When Did Insurance Companies Stop Insuring Houses in Florida?

This article will explore when and why insurance companies began to stop insuring houses in Florida, the factors driving their departure, and what homeowners can do to navigate the evolving landscape. We will also provide relevant FAQs to help clarify the current situation for residents.

Insurance Companies Leaving Florida

The decision by insurance companies to stop insuring houses in Florida has been a gradual process that escalated in recent years. Below is a breakdown of the timeline:

Early 2000s: The Beginning of the Crisis

1. In the wake of hurricanes like Hurricane Andrew (1992), which caused more than $25 billion in damages, many insurers started to reconsider their positions in Florida. Hurricane Andrew led to the bankruptcy of several smaller insurers, setting the stage for more conservative risk assessments.
2. Throughout the early 2000s, hurricanes such as Charley, Ivan, and Wilma further battered the state, causing billions in property damages. As these hurricanes hit Florida, insurance companies began raising premiums and reevaluating their exposure to the state's volatile weather patterns.

Late 2010s: Increased Litigation Costs and Hurricanes

1. The mid to late 2010s saw a marked increase in hurricanes, such as Hurricane Irma (2017), which caused $50 billion in damages. As a result, insurance companies faced substantial claims.
2. Compounding this problem was the rise of litigation. Assignment of Benefits (AOB) abuse—where contractors and lawyers would file inflated claims on behalf of homeowners—further stressed the insurance system.
3. In response to mounting claims, several insurers began leaving Florida, refusing to renew policies or opting not to take on new business in high-risk areas.

2020-2023: The Exodus of Insurance Companies

1. By 2020, the state’s property insurance market was in a full-blown crisis. Hurricane Michael (2018), another Category 5 storm, caused $25 billion in damages, pushing several companies over the edge.
2. In 2022, the situation reached a tipping point. Companies like Southern Fidelity Insurance Co., Weston Property & Casualty, and St. John’s Insurance Co. either went bankrupt or were forced into receivership, leaving thousands of homeowners scrambling for new coverage.
3. In 2023, larger companies like Farmers Insurance and State Farm began either pulling out of the state or drastically reducing their coverage. Farmers Insurance, for example, announced in July 2023 that it would no longer write new property policies in Florida due to “risk exposure.”

Why Are Insurance Companies Leaving Florida?

There are several interrelated factors driving the departure of insurance companies from the Florida market:

1. Hurricane Risk

Florida is the most hurricane-prone state in the U.S., with an average of 40% of all U.S. hurricanes making landfall there. The frequency and intensity of hurricanes have been rising, largely due to climate change. These storms cause significant damage to homes, leading to billions of dollars in claims each year. Insuring homes in Florida has become a losing proposition for many companies due to the unpredictable yet inevitable storms.

2. Rising Litigation Costs

One of the unique challenges in Florida’s insurance market is the high level of litigation associated with claims. The Assignment of Benefits (AOB) abuse has been particularly problematic. Homeowners, often without fully understanding the legal process, sign over their rights to sue insurers to third parties, such as contractors or attorneys, who then inflate repair costs and file lawsuits against insurance companies.

As a result, Florida accounts for a disproportionate percentage of insurance-related litigation in the U.S. A study by the Florida Office of Insurance Regulation found that the state represented 79% of the nation's homeowner insurance lawsuits, despite only accounting for 9% of claims.

3. High Reinsurance Costs

Insurance companies in Florida rely heavily on reinsurance—insurance for insurers—to spread the risk of large payouts from hurricanes and other disasters. However, the cost of reinsurance has been skyrocketing, with reinsurers raising rates significantly in response to the increased frequency and severity of storms. The inflated costs of reinsurance have made it difficult for Florida-based insurers to maintain their operations, forcing them to increase premiums or exit the market altogether.

4. Fraudulent Claims and AOB Abuse

Beyond typical hurricane damage claims, Florida’s property insurance market has been plagued by fraud and abuse, primarily through the misuse of Assignment of Benefits (AOB) contracts. In these cases, contractors or repair companies take control of an insurance claim from the homeowner, allowing them to sue the insurance company directly. This has led to inflated repair bills and an overwhelming number of lawsuits, contributing to higher premiums and the withdrawal of insurers.

