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Why Are Insurance Rates Rising?

Over the past few years, insurance rates have been on the rise and the market has hardened. During the 1st quarter of 2020 brokers/companies were reporting premium increases of more than 50% for many insureds. Since 2004, the property insurance market has generally been soft, meaning there have been reductions in premiums, but this trend began to change in 2019 which has brought us to the dawn of a new hard market. What exactly has caused the market to harden and rates to increase?

Aggregation of Catastrophic Losses

Prior to 2017 Florida has benefited from over a decade of not having a hurricane make landfall. In 2017 Hurricane Irma made landfall as a Category 4 storm. Industry experts expect the final realized losses to be upwards of $25 billion to $28 billion. The following storm season, 2018, brought Hurricane Michael that made landfall in Florida’s panhandle. As of December 13, 2019, insurers in the state of Florida have incurred $7.4 billion in losses. Overall, the 2018 storm season is estimated to have caused $50 billion in damages. 2019, was one of the most active storm seasons having 18 named storms, 3 of which became major hurricanes. The storm season has resulted in estimated damages upwards of $13.9 billion. Then the 2020 hurricane seasons topped all records becoming the most active storm season since 1851. Over 30 named storms, 13 reached hurricane status, and a record 12 made landfall in the United States. The 2020 hurricane season has been estimated to surpass $43 billion in economic losses and $26 billion in insured losses.

Hurricanes have not been the only natural catastrophes across the U.S. In 2020, there were 22 extreme weather events including tornados, hurricanes, and wildfires. Worldwide there was a total of $210 billion in economic losses that were the result of natural catastrophe.

Assignment of Benefits & First-Party Litigation

“Assignment of Benefits (AOB) is an agreement that transfers the insurance claims rights or benefits of the policy to a third-party. The AOB gives the third-party authority to file a claim, make repair decisions and collect insurance payments without the involvement of the homeowner or insured.”

In theory, AOB is an easy way for property owners to have repair work done quickly and efficiently with having experts in both the repair field and insurance industry working together to get the claim paid and work done. The reality was a tremendous amount of abuse/fraud that took place by restoration contractors & attorneys who would inflate the cost of repairs on an insurance claim to extort more money from the insurance companies. As insurance companies tried to protect themselves from this abuse the number of AOB-related lawsuits against insurance companies rose 94% in just 5 years from 79,000 in 2013 to more than 153,000 in 2018. On July 1st, 2019 Florida’s AOB reform law went into effect to address this issue.

In conjunction with the AOB issue, first-party litigation has been a source of tremendous expense for state property insurers. The U.S. Chamber Institute for Legal reform ranks Florida as the 46th worst state in terms of the overall legal environment. There is a subsection of the legal field whose sole motivation is to find reason and purpose whether valid or manufactured to pursue litigation against insurance companies. From 2013 to 2019 first-party litigation against property insurance companies rose from 27,000 cases to 89,000 litigated cases. 25 Attorneys have filed nearly 20,000 lawsuits against property insurance companies in the first 6 months of 2020, 43% of the total lawsuits filed. 1 firm has submitted as many as 10,000 lawsuits at one time. Most cases litigated are a result of water damage or roofing damage claims. Without first-party litigation reforms, several insurance companies in the state have put a hold on writing new policies and have asked for significant rate increases.


Lloyd’s of London the world’s largest insurance exchange has gone on record to estimate that the projected losses the industry will suffer will be around $203 billion and this number does not account for the potential of insurance companies having to pay COVID related loss of income claims that were previously excluded from insurance policies. If you owned a restaurant on the beach, and a hurricane blew your restaurant down the time it took to rebuild the restaurant, the restaurant would not be producing any revenue. There are insurance policies that businesses purchase called “business interruption” policies which can protect the revenues lost when the business location is nonoperational because of a covered cause of loss. The business interruption policy is typically tied to a commercial property insurance policy since property damage in many cases is the reason for the lost revenue. On these policies, there is an exclusion for events like COVID-19.

Though exclusions are in place, it has not stopped several organizations from filing federal lawsuits to have these claims paid. There has also been both state and federal legislation discussed to force insurance companies to pay these claims. The American Property & Casualty Insurance Association said forcing insurance companies to pay such claims would cast into doubt the solvency of an entire industry. APCIA estimates that businesses with fewer than 500 employees are losing between $393 billion to $668 billion per month. The insurance industry in the United States has a surplus of $800 billion.

All of these major events and issues have pushed the property insurance market almost to the brink of collapse and have created tremendous rate increases. Take a look at the infographic below for a more detailed timeline of these events that have led to the hardening of the insurance market.

How You Can Help?

Currently, legislation is being developed to address the issues of AOB and first-party litigation, discussed above, that are causing insurance rates to rise.

Visit the link below to learn more about the bills, and to email your Florida legislator to encourage them to pass insurance reform legislation.

Click Here to Email Your Legislator




Contact Mitchell Insurance Services by phone, fax, or email to find out more information.

Mitchell Insurance