The Florida Home Insurance coverage and Banking Subcommittee is holding a “Panel Dialogue on Home-owner’s Property Insurance coverage Price Drivers.” I’ll take part as a panelist. I’m penning this submit hoping a couple of of the Committee members or their employees might have the chance to learn it throughout this legislative session.
The job of a legislator just isn’t straightforward in terms of insurance coverage. Most constituents need cheap insurance coverage that may pay for all the pieces within the occasion of a catastrophe. Everyone would love that Utopia, which doesn’t exist in essentially the most hurricane-prone state of the Union. The insurance coverage business just isn’t a lot of a assist for legislators as a result of it has a legion of well-heeled lobbyists who collectively conspire and develop an agenda that promotes their most present considerations, which in the long run have led to the Florida insurance coverage disaster the present legislature is making an attempt to repair.
Florida policyholders don’t have any lobbyists. No person reads their insurance coverage coverage till a disaster occurs, after which once they attempt to learn it, most don’t perceive it. Policyholders hope for protection, however first hope that nothing will occur to them so {that a} declare should be made. Most policyholders purchase insurance coverage on value concerns, not absolutely understanding how expensive low cost insurance coverage is when a loss occurs. Many Florida policyholders don’t have any religion within the present insurance coverage product as a result of the insurance policies they buy price loads, have very excessive deductibles, have insurance coverage gaps of protection, include limitations on the quantities paid, and when insurance coverage firms delay or deny claims, there may be little they will do to successfully fight or maintain the insurer accountable for these actions.
Most Florida legislators are individuals eager to make life higher for all Floridians. Few are insurance coverage consultants who’ve spent tens of hundreds of hours finding out and collaborating within the property insurance coverage area. Most legislators have no idea the historical past of property insurance coverage nor have the time to study. Easy solutions to advanced questions are sometimes offered by insurance coverage lobbyists who know that the present batch of legislators will come and go due to time period limits.
The place can legislators and employees go for data not offered by the insurance coverage business’s skilled lobbyists about Owners Insurance coverage? I’d recommend an article by Jay Feinman, Bettering the Marketplace for Owners Insurance coverage. 1 The writer of that article additionally wrote a e book, Delay, Deny, Defend, which was made extra well-known on account of the horrific killing of the United HealthCare CEO. Feinman mentioned the pervasive frustration People really feel towards insurance coverage firms, pushed by claims of unjust practices, together with delays, denials, and complex declare procedures, in a latest article, People’ Rage at Insurers Goes Past Well being Protection – The Writer of ‘Delay, Deny, Defend’ Factors to three Reforms that Might Assist. 2 Studying these two articles will go a protracted method to understanding systemic insurance coverage points that trigger constituents to be very pissed off. Feinman suggests a number of legislative and regulatory cures that Florida ought to undertake.
The straightforward formulation for figuring out the essential financial price driver for all insurance coverage is “frequency x severity.” Final summer time, and lengthy earlier than anyone considered this panel dialogue, I famous the next in What Is Up With Insurance coverage Premiums Different Than They Are Going Up:
When these CEOs requested me why their prices for property insurance coverage charges had been going up, I instructed them this:
The charges are going up for quite a lot of causes that are largely out of your management. For those who take a look at the essential economics and the way insurance coverage firms value their product, you can find that the quantity of losses, which is known as ‘frequency,’ is rising. The common quantity paid per loss can be rising, which is called ‘severity.’ When the frequency and severity rise on the similar time, we have now the present scenario, which makes insurers elevate charges to stay worthwhile.
The frequency of losses is rising largely as a result of we’re having extra storms and pure disasters, that are clearly attributable to local weather change. Your companies are situated in rising inhabitants areas the place these disasters happen. This has elevated the entire variety of losses which should be paid.
Additional, the price of repairs and rebuilding have risen above the already excessive charges of inflation. Among the rebuilding prices soar when we have now mass disasters as a result of the demand for builders and supplies far exceeds the conventional capability. Easy inflation of development prices is inflicting premiums to rise. You can not management inflation development prices, however these contribute to greater premiums.
Most of that is pretty easy economics as to the reason for rising insurance coverage costs. Similar to your corporation, insurance coverage firms should make cash, and when frequency instances severity don’t equal income, the cost for insurance coverage will go up. The advanced and sometimes expensive subject is what to do about it.
One warning to all present legislators is present in a Pulitzer-winning article I famous 15 years in the past in Breaking Information Story: Florida Insurers Conceal Income Whereas Claiming Losses to Get Charges Raised. This nonetheless goes on, as famous in How Florida Insurers Make Thousands and thousands on The Aspect.
Nonetheless, I imagine within the insurance coverage product. I agree with the insurance coverage business that we have now a societal obligation to assist scale back the frequency and severity of loss. This isn’t a brand new idea however one which has been understood for properly over 200 years in terms of the affordability of householders insurance coverage, as I not too long ago acknowledged in The Group Necessity to Make Constructions Extra Insurable and Resilient to Loss:
The purpose of this submit is that property insurance coverage ought to all the time be thought-about a social product. Property insurance coverage for constructions has traditionally required communities to make the insured constructions insurable. Within the nineteenth century, as cities grew and fires grew to become a major danger to city areas, metropolis governments and communities carried out a number of measures to make sure that insurance coverage firms discovered them insurable for writing fireplace insurance coverage. These measures aimed to scale back fireplace danger and enhance firefighting capabilities, thereby making city properties extra engaging to insurers.
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The insurance coverage product is not restricted to fireplace insurance coverage because it was within the nineteenth century. Commissioner Yaworsky’s feedback and views mirror that Florida’s insurance coverage group might should take important steps to scale back the danger of loss from windstorms and hurricanes. This might be fought by these promoting asphalt roofs and owners having to switch these lower-priced parts of a house. However his query raises the query: What are we prepared to do as a group to take motion to make our constructions extra resilient and extra insurable? There isn’t any free lunch in terms of the price of property possession. If one can’t afford the insurance coverage, can one actually afford the price of the construction within the first place? What can we do to decrease the long-term and total price of actual property possession?
I stay up for this afternoon’s dialogue. These points are necessary. Good future public coverage can solely be achieved with a whole understanding of the problems and the way we traditionally bought to our present state of the owners market. I applaud our legislative leaders for having this public discussion board for dialogue.
Thought For The Day
“The buyer should be protected in opposition to unsafe merchandise, in opposition to deceptive data, and in opposition to the deceitful practices of some businessmen”
—Theodore Roosevelt
1 Jay M. Feinman, Bettering the Marketplace for Owners Insurance coverage, 30 Conn. Ins. L.J. Vol. 169 (2024).
2 Jay Feinman, People’ Rage at Insurers Goes Past Well being Protection – The Writer of ‘Delay, Deny, Defend’ Factors to three Reforms that Might Assist, The Dialog (Jan. 6, 2025).
