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 publish hoping a couple of of the Committee members or their employees could have the chance to learn it throughout this legislative session.
The job of a legislator just isn’t simple in relation to insurance coverage. Most constituents need cheap insurance coverage that may pay for the whole lot within the occasion of a catastrophe. All people would love that Utopia, which doesn’t exist in probably the most hurricane-prone state of the Union. The insurance coverage trade 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 attempting to repair.
Florida policyholders haven’t any lobbyists. No one 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 worth issues, not absolutely understanding how pricey low-cost insurance coverage is when a loss occurs. Many Florida policyholders haven’t any religion within the present insurance coverage product as a result of the insurance policies they buy price lots, 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 may be little they’ll do to successfully fight or maintain the insurer accountable for these actions.
Most Florida legislators are folks eager to make life higher for all Floridians. Few are insurance coverage consultants 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 be taught. 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 info not offered by the insurance coverage trade’s skilled lobbyists about Householders Insurance coverage? I’d recommend an article by Jay Feinman, Bettering the Marketplace for Householders Insurance coverage. 1 The creator of that article additionally wrote a guide, Delay, Deny, Defend, which was made extra well-known because 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 current article, Individuals’ Rage at Insurers Goes Past Well being Protection – The Writer of ‘Delay, Deny, Defend’ Factors to three Reforms that May Assist. 2 Studying these two articles will go a protracted option to understanding systemic insurance coverage points that trigger constituents to be very annoyed. Feinman suggests a number of legislative and regulatory treatments that Florida ought to undertake.
The straightforward system 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 advised them this:
The charges are going up for plenty of causes that are largely out of your management. In the event you have a look at the fundamental economics and the way insurance coverage corporations worth their product, you’ll find that the quantity of losses, which is known as ‘frequency,’ is rising. The typical quantity paid per loss can also be rising, which is named ‘severity.’ When the frequency and severity rise on the identical time, we have now the present state of affairs, which makes insurers increase 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 whole 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 building prices is inflicting premiums to rise. You can not management inflation building 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 online business, insurance coverage corporations should earn a living, and when frequency instances severity don’t equal income, the cost for insurance coverage will go up. The advanced and infrequently pricey problem 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 Disguise Income Whereas Claiming Losses to Get Charges Raised. This nonetheless goes on, as famous in How Florida Insurers Make Tens of millions on The Aspect.
Nonetheless, I consider within the insurance coverage product. I agree with the insurance coverage trade that we have now a societal obligation to assist cut back the frequency and severity of loss. This isn’t a brand new idea however one which has been understood for nicely over 200 years in relation to the affordability of householders insurance coverage, as I just lately said in The Group Necessity to Make Buildings Extra Insurable and Resilient to Loss:
The purpose of this publish is that property insurance coverage ought to at all times be thought of a social product. Property insurance coverage for buildings has traditionally required communities to make the insured buildings insurable. Within the nineteenth century, as cities grew and fires turned a big 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 fireplace insurance coverage. These measures aimed to cut back fireplace threat and enhance firefighting capabilities, thereby making city properties extra engaging to insurers.
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The insurance coverage product is now not restricted to fireside insurance coverage because it was within the nineteenth century. Commissioner Yaworsky’s feedback and views mirror that Florida’s insurance coverage neighborhood could should take important steps to cut back the chance of loss from windstorms and hurricanes. This will probably be fought by these promoting asphalt roofs and householders having to switch these lower-priced parts of a house. However his query raises the query: What are we prepared to do as a neighborhood to take motion to make our buildings extra resilient and extra insurable? There isn’t any free lunch in relation to the price of property possession. If one can not 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 essential. 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 householders 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 info, and in opposition to the deceitful practices of some businessmen”
—Theodore Roosevelt
1 Jay M. Feinman, Bettering the Marketplace for Householders Insurance coverage, 30 Conn. Ins. L.J. Vol. 169 (2024).
2 Jay Feinman, Individuals’ Rage at Insurers Goes Past Well being Protection – The Writer of ‘Delay, Deny, Defend’ Factors to three Reforms that May Assist, The Dialog (Jan. 6, 2025).
