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- Right now on WEDU, the rising cost of home insurance in Florida is pushing many residents to give up on coverage altogether, selling their homes, moving, or considering moving out of state.

It's contributing to the high cost of housing here.

We'll discuss why rates are skyrocketing and what the state government in Tallahassee is or is not doing to ease the pain.

All coming up on a special edition of "Florida This Week."

(upbeat symphony music) Welcome back.

Florida's home insurance crisis might be causing residents to flee the state in droves as premiums skyrocket from a combination of fraudulent lawsuits, hurricanes that have become more frequent and violent, and rising building costs.

USA today reports that while Florida has experienced the population boom, the U.S. Census Bureau estimates that Florida is also near the top of the list for the number of people who left the state last year.

An estimated 275,000 people left Florida in 2022.

That's nearly 23,000 people a month.

At the same time, home insurance premiums in Florida have exploded.

The Sunshine State now has the highest insurance premiums in the country according to the Insurance Information Institute.

Most homeowners are paying about $6,000 per year for their home insurance premiums.

That's a 42% increase from last year, and it's far higher than the national average of just $1700.

Fifteen major insurance companies, including Farmers, have left the state over the last year.

In the last two years, there have been several special sessions of the legislature to try to address the crisis.

Legislators in Tallahassee have made it harder to sue insurance companies over concerns that frivolous lawsuits were being filed, but former President Donald Trump blasted Governor Ron DeSantis for those limits on lawsuits, calling it "the worst insurance scam in the entire country," according to the Tampa Bay Times, The legislature also passed $3 billion in taxpayer funds to help carriers purchase reinsurance.

Reinsurance is essentially insurance for insurance companies and helps insurance companies stay in business if extreme weather devastates a company's policy holders.

Well, joining us on the panel to discuss the situation, Lawrence Mower is a Tallahassee correspondent for the Tampa Bay Times.

Chip Merlin is an attorney and the president and founder of Chip Merlin and Associates in Tampa.

And Scott Johnson is a former Executive Vice President of the Florida Association of Insurance Agents, the president of Johnson's Strategies, LLC, and author of several books, including "Collapse of an Evil Empire: "Dealing With the Difficulties "of Finding Affordable Homeowners Insurance."

Nice to see all of you.

Thank you for doing the program.

- Nice to be here.

- Well, let's talk about, first of all, and, Lawrence, let me direct this to you.

What, in Tallahassee, what do they explain as the reasons for these rising insurance premiums around the state?

- Well, the reasons they give are varied.

Basically they range from reinsurance.

The rate of reinsurance has gone way up, and in Florida you have all these tiny little domestic insurance companies that are overly reliant on reinsurance compared to, you know, the big national carriers like State Farm and Allstate.

They also blame lawsuits as you said, frivolous lawsuits.

I would say we don't really know the exact breakdown of what's driving up rates 'cause the state has never produced a breakdown of which of these factors are the biggest driver.

I would say probably the biggest issue is that Florida went 12 years without a storm until 2017.

And since then, we've been repeatedly hit by storms, and that of course drives up, you know, losses for insurance companies.

- Scott, would you add to that?

Scott, would you add to that?

- Oh, I'm sorry.

- That's okay.

- No, that's a pretty good summary.

There aren't, this is the state of Florida and we are the world's hurricane highway.

80% of our property values are located in the worst possible spot from a weather standpoint on our coast.

That drives the cost of reinsurance up, as does the capital markets and its general availability and the laws of supply and demand.

But I, and I would also tell you that Florida insurance companies fund a lot more of their catastrophic exposure via the mechanism of reinsurance.

Somewhere close to 90% of that exposure is reinsured, and it results in about 40 to 60% of the average homeowner's premium being allocated to pay for that reinsurance.

So, that is certainly a factor, and lawsuits are a factor.

As the legislature, it took 'em seven, eight years to come up with comprehensive tort reform, but they did in 2022 and in the regular session of this year, 2023.

And some of the results are beginning to show up already, and I'm encouraged that rates with respect to litigation in Florida will continue to improve.

You wanna always keep in mind when you're talkin' about insurance, that there are premiums, and there are rates, and there's a distinction between those two.

Like if you go into a grocery store and your bananas are up 500%, and your grocery bill is high, and you complain about it, and then something changes.

And bananas are now really, really cheap, but your grocery bill kept going up because cucumbers and wine is now tripled in cost.

You've got the litigation issue is part of that, and it can improve, but the other things, the values, the cost to replace damaged items, all of that keeps goin' up.

- Chip, we've heard so much about frivolous lawsuits.

Do you think frivolous lawsuits are at the heart of these rising premiums, and with the legislature making it harder to sue insurance companies, did they fix the problem?

- No, I agree with President Trump.

I think it's a scam, and the numbers were made up.

