Insurance cost increases in Florida have outpaced inflation. We asked experts why.

Insurance leaders say that inflation has fueled the rising costs of coverage paid by Florida policyholders in recent years.

But an analysis by the South Florida Sun Sentinel shows that insurance premiums have increased significantly more than the rate of inflation, and experts cite a range of possible reasons why, including steep increases in reinsurance costs and continued high litigation costs.

The data shows that insurance costs have continued to increase since spring of 2022, when the Legislature and governor enacted reforms that made it more expensive for policyholders to sue their insurers.

Rising rates of litigation were causing losses that had grown out of control, leaders of the industry argued at the time.

Insurance costs would come back to earth within a couple years after the reforms stem the losses, many predicted.

That hasn’t happened, despite an easing of insurance cost increases over the past year.

During hearings of committees that determine which insurance bills will advance through the House and Senate, lawmakers expressed frustration with continued cost increases and claims handling delays.

Insurance Commissioner Michael Yaworsky countered that the reforms are working, as evidenced by the average of rate hike requests submitted for approval by the Office of Insurance Regulation recently falling below 1%.

Policyholders might not be noticing it, Yaworsky said, because increases in the insured value of their properties have driven up the cost to insure them.

As Yaworsky told the House Subcommittee on Insurance and Banking, “If if it now costs more year over year to replace your house, that means you need more insurance to replace your house.”

Yet the Sun Sentinel analysis, based on data submitted by insurers to the Office of Insurance Regulation, found that the total insured value of all personal and commercial residential properties increased by 23% from 2022 through the third quarter of 2024 while insurance costs — measured by dividing the number of policies into the total premiums collected by insurance companies to insure those properties — increased by 38% during the same period.

The gap is even wider when the comparison reaches further back in time. Since 2020, total insured value has increased by 38% while homeowners’ average insurance costs rose by 64%, the data shows.

Insurers say a more effective way to compare cost increases is by looking at the cost per $1,000 of insured value, and that number has fluctuated over the past 20 years. Calculated for all personal and commercial residential properties, the cost per $1,000 hit a low of $3.97 in 2009 and a high of $5.98 in the third quarter of 2024, the analysis showed.

Reinsurance takes 30% to 50% of every premium dollar

Opinions varied among insurance experts asked if they could explain why homeowner costs have exceeded inflation despite the 2022 reforms.

Several cited a jump in the cost of reinsurance — which is insurance that insurers must buy — in 2022 and 2023. Industry spokespersons at Tuesday's hearings said that reinsurance eats up between 30% and 50% of every premium dollar.

Brian Murphy, owner of a Brightway Insurance franchise in Palm Beach Gardens called The Murphy Agency, attributed the rise to more than $300 billion in losses following hurricanes, floods and wildfires in Florida, Louisiana, and California over the past five years.

"These catastrophic losses, coupled with the insolvency of 15 insurance companies in Florida over the past 15 years, have driven up reinsurance costs, which are then passed down to policyholders," Murphy said. Florida insurers have seen reinsurance rates increase by more than 40% over the past three years, he added.

Locke Burt, founder and CEO of Security First Insurance, concurred with Murphy's take that reinsurance costs are the biggest culprit, besides inflation, for continued rising insurance costs.

"The simple answer is the cost of reinsurance skyrocketed," Burt told the Sun Sentinel. "According to the (office's) Property Insurance Stability Report issued this month, the cost of reinsurance increased by 27.03% from 2022 to 2023 in spite of the legislative reforms."

Companies were forced to buy more reinsurance after the Florida Hurricane Catastrophe Fund raised the amount of losses that companies are required to endure before they can tap into its low-cost reinsurance fund, forcing them to buy more reinsurance from the private market, Burt said.

Also requiring larger reinsurance buys this year is the planned July 1 expiration of the state-funded Reinsurance to Assist Policyholders program, which was first made available in May 2022.

Litigation remains a cost driver

Stacey Giulianti, chief legal officer at Boca Raton-based Florida Peninsula Insurance, said the increase in total insured property value doesn't always reflect rising costs to cover claims from non-weather-related water losses, such as damage from broken dishwashers, hot water heaters, and plumbing, and damaged roofs that he said are the dominant source of insurer losses.

"To the extent that the 'inflation' associated with the costs of indemnifying these types of claims is higher than the inflation associated with rebuilding an entire home, prices will outpace total insured value growth," he said.

High rates of litigation remains a cost driver, several experts said. Burt said litigation is the third-largest cost driver, after inflation and reinsurance costs.

While the 2022 reforms have reduced the number of lawsuits filed against insurance companies, the latest Property Insurance Stability Report released in January shows that Florida plaintiffs filed 71.4% of all lawsuits filed in the country in 2023, Burt pointed out. "That figure was higher than the percentage in 2022 and only down 10% from the 79.16% recorded in 2010," he said.

The report also showed that the number of litigated claims increased in 2023 compared to the previous year, causing defense costs, loss adjustment expenses and payouts to policyholders to increase as well.

Precise causes may never be known

Giulianti said price hikes over recent years were driven by all of the factors cited — inflation, reinsurance prices, litigation, increases in total insured value and inflation of rebuilding costs and labor.

But because insurers have the ability to set their own rates based on proprietary formulas, how much of the cost increase should be attributed to each of the factors is impossible to determine.

Burt pointed to a sheet that Security First's president, Melissa Burt DeVriese, provided to the House subcommittee prior to Tuesday's hearing. Produced by a company that provides price quotes to insurance agents, the sheet shows what eight different insurers would charge to provide the same coverage for homes in various counties across the state.

Quoted premiums for some of the homes range far and wide. In Osceola County, premiums quoted to insure a house listed as built in 2000 ranged from $5,240 to $17,508. A Boynton Beach house built in 1990 attracted quotes ranging from $11,139 to $24,448.

"They are actual quotes for actual houses for identical coverage," Burt said. "All rates were approved by the Office of Insurance Regulation. It shows why you should shop around. The prices are all over the board."

Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071 or by email at [email protected].

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