In September I was representing sellers who owned a beautiful single-family home located close to Siesta Key. The property went under contract and now the sellers have become the buyers. Typically, this is an easy task, however this time it was different, and not in a good way.
The buyers were not difficult, in fact, they were eager to find their new home. We looked at several properties, and I lost count, but I am sure the buyers know the exact number. The challenge became an unexpected one, for many of the homes either needed new roofs, (less than 5 years of expected life) which made them uninsurable, or old roofs that made the homeowner’s insurance premium outrageously high. So, why is it so difficult to have affordable homeowners’ insurance in Florida?
In researching this subject, I discovered there are several complex issues surrounding this situation. Since 2017 six property and casualty companies that offered homeowners, insurance have liquidated. Five more insurance companies are in the liquidation process in 2022. These numbers do not include the insurance companies that are voluntarily leaving the state.
Problem number one: We simply do not have enough private insurance carriers to absorb the risk. That alone impacts coverage availability and pricing.
Why are the insurers liquidating or leaving our state? Problem number two. One major factor is insurance fraud. The following will resonate with some of you reading this newsletter.
This is how the scam begins. First roofers canvas neighborhoods offering inspections to unsuspecting homeowners. (One thing to remember, is that the homeowner is not soliciting a contractor for repairs because in most cases, they are not experiencing roof issues such as leaks). It is no surprise that “damage” is discovered, and a promise of a new roof is needed. Additionally, promises are made that the homeowner’s insurance deductible will be waived. Next, the homeowner is encouraged to sign an Assignment of Benefits (AOB) form, which provides the contractor with the right to file an insurance claim on the homeowner’s behalf. Naturally, a claim adjuster from the insurance company inspects the alleged damage. The adjustor either finds no damage or minimal damage than the contractor found, and the claim payout is less than what the contractor demanded.
At this point, the contractor may bring legal action against the insurance company demanding a payout on the original quote. Remember through the AOB the homeowner signed the benefits of the policy to the contractor, so the contractor doesn’t need the homeowner’s permission to basically involve their home in a lawsuit.
The insurance company now has 2 options: pay the legal cost to fight the lawsuit or pay the costs to settle out of court. Either way, the insurance companies lose.
Problem number three. In 2017 a Florida State court case affirmed and strengthened a legal principle that an attorney can collect as much as 250 percent of a typical attorney fee if the attorney wins a lawsuit on behalf of a homeowner. The State of Florida now accounts for 80% of property litigation in the United States.
Florida will always have an element of risk when it comes to homeowners’ insurance. Our geographic location provides the opportunity for our state to be impacted by tropical storms and hurricanes from either the east or the west. Even homes located in the interior section of our state are at risk because the peninsula is so thin, but fraud is not geographic.
The state has taken measures to lessen the fraudulent claims. In July of 2021 Senate Bill 76 went into effect, which aimed at reducing the solicitation tactics that fraudulent contractors use to start the fraud. In May of 2022 Florida legislators passed an insurance reform bill which restricts what rates lawyers can charge for property insurance claims. Lastly, Governor DeSantis has called another special session in December to focus on our insurance crisis.
Remember this fiasco started in 2017, therefore it will take time to walk it back.
For the buyers I have been working with, they found a home that needs a new roof. They are still waiting to close on a home that is involved in a legal dispute with the seller’s insurance company. This legal dispute was never disclosed to the buyer nor the buyer’s agent. Homeowners beware, buyers beware!