They were first put out by Insurance Commissioner Altmeyer, who then conveniently left to go work for the insurance lobby industry.

We've gone back and have looked at the American Policy Holders Association published a paper this week talking about that the majority of all consumer complaints, the majority in the entire country are from Florida insurance companies causing their own consumers' problems.

Don't get me wrong.

There was a problem with respect to what then was AOB claims that were brought out there, and I think that's been addressed by the legislature.

But the insurance industry, rather than looking at itself and taking a critical analysis for what it's done and what its place has been here instead wants to blame it on the easy scapegoat.

Lawyers did all this with all these lawsuits, and they're the cause for everything.

Again, I agree with President Trump.

It's a scam, and it's just not true.

I believe, Scott said, Johnson said though, Florida sticks out like a sore thumb into the Gulf of Mexico and the Atlantic Ocean, and we are prone to have hurricanes.

And when they hit and because of climate change, these hurricanes are unlike any that we've had in the past.

They're striking.

They're bigger hurricanes.

They're hurting, and the global reinsurance market with the same climate changes causing everybody's rates to go up in the state of Florida.

It's, I mean, out in the state, in the United States, it's not just the state of Florida.

We have wildfires in California and Colorado.

We have all kinds of floods in various areas.

We have freeze damage claims, tornadoes that we've never seen before.

And these all drive up reinsurance rates, and unfortunately the Florida insurance market is dependent upon those reinsurance rates, but I don't hear any reinsurance companies, you know, going broke.

So, you know, they're, somebody's makin' some money on this.

- Lawrence, let me ask you about the data on lawsuits.

You talked about the state really not tracking this stuff.

Does the state have evidence that lawsuits, frivolous lawsuits, are driving up the cost of homeowners insurance?

Is there hard evidence out there?

- There's anecdotal evidence, and there's also just the sheer number of lawsuits.

Not a lot of people are really disputing that there are a lot of lawsuits in Florida.

The question is, what is driving those lawsuits?

How many of those lawsuits are frivolous and, you know, frivolous in some way?

And how many of the, how much is that costing homeowners on their premiums?

No one has been able to answer those two questions, which are key questions.

The legislature basically has not studied this issue.

They've looked at the number of lawsuits, which there are a lot, but again, there's a lot of anecdotal evidence that insurance companies are behaving poorly.

Chip mentioned the federal data on complaints against insurance companies, but there's also all kinds of other, you know, misdeeds that have been documented by insurance companies in Florida.

And so, you know, as the state's own insurance consumer advocate has said, those things drive up, drive the rate of lawsuits.

- Hmm, Scott, let me ask you about this.

The legislature in the last year and a half or so has awarded $3 billion to insurance companies for reinsurance.

They're helping out the private insurance industry.

Does that solve the problem that you mentioned of reinsurance?

- It helps with the cost of reinsurance, no doubt, but keep in mind that the issues that Chairman Lawrence just mentioned with respect to litigation, that also impacts the cost of reinsurance.

Reinsurance is a global product built on the laws of supply and demand, and yeah, reinsurance companies are designed to make a profit.

And there isn't much we can do about that, but they, but the price they charge, called their rate online, is dependent on many factors.

The mix of business of an insurance company and also how well an insurance company can manage its litigation.

And in Florida that litigation is since maybe 2016 has exploded.

There's no, I don't know where, you're talking about anecdotal evidence.

Read my book.

It's a, it's the, a deep dive into the disbarment of one of Florida's most prolific insurance litigator who was handling, and this is, this is from the Florida bar this.

That's all my book is about is to track their disbarment proceedings.

He was handling 10,000 lawsuits at a time and using every sort of feeder, public adjuster, and others who can knock on doors, and roofers, and others to recruit people into his assignment of benefits, as Chip had acknowledged, was had scam tendencies and is now gone.

He was using assignment of benefits, but he was also handing people tablets, or his feeders were, asking them to sign a work order to come in and do some drying or do some roofing work.

And the people signing it didn't know that it was also a contingency agreement for him to file a lawsuit on their behalf.

Another lawyer in southeast Florida is sending feeders into neighborhoods and getting signatures on assignment of benefits merely because they have cast iron piping.

No loss, no leaks, no problems, but they're filing a suit before the insurance company has even been notified of a loss.

Those are basic indications that Florida is majorly different from other states from a litigation standpoint.

And of those 15 insurance companies that you said left, three or four of 'em were major companies who stopped writing as much as they were in Florida, but 10 to 12 of 'em were companies that went bankrupt and.

- Well, we're gonna talk about that in a moment.

Chip, I wanna ask you, after Hurricane Ian, a lot of people complained to newspapers, including the Washington Post, that they were not made whole when they went to their insurance company.

Their house was destroyed, and they only got partial payment on the value of their home.

Some people then sue their insurance companies.

