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Writer's pictureJosephine Mann
Nov 13 min read

Storms of Change: The Future of Home Insurance


Image: Joe Raedle/Getty Images.


On October 10th, weary residents of Florida awoke—if they had managed to sleep—to the aftermath of Hurricane Milton. Striking from the west near Tampa Bay, this hurricane was a frightening and deadly phenomenon, yet not unfamiliar to the state. With it came a harrowing combination of tornadoes, heavy rain, strong winds, and storm surge, leading to widespread devastation. Power lines were downed, roofs shredded, neighbourhoods flooded, boats and cars were tossed, and trees toppled. Over three million people lost electricity, and losses from this catastrophic event are estimated to reach up to $34 billion.


As the state looks to rebuild and recover, a pressing question arises: where will this money come from? Given the increasing frequency of such storms, one might expect an established and effective support system to be in place for rebuilding Florida. Unfortunately, the reality is far more complex; home insurance in Florida is both convoluted and uncertain. With global warming amplifying the intensity and frequency of extreme weather events, it is imperative to address issues in the home insurance market. Not only will this impact Florida’s future but also other vulnerable regions across the United States and around the globe.


From the perspective of Florida residents, obtaining home insurance has become a complex issue. Average premiums now exceed three times the national average and are roughly three times what they were six years ago. This dramatic increase is closely linked to a dwindling number of options in the market, as several major insurance companies have exited the state due to its challenging conditions. A significant factor driving this crisis is the high rate of litigation, particularly related to "assignment of benefits" (AOB) claims.


Florida accounts for approximately 78% of the nation’s homeowner insurance litigation, despite representing only 8% of the U.S. population. This disproportionate level of lawsuits drives insurance costs up and creates a hostile environment for insurers. AOB allows contractors to file claims on behalf of homeowners, often resulting in inflated claims and subsequent litigation when insurers deny those claims. This trend has led to an increase in what may be perceived as frivolous lawsuits, exacerbating financial strain on insurers. The rise in settlements and legal cases is further fuelled by aggressive legal practices, contributing to a phenomenon known as "social inflation," which deters business, reduces competition in the market, and drives up premiums.


In response to this challenging legal landscape, Florida has begun implementing change. Recent tort reform aims to curb AOB abuse, with early signs indicating a positive impact on litigation rates. Additionally, the flood insurance market is expanding, and reinsurance rates have started to decline, which may help alleviate some financial pressure and ideally lower premiums for homeowners.


As Florida navigates this evolving situation, change is on the horizon. The state must adapt to the increasing frequency of weather events affecting regions across the U.S. and globally. Florida’s ongoing reforms could serve as a unique blueprint for addressing similar home insurance challenges elsewhere, but only time will reveal the effectiveness of these measures in providing more stable and affordable coverage for residents.


 

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