The Florida Home Insurance coverage and Banking Subcommittee is holding a “Panel Dialogue on Home-owner’s Property Insurance coverage Value Drivers.” I’ll take part as a panelist. I’m scripting this submit hoping just a few of the Committee members or their workers could have the chance to learn it throughout this legislative session.
The job of a legislator shouldn’t be simple in terms of insurance coverage. Most constituents need cheap insurance coverage that may pay for every little thing within the occasion of a catastrophe. Everyone would love that Utopia, which doesn’t exist in probably the most hurricane-prone state of the Union. The insurance coverage trade shouldn’t be 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 issues, which in the long run have led to the Florida insurance coverage disaster the present legislature is attempting to repair.
Florida policyholders don’t have any lobbyists. No person reads their insurance coverage coverage till a disaster occurs, after which after 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 worth issues, not absolutely understanding how pricey 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 rather a lot, have very excessive deductibles, have insurance coverage gaps of protection, include limitations on the quantities paid, and when insurance coverage corporations delay or deny claims, there’s little they will do to successfully fight or maintain the insurer accountable for these actions.
Most Florida legislators are individuals desirous to make life higher for all Floridians. Few are insurance coverage specialists who’ve spent tens of hundreds of hours learning and taking part within the property insurance coverage discipline. Most legislators have no idea the historical past of property insurance coverage nor have the time to study. Easy solutions to complicated questions are sometimes supplied 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 workers go for info not supplied by the insurance coverage trade’s skilled lobbyists about Owners Insurance coverage? I might counsel an article by Jay Feinman, Enhancing the Marketplace for Owners Insurance coverage. 1 The creator 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 Individuals really feel towards insurance coverage corporations, pushed by claims of unjust practices, together with delays, denials, and sophisticated declare procedures, in a latest article, Individuals’ Rage at Insurers Goes Past Well being Protection – The Creator of ‘Delay, Deny, Defend’ Factors to three Reforms that Might Assist. 2 Studying these two articles will go an extended technique to understanding systemic insurance coverage points that trigger constituents to be very pissed off. Feinman suggests a number of legislative and regulatory treatments that Florida ought to undertake.
The easy formulation for figuring out the fundamental 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 have been going up, I instructed them this:
The charges are going up for numerous causes that are largely out of your management. When you take a look at the fundamental economics and the way insurance coverage corporations worth their product, you will see that the quantity of losses, which is known as ‘frequency,’ is rising. The typical quantity paid per loss can be rising, which is called ‘severity.’ When the frequency and severity rise on the identical time, we now have the present state of affairs, which makes insurers elevate charges to stay worthwhile.
The frequency of losses is growing largely as a result of we’re having extra storms and pure disasters, that are clearly brought on by 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. A number of the rebuilding prices soar when we now have 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. Identical to what you are promoting, insurance coverage corporations should earn cash, and when frequency instances severity don’t equal income, the cost for insurance coverage will go up. The complicated and sometimes pricey difficulty 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 Cover Earnings Whereas Claiming Losses to Get Charges Raised. This nonetheless goes on, as famous in How Florida Insurers Make Hundreds of thousands on The Facet.
Nonetheless, I consider within the insurance coverage product. I agree with the insurance coverage trade that we now have 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 2 hundred years in terms of the affordability of householders insurance coverage, as I just lately said 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 turned a major threat to city areas, metropolis governments and communities carried out a number of measures to make sure that insurance coverage corporations discovered them insurable for writing hearth insurance coverage. These measures aimed to cut back hearth threat and enhance firefighting capabilities, thereby making city properties extra enticing to insurers.
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The insurance coverage product is now not restricted to fireplace insurance coverage because it was within the nineteenth century. Commissioner Yaworsky’s feedback and views replicate that Florida’s insurance coverage group could should take important steps to cut back the chance of loss from windstorms and hurricanes. This might be fought by these promoting asphalt roofs and owners having to interchange these lower-priced elements of a house. However his query raises the query: What are we keen 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 sit up for this afternoon’s dialogue. These points are vital. Good future public coverage can solely be achieved with a whole understanding of the problems and the way we traditionally received 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 patron have to be protected towards unsafe merchandise, towards deceptive info, and towards the deceitful practices of some businessmen”
—Theodore Roosevelt
1 Jay M. Feinman, Enhancing the Marketplace for Owners Insurance coverage, 30 Conn. Ins. L.J. Vol. 169 (2024).
2 Jay Feinman, Individuals’ Rage at Insurers Goes Past Well being Protection – The Creator of ‘Delay, Deny, Defend’ Factors to three Reforms that Might Assist, The Dialog (Jan. 6, 2025).
