When Property Insurance Goes Wrong

Like so many Floridians I’ve met, Libertarian Party of Florida (LPF) Member Joey Ferguson and his family experienced the challenges and frustrations of Florida’s property insurance crisis firsthand. After Hurricane Michael struck in 2018 – leaving their home severely damaged – their lives took an unexpected turn. What followed was a series of setbacks, disputes, and delays, leaving them displaced for five agonizing years.

Joey’s journey began with a promising start as the insurance company provided an initial check for essential roof repairs; however, the progress was soon hindered by the insurance company’s stalling tactics, demanding proof of mold damage and insisting on specific contractors. This led to a prolonged battle, with the insurance company halting payments and claiming the damage wasn’t caused by the hurricane, despite neighboring properties receiving payouts for similar claims. Frustrated, Joey sought legal representation, and after years of waiting, a mediation process began, resulting in an agreement that had to be turned over to the mortgage company.

The challenges continued as finding a reliable contractor proved difficult, and the Ferguson family faced more disappointment when their contractor disappeared after completing only a fraction of the work. This further complicated matters with the mortgage company, again necessitating legal intervention. Finally, a new check was released, allowing the repairs to resume after unnecessary delays caused by more mold testing demands.

Joey and his family did everything right to set themselves up for success, paying the notoriously steep Florida property insurance premiums. But because of overregulation, insurance companies do all they can to avoid paying out more than they have to, even when it leads to expensive legal battles. Joey’s story hammers home the urgent need for comprehensive reforms. By reducing regulatory burdens, promoting competition, reforming the legal system, encouraging risk mitigation, and prioritizing consumer education and choice, Florida can create an empowering environment for both policyholders and insurance providers, ultimately leading to a more resilient and accessible property insurance market.

Key Issues For Reform

As Floridians across the state grapple with the property insurance crisis, with some folks suddenly having their policies canceled, while others experience soaring monthly costs, the LPF implores the State of Florida to explore solutions that align with the principles of limited government intervention and free markets. The costs of property insurance have gotten so high that many people who have paid off their mortgages opt not to have insurance at all.

While DeSantis has made changes here and there, insurers are still fleeing the state. In July 2023, Farmers Insurance announced that they will stop offering its policies in Florida, including home, auto, and umbrella, impacting 100,000 policyholders smack in the middle of hurricane season. Fostering a competitive and sustainable insurance market in Florida requires a departure from excessive regulations and a clear focus on market-based solutions. By doing so, Florida can pave the way for a more affordable and accessible property insurance market.

One of the primary causes of the property insurance crisis in Florida is the burden of excessive regulations imposed by our government. These regulations include price controls, coverage mandates, and restrictions on underwriting practices. With mortgages, home buyers are forced to have policies; but due to interference from the Federal Emergency Management Agency (FEMA), which subsidizes flood insurance, policies are issued to places that continually flood every few years. This encourages people to build and rebuild in flood zones, and unfairly puts the burden on those who did not choose to live in a flood zone. To alleviate these issues, Florida must reduce or eliminate these burdensome regulations, and take a hard look at changes to when FEMA applies. By doing so, we can create a more competitive environment where insurers can offer innovative products, solutions, competitive rates that meet diverse needs of their customers, and ensure that people know exactly what could be in store for them should they choose to live in a location with high flood risk.

Finally, there are insurance lobbyists who work solely to get the Florida government to do their bidding, and a lot of these executives come from previous careers at insurance companies. This is not good for consumers or for new competitors in the insurance space. It’s a contributing factor to the mess we’re in now. The “revolving door” phenomenon has been evident in Florida, with some Insurance Commissioners leaving their public posts only to join lucrative insurance lobbying firms or even hold executive positions within the insurance sector. This creates an unhealthy relationship between the insurance industry and the regulatory agencies meant to oversee them, undermining consumer protection and enforcement of laws. A recent example is former Florida Insurance Commissioner David Altmaier, who resigned and swiftly joined an insurance lobbying firm after pushing for sweeping law changes that favored insurers. Such practices raise concerns about conflicts of interest and the integrity of the regulatory process, which currently has no market mechanism to punish bad actors. Over the past three years, the DeSantis administration has made things worse by paying any cost in taxpayer money, instead of trying to tackle any of the root issues. Throwing money at the problem obviously isn’t a great way to bring down costs. The LPF would like to see the new Insurance Commissioner, Michael Yaworsky, buck the trend and chart a different path by specifically pledging not to work for the insurance industry once his tenure at the agency concludes.

