Why Are Florida Insurance Rates So High?

Florida homeowners often experience some of the highest insurance premiums in the United States. This financial burden stems from a combination of environmental, legal, and economic factors that impact the state’s insurance market. These underlying causes explain why costs have escalated.

Frequent and Severe Natural Disasters

Florida’s geographical location makes it susceptible to frequent and severe natural disasters, particularly hurricanes and tropical storms. Over 40% of all hurricanes that hit the United States between 1851 and 2022 made landfall in Florida, more than double any other state. This leads to extensive property damage and a significant volume of insurance claims.

The scale of losses from these events depletes insurer reserves and necessitates higher premiums to cover future risks. For instance, Hurricane Ian alone caused an estimated $60 billion in insured losses in 2022. Rising costs of rebuilding and replacing damaged homes further contribute to increased premiums, as insurers must account for these higher expenses.

Florida’s Unique Legal Landscape

Florida’s legal environment has contributed to its high insurance costs, largely due to specific litigation trends. One trend involves “Assignment of Benefits” (AOB) agreements, where policyholders sign over their insurance claims to third-party contractors. This practice often led to inflated invoices and subsequent lawsuits against insurers, with the homeowner sometimes unaware of the legal action.

Another factor was “one-way attorney fees,” which allowed policyholders to recover legal fees from insurers if they won a dispute, but not vice versa. This framework, combined with fraudulent claims and exaggerated damages, resulted in a disproportionate number of lawsuits against insurers. Florida accounted for approximately 79% of the nation’s homeowners insurance lawsuits, despite representing only about 9% of total claims. Recent legislative reforms, enacted in 2022 and 2023, aimed to address these issues by limiting AOB abuse and reforming attorney fee structures, leading to a reduction in legal expenses for insurers and a decline in claims-related litigation.