I wonder what percent of lawsuits do we know are frivolous, as Scott was saying, and what percent are people who say, hey, my insurance company didn't pay up?

- Well, I would suggest that the number's pretty low 'cause most attorneys aren't gonna take the case.

And, yeah, people aren't calling me because they wanna go see an attorney, and I'm just the greatest guy in the world to go hang out with.

They're calling us because they're very frustrated.

They're upset.

They expect that at the moment of truth, the time the insurance company's supposed to be there, no money's coming, and it's not just individual homeowners.

I mean, this is businesses.

These are churches.

These are school districts that our firm's representing with millions of dollars out there, and contractors are suing some of these individuals trying to get their money because, and those people are goin', well, hey, we haven't gotten it from our insurance company.

And so, those are the types of lawsuits that the insurance industry doesn't wanna talk about, and I think they're the vast majority of them.

And I think that's the reason why so many policy holders are filing complaints with the department, you know, of insurance with the OIR here, but nothing seems to be happening from a regulatory level about why there's this systemic problem for that.

I will agree with Scott that there was a need for a change, and the legislature did change with respect to the AOB.

And I think that's a lot of the lawsuits, and I think there's very few scamming, you know, attorneys out there like Strems, I'll call it.

I've written about it, and I don't think those attorneys should be practicing law, and they're not.

And, but that doesn't, what I see from the day after day is people being forced to call attorneys.

I don't think they're just doing it 'cause let's go hang out together, and it's just not common sense that that's what's going on.

- You know, my next question is about whether or not insurance companies can make a profit here in Florida.

Lawrence, I wanna go to you.

There was a Sarasota member of the legislature who put out a notice that he was starting an insurance company, and he promised 165% rate of return on investment over the next five years.

165% is a pretty good rate of return.

It seems like he's found a way to make money, at least he claims.

Talk about are insurance company's profitable and what about this case with Senator Joe Gruters in Sarasota?

- Yeah, basically you can make a ton of money in Florida's insurance market, and plenty of people have.

For, you know, during those 12 years when there were no storms, the highest property and casualty, the highest paid property and casualty insurance executives in the nation were in Florida, which is hard to believe.

With these little domestic insurance companies, they're making twice as much as a CEO of State Farm while insuring less than a fraction of a percent of the number of policies.

And the reason why you, or the reason why you can make so much money is because in Florida these little domestic insurance companies will set up affiliate companies and parent companies that are allowed in this state to basically take a flat fee off of every premium dollar.

Sometimes up to 33, 35% of the premium dollar goes to an affiliate company.

Now, why did they do this?

Because in Florida, the insurance company's profits are capped, okay?

They're usually capped at, you know, three, four, sometimes 5%.

But if once that, if you have an affiliate company that can charge the insurance company a flat third of the premium, what that, what the affiliate company does with that money is not regulated.

And regulators have tried to pierce the veil.

They don't really know what's going, what these companies are, what the affiliate companies are doing with this money, but we know from the number of insurance companies that have failed the state does solvency reports on all these companies.

And they repeatedly, like almost every single report the state has produced has found that these companies were charging way, the affiliate companies were charging the insurance company way too much money for stuff, for fees, for things that didn't exist.

Sometimes overlapping fees.

In some cases, these forensic accountants literally wrote that the affiliate companies, which are the managers of the insurance company, were stripping the company of cash as it was going down.

Now this is very unusual, not this.

You know, if you have State Farm, State Farm isn't doing the, isn't playing this kind of game.

They don't really need to, but in Florida it basically sets up a guaranteed stream of money for the managers of the insurance company that they'll collect regardless of if the insurance company is profitable or not.

- Scott, let me ask you about that.

I mean, are insurance companies able to make money here in Florida?

And the way that they get around the regulation is they send money to sister companies.

They pay their shareholders, you know, cash, and they give their CEOs high salaries, and that's the way that they are able to extract money from Florida tax, premium payers.

- Well, the system we have in here, have right now in Florida is different from other states in part because the major carriers, the large regional, super-regional companies and the global players who were writing insurance in Florida began to pull back after the '04-'05 storms and were summarily escorted out of the state by governor Crist, who said, I'm pretty sure this is a direct quote, "Good riddance."

We have a system now that is based on the capital markets and contributions and investments from various sources.

And those investors would like to have some return on their money, and when they, otherwise, they're not going to allocate it here.

Let me say also that the percentages paid to a subsidiary that does work for an insurance company.

You look at the National Flood Insurance program and see what it pays to write your own carriers and compare the expenses.

And they're pretty much in line with what goes on in that situation so.

- But are there examples where CEOs are overpaid?

- If they do the work, and people willingly pay them the money, that's not being overpaid.

I can tell you in the, when I take a deep dive into what plaintiff's attorneys are paid, and take the guy Scott Strems that Chip Merlin just talked about.

