ORLANDO, Fla. – As the peak of hurricane season approaches, Florida is still dealing with a property insurance crisis.
More than 400,000 Floridians have had their policies dropped in the last 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 marketplace.
“The impact it will have will depend upon the severity of the storm and the duration of the storm,” Cotton said. “A significant storm -- a Wilma, Andrew, something like that -- it could put several carriers in peril.”
There are a number of reasons for the crisis, but Cotton says the main driver has been excessive lawsuits from roof repairs.
In 2019, Florida accounted for just 8.16% of all homeowners’ claims opened against insurance companies in the U.S. However, 75% of the nation’s lawsuits against carriers were filed by Floridians.
“If your roof is destroyed by a hurricane, regardless of how old it is, you’re still entitled to a new roof,” Cotton said. “The problem is these people cruising neighborhoods saying, ‘Let me inspect your roof. Oh, you have some storm damage.’ They then go to the weather data center in South Carolina, plug in the address and roll it back until a super cell goes over. They use that to get you a new roof.”
Carriers in Florida shelled out more than $1 billion in underwriting losses in 2021, in addition to paying out claims. As a result, five carriers that were operating in the state have gone under this year and a number of others have stopped writing new policies.
“The government regulates insurance companies with premium-to-surplus ratios,” Cotton said. “If their premium is growing, their surplus has to grow. The surplus has been depleted because of the crazy litigation, so they have to bring their premiums down. Otherwise, they become financially in peril.”
Gov. Ron DeSantis called a special session of the Florida Legislature in May to pass insurance reforms after the state’s primary ratings agency, Demotech, warned of downgrades to roughly two dozen companies.
“What they created was a RAP (Reinsurance to Assist Policyholders) program, which would prevent a catastrophe,” Cotton said. “If Demotech downgraded the carriers, the real estate market would shut down, the mortgage lending market would shut down, and we would be in a real crisis.”
Lawmakers essentially passed a backstop where the Florida Insurance Guaranty Association, or FIGA, provides additional reinsurance the carriers might not have been able to purchase or might not have been able to afford when their reinsurance treaty is renewed.
Companies will also have access to Citizens Insurance capital -- a state-run insurer that covers more than 1 million policies.
“It’s a temporary fix to prevent the crisis of a downgrade,” Cotton said. “Citizens was not intended to be a solution or a destination. It’s 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.