property lawsuits were filed against Florida insurers last year,” he said.
Paul Handerhan, president of the Federal Association for Insurance Reform, also suggested that costly circumstances have corralled insurers into making difficult decisions.
“It’s a reaction to the underwriting losses that have been ongoing for the past five years,” Handerhan said.
Handerhan told CBS News that that “multiple factors” are at play, including the increase frequency and severity of weather events as well as the rising costs of litigation.
“From the consumers’ perspective, the outlook is not great,” Handerhan said. “They’ll have less choice at a higher rate.”
The Florida Office of Insurance Regulation said that homeowners who get a notice of policy cancelation or non-renewal should act quickly to secure coverage with another company.
However, The South Florida Sun-Sentinel says that most homeowners who are designated high-risk will probably have no choice other than the state-owned Citizens Property Insurance Corp.—a company that has been termed “the insurer of last resort.”
Citizens policies, notes the Sun-Sentinel, are typically considered inferior to private policies because the company limits personal liability coverage and levies surcharges if Citizens cannot play all a customer’s claims after a disaster.
In the meantime, Joseph Petrelli—president of the insurance strength rating company Demotech—told the Sun-Sentinel that more cancellations could follow if the Florida Legislature does not pass legal reforms to reduce insurers’ obligation to pay for potentially unnecessary roof repairs.
“The status of the residential property insurance marketplace in Florida is such that carriers are rethinking their business models and their operations,” Petrelli told the Sun-Sentinel in an email.
While Florida has passed some insurance reforms that are expected to reduce overhead costs for the industry, the effects may not be apparent for at least another year.