5. Regulatory Challenges

Florida’s insurance regulations, while designed to protect consumers, have created challenges for insurance companies. The state imposes restrictions on how quickly insurers can raise rates, which limits the companies' ability to respond to rising risks and costs. Without the ability to adjust premiums to match the increasing risk of hurricanes and the cost of reinsurance, many insurers have opted to leave the state rather than face financial losses.

Impact on Florida Homeowners

The departure of insurance companies from Florida has left many homeowners in a precarious position. As companies have pulled out, remaining insurers have been forced to increase premiums, leading to higher costs for homeowners. Some residents, particularly those in high-risk coastal areas, are finding it difficult to obtain coverage at all.

In some cases, homeowners have been forced to turn to the state-run Citizens Property Insurance Corporation, which serves as the insurer of last resort. While Citizens offers a safety net for those unable to find private coverage, it often comes with higher premiums and less comprehensive coverage.

What Can Florida Homeowners Do?

With fewer options available, homeowners need to take proactive steps to protect their properties and find reliable coverage. Here are a few strategies:

1. Work with an Independent Agent: Independent insurance agents can shop around on behalf of homeowners, helping them find the best available coverage among the remaining insurers in the state.
2. Mitigate Risks: Homeowners can invest in home improvements to reduce the risk of damage from hurricanes, such as installing impact-resistant windows, reinforcing roofs, and maintaining proper drainage systems. Many insurers offer discounts for homes that are better prepared for storms.
3. Explore Flood Insurance: Since homeowners insurance typically does not cover flood damage, purchasing separate flood insurance through the National Flood Insurance Program (NFIP) or a private insurer can offer additional protection.
4. Stay Informed: Homeowners should stay informed about changes in the state’s insurance market and potential reforms that could impact availability and costs.

Frequently Asked Questions (FAQs)

Why are so many insurance companies leaving Florida?

Insurance companies are leaving Florida due to the increasing frequency and severity of hurricanes, rising litigation costs, AOB abuse, and the high cost of reinsurance. The combination of these factors has made it difficult for insurers to operate profitably in the state.

When did the insurance crisis in Florida begin?

The insurance crisis in Florida began in earnest after Hurricane Andrew (1992), which caused a wave of insurance company bankruptcies. The situation worsened in the late 2010s and early 2020s, as hurricanes became more frequent and litigation costs skyrocketed.

Can homeowners in Florida still get insurance?

Yes, homeowners in Florida can still get insurance, but it has become more challenging and expensive. Many homeowners have had to turn to the state-run Citizens Property Insurance Corporation, which serves as the insurer of last resort, though private insurers are still available in some areas.

What is the Assignment of Benefits (AOB) abuse?

AOB abuse occurs when homeowners sign over their insurance claim rights to third parties, such as contractors or lawyers, who then file inflated claims and lawsuits against insurance companies. This has contributed to rising premiums and the withdrawal of insurers from the market.

What is Citizens Property Insurance Corporation?

Citizens Property Insurance Corporation is a state-run insurer that provides coverage for homeowners who cannot find insurance in the private market. It serves as the insurer of last resort but often comes with higher premiums and limited coverage compared to private insurers.

Will insurance companies ever return to Florida?

It’s uncertain whether insurance companies will return to Florida in large numbers, but changes in regulation, better risk mitigation strategies, and reduced litigation could help attract insurers back to the state. However, given the continued risk of hurricanes and climate change, the insurance market will likely remain volatile.

Conclusion

The decision by many insurance companies to stop insuring houses in Florida is rooted in the state’s vulnerability to natural disasters, particularly hurricanes, and the challenges posed by high litigation and reinsurance costs. While the insurance market in Florida remains in crisis, there are steps homeowners can take to secure coverage and protect their properties. For now, the state continues to grapple with these issues, and without significant reform, Florida’s insurance landscape may remain uncertain for years to come.