His valuation on on his firm was $42 million, and he's getting disbarred for processing tens of thousands of suits over a period of 10 years.

Let me, let me say this as well.

When you talk about whether these suits are frivolous or not, I sat in a rate hearing a couple of years ago for Capital Preferred Insurance company, who later went bankrupt because of the litigation nightmare it was subjected to, and under oath testimony by actuaries and the CEO indicated that that company had 36% of its claims were noticed to the company via a lawsuit.

Now, Chip knows that the usual action taken in a lawsuit against an insurance company is a breach of contract action.

Either the insurance company didn't pay enough, or they didn't pay at all, and they breached their contract according to the lawsuit.

Well, that means in this case and throughout all of the other companies who went bankrupt, that around 36% of their notice of a loss having occurred arrived with a lawsuit for breach of contract before it was physically possible to even know that there had been a breach in the contract.

So, we can term it any way we want.

That's a litigation problem that is, was unique to the state of Florida, and it has a major, that company went bankrupt, just one of the 10 or 12 that we've been talkin' about.

- We only have three minutes left.

I'm not gonna ask you about the power of the insurance companies in Tallahassee.

I won't be able to get to that question, but I do wanna ask you about the solutions.

Legislature said that after these special sessions, you know, it's gonna take a few years, but rates are gonna begin to come down.

I wanna know, has the legislature solved the problem?

Are rates gonna come down, and what's the solution if not?

Should there be a rate freeze?

Should we expand Citizens portfolio, put more people in Citizens?

Should there be tougher insurance regulations?

Should there be less insurance regulation?

What do you say?

Let's start with Chip.

What do you say?

- Yeah, I think that there needs to be much better insurance regulation.

I think we need to stop this circular pool of everybody who works in the insurance regulation industry then going to work for the insurance industry.

This revolving door is just crushing us, and I do believe that it needs to be much greater oversight of the third party management companies, these sister companies you're talking about, who are really controlling the insurance companies and siphoning off all the excess surplus so that when we have the rainy days, there's money to pay for the claims.

I think the legislature has passed a lot of laws, which are gonna reduce the amount that the insurance companies have to pay because the laws are just so anti-consumer that they have to be that way, and they're gonna pay less.

There'll be less lawsuits.

It's a great marketplace.

It doesn't take a rocket scientist to figure out, if you take people's premiums and don't pay claims, it could be very profitable.

And I think we see that from what the legislature who just said, hey, everybody, let's go invest in this.

We can make 165%.

Absolutely, it should be more profitable, and I would expect more insurance companies to come in.

Whether the rates go down, that's a whole different issue, and I'm very skeptical on that.

- Scott, do you think that the legislature has fixed the problem?

Are rates gonna come down, or does there have to be, should there be additional things that the legislature does?

- I believe that with respect to tort reform and laws regarding frivolous lawsuits, I think they've done a good job.

I think that we've seen results.

We've got another five or six companies willing to write business, who are takin' business out of Citizens.

We've got rumors coming in that reinsurers are beginning to look more favorably here.

So I think that would be the first thing is keep the reforms that we just implemented.

Number two, I believe that we need to do, have some other things going forward that would be helpful.

For example, we've got the highest fee cap in America for public adjusters at 20%.

The National Association of Public Insurance adjusters testified at the Sandy hearings that 20% is enough, is an amount that stimulates fraud and claim inflation, fraudulent claim inflation.

So, I would put it at 10%, and you'd have a lot of the abuses disappear automatically.

Remember, public adjusters work for 10% after every hurricane anyway so we know they can make a profit at 10%.

I would also regulate water companies.

They are completely unregulated, and I bet Chip Merlin would agree with this even.

They have no regulation whatsoever, and that water losses are the number one losses under an insurance bond.

- Let me ask Lawrence.

Lawrence, do consumer groups think that the, that we've solved the problem here in Florida, and if not, what do consumer groups say ought to be done?

- The short answer is no, and even the insurance industry is admitting that rates are not gonna go down anytime soon.

The biggest thing that the state could do on this entire topic is do a study.

They haven't done any studies.

The legislature has not done any studies on this entire topic.

They don't hold hearings.

They don't, you know, these bills are crafted behind closed doors with no outside input, and then all of a sudden just thrown out on a senator's desk to vote on the next day.

There's been a general lack of curiosity and seriousness on this topic in the legislature, and you hear all kinds of accusations about what's driving up the crisis.

Well, you know, this is an industry that exists on data.

You figure it out.

- Lawrence Mower, Scott Johnson, Chip Merlin, thank you very much for a great show.

We didn't begin to answer all the questions, but I'm sure glad you were here.

Thank you for taking part in "Florida This Week."

And thank you for joining us.

Send us your comments at FTW at wedu.org and like us on Facebook.

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And from all of us here at WEDU, have a great weekend.

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