The Solution: Market-Driven Reforms

Competition is essential for a healthy insurance market. Unfortunately, the State of Florida has seen a lack of competition due to barriers to entry for new insurers, and the ramifications are hitting both insurers and policyholders alike. Diona Kozma, Realtor® and Chair of the Libertarian Party of Palm Beach said, “Potential homeowners are now facing a double-blow of skyrocketing prices and interest rates. For those who need to borrow money for their new Florida home, they also have to factor property insurance costs into their payment.” Kozma continued, “The relentless surge in insurance rates is eroding the buying power of prospective homeowners. And this crisis is not limited to single-family homes; it’s impacting condo associations as they grapple with higher building insurance expenses. The unfortunate consequence is that these added costs are getting passed down to condo owners in new assessments and hikes in monthly maintenance fees.”

The LPF advocates for the removal of these barriers. One possible solution could involve streamlining the licensing process and reducing capital requirements for new insurance company entrants. A more accessible market will attract new insurers and encourage healthy competition, ultimately benefiting policyholders with increased choices and lower premiums.

It’s important to note that Florida’s vulnerability to hurricanes and flooding admittedly poses significant risks for insurers. Encouraging risk mitigation is a proactive approach to addressing this challenge. Rather than relying on government mandates, insurers should offer more discounts to homeowners who take certain precautions. By incentivizing homeowners to invest in hurricane-resistant building materials and protective measures, insurers can mitigate risks and reduce the frequency and severity of claims.

Additionally, in the aftermath of hurricanes, Florida often faces a shortage of skilled contractors to repair damaged homes. To address this issue, the LPF recommends encouraging out-of-state contractors to work in Florida without unnecessary bureaucratic hurdles; additionally, Florida should form reciprocity agreements with all nearby states. There’s nothing more frustrating than seeing situations like the Texas roofer who was arrested for helping hurricane victims. By easing licensing requirements and facilitating reciprocity agreements with other states, Florida can tap into a larger pool of skilled labor and expedite the recovery process. This approach fosters competition, ensures timely repairs, and will help homeowners restore their properties more efficiently and reduce the strain on the insurance market.

Empowering consumers with knowledge and choice is incredibly important. Insurers should take the lead in educating their customers about coverage options and risks. This includes providing comprehensive information and resources to help consumers make more informed choices. Additionally, insurers could offer premium discounts or rewards programs to incentivize policyholders to engage in risk mitigation practices or participate in educational programs. By relying on market mechanisms and competition among insurers, consumers can enjoy more options, access to information, and affordable premiums.

Finally, there’s no denying that the legal environment in Florida has contributed to skyrocketing insurance costs. Frivolous lawsuits and excessive payouts have burdened both insurers and policyholders alike, including folks like Joey who have had very valid claims. Implementing tort reform measures, such as capping non-economic damages and limiting attorney fees, will help curb these issues. By creating a fair and balanced legal system, Florida can reduce the financial burden on insurers and make insurance coverage more affordable for homeowners.

The property insurance crisis in Florida is in dire need of a fresh perspective that aligns with libertarian principles of limited government intervention and free markets. The LPF believes that reducing regulatory burdens, encouraging competition, reforming the legal system, promoting risk mitigation, and prioritizing education and consumer choice are essential steps toward a more sustainable and affordable property insurance market in Florida. By adopting these measures, Florida can empower both insurers and policyholders, helping to drive innovation, lower costs, and ensure access to coverage for all Floridians.