The state of Florida has faced a range of climate-related issues and disasters in recent years. As a coastal state with a subtropical climate, the area has been particularly vulnerable to the impacts of climate change, and the multitude of weather disasters have led to billions of dollars in damages. In more recent years, insurance companies have been pulling out of the state entirely to avoid financial losses and maintain a strong risk portfolio. The insurers that remained in the state faced enormous pressure to cover these large risks, and have since suffered financial losses, despite more than doubling premiums.
Unsurprisingly, all these factors have caused multiple insurers to be deemed insolvent, and no longer able to pay out their claims. One company in particular, United Property and Casualty Insurance Co. faced higher-than-anticipated losses after Hurricane Ian that forced them into insolvency and left thousands of claims unpaid. In response, the remaining providers of the state have agreed to enact a 1% assessment fee on all premiums to help raise the funds to pay out existing bonds. This fee is a crucial first step in addressing Florida’s property insurance crisis and ensuring homeowners can maintain a sense of safety through their insurance providers.
The Need for the 1% Emergency Assessment Fee
Before understanding why the fee is actually beneficial to the state, you have to understand how the state reached a place of extreme financial loss. Florida has always dealt with its fair share of hurricanes and tropical storms, but in recent years these storms have gotten so extreme that insurance companies could no longer afford to pay for the damages. Two things happen when insurance companies can no longer pay. The first is the company is deemed insolvent, meaning the company officially has no funds to pay. This can end in the official liquidation, or ending, of the business. Secondly, it transfers the responsibility of payment and coverage to the appropriate association or another insurance provider. These parties have financial responsibilities of their own, and so payment is often delayed quite extensively, leaving families with unpaid claims unable to get assistance.
In addition to covered damages, Florida faces the highest number of homeowners lawsuits than any other state in the country. When a claim is denied, or there is proof of fraud, you can sue the insurance company if you believe the rejection was uncalled for. While in most places this type of action is rare, Florida makes up for 79% of all homeowner's lawsuits. Insurance providers are facing expensive claims alongside expensive lawsuits, which have subsequently drained the majority of their funds.
Since 2020, 15 property insurance companies have gone insolvent in the State of Florida, and about 30 others are on the watchlist for financial safety. The continuation of losses and bankruptcy had regulators brainstorming ideas for remedies, but it was not until Hurricane Ian that the 1% assessment fee plan was created. The 1% assessment fee was considered the best option for its low cost to policyholders, but high potential for generating funds. While on average it will only cost insureds $30, it can generate millions for insurance providers to help pay off claim bonds.
How Will the Assessment Fee Funds Be Paid?
According to the order, which was officially approved on March 30th, Florida insurers will collect the 1% assessment fee on all insurance premiums, aside from auto, from policyholders beginning in October. Once collected, they will send the money on a quarterly basis to the Florida Insurance Guaranty Association (FIGA), the agency that oversees claims for homeowners whose private insurers became insolvent in the State of Florida. FIGA states that the assessment fee will continue until claims are “paid in full, but insureds should anticipate the fee through 2024 at minimum.
Regulators say that FIGA plans to borrow an initial $150 million. These funds will provide short-term financing to help pay claims left over from Hurricane Ian that we’re unpaid due to the liquidation of United Property and Casualty Co. FIGA will then issue up to $750 million in revenue bonds to pay off the short-term financing and any remaining claims or liabilities.
Upon issuance of the assessment fee, FIGA promises to “notify all member insurers and provide a copy of the Notice of Rights, along with instructions for payment remittances and reconciliations”.
While some believe that the fee is controversial given the current cost of living and already high premiums in Florida, others recognize the long-term benefits it will provide for those in need. Lisa Miller, the former Florida Deputy Insurance Commissioner, said in an interview with News 6 that the “funds generated from the fee are needed to pay claims for homeowners whose insurance companies have gone bankrupt”, and that “the goal is to prevent any additional companies from shutting down”.
Can Regulators Save the Florida Homeowners Market?
The 1% assessment fee may be a solution to an existing issue, but it won’t necessarily address the long-term challenges the homeowner’s market is facing in Florida. Firstly, even with the increase in weather-related disasters, the cost of living and housing is going up across the entire state. With that, so is the cost to insure the property, and the cost to repair any damages.
Homeowners are facing unprecedented costs and a substantial risk of little or no coverage in the event of a crisis. State regulators do have hope for the future, still. Senators have backed numerous policies and provisions to remedy the current insurance issues the market faces.
One of the first insurance regulation bills was Senate Bill 76 passed in 2021. This bill addressed challenges unique to Florida and established fair and reasonable guidelines for both insurance providers and policyholders, while also increasing protection against fraud. Senate 2D bill, passed in 2022, addresses the ongoing insurance concerns related to fair coverage. The bill allocated millions in funds to strengthen the physical structures of Florida homes, donated money to reinsurance programs, required transparent claims denial processes, and rejected denials solely due to the age of a home's roof.
Despite ongoing efforts to improve Florida’s property market, the area remains a high-risk zone. It is essential for current Florida residents to secure coverage from a reputable, A-rated insurer and maintain their homes with up-to-date physical repairs. Those considering a move to Florida can minimize their insurance costs by selecting a location outside of a flood zone for a lower risk. By taking proactive measures and obtaining adequate coverage, Florida property owners can better protect their investments and mitigate external risks.
In regard to the 1% assessment, insurance companies will be notifying insureds soon of the details of the fee so progress to claims can begin.
Insurance Solutions With ECBM
Even if you’re not in a high-risk state, insurance is important for overall risk management. Whether it's protecting your home from natural disasters or your business from theft or fire, property insurance can provide the coverage you need to mitigate risk and protect your assets. ECBM is here to help you navigate your insurance coverage to ensure the highest quality program. For more information on how we can serve you, speak to one of our agents today.
