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 put up hoping just a few of the Committee members or their workers might have the chance to learn it throughout this legislative session.
The job of a legislator just isn’t simple in the case of insurance coverage. Most constituents need cheap insurance coverage that may pay for every 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 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 attempting to repair.
Florida policyholders haven’t any lobbyists. No one 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 must be made. Most policyholders purchase insurance coverage on worth concerns, not totally 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 value quite a bit, have very excessive deductibles, have insurance coverage gaps of protection, comprise 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 folks desirous 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 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 business’s skilled lobbyists about Owners Insurance coverage? I’d counsel an article by Jay Feinman, Bettering the Marketplace for Owners Insurance coverage. 1 The creator of that article additionally wrote a ebook, 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 firms, pushed by claims of unjust practices, together with delays, denials, and complex declare procedures, in a current 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 a protracted technique 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 easy components for figuring out the fundamental financial value 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 a lot of causes that are largely out of your management. For those who have a look at the fundamental economics and the way insurance coverage firms worth their product, you will see that that the quantity of losses, which is known as ‘frequency,’ is rising. The common quantity paid per loss can also be rising, which is called ‘severity.’ When the frequency and severity rise on the similar time, we’ve the present state of affairs, which makes insurers increase 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 whole variety of losses which need to 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’ve mass disasters as a result of the demand for builders and supplies far exceeds the traditional capability. Easy inflation of building prices is inflicting premiums to rise. You can not management inflation building prices, however these contribute to larger premiums.
Most of that is pretty easy economics as to the reason for rising insurance coverage costs. Similar to your corporation, insurance coverage firms need to become profitable, and when frequency instances severity don’t equal income, the cost for insurance coverage will go up. The advanced and infrequently 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 Income 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 imagine within the insurance coverage product. I agree with the insurance coverage business that we’ve 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 effectively over 200 years in the case of the affordability of householders insurance coverage, as I lately acknowledged in The Group Necessity to Make Buildings Extra Insurable and Resilient to Loss:
The purpose of this put up is that property insurance coverage ought to all the time be thought-about 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 grew to become a big threat to city areas, metropolis governments and communities applied a number of measures to make sure that insurance coverage firms discovered them insurable for writing hearth insurance coverage. These measures aimed to scale back hearth 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 fireplace insurance coverage because it was within the nineteenth century. Commissioner Yaworsky’s feedback and views replicate that Florida’s insurance coverage neighborhood might need to take vital steps to scale back the chance of loss from windstorms and hurricanes. This will likely be fought by these promoting asphalt roofs and householders having to exchange these lower-priced elements of a house. However his query raises the query: What are we keen to do as a neighborhood to take motion to make our buildings extra resilient and extra insurable? There is no such thing as a free lunch in the case 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 general value of actual property possession?
I stay 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 acquired 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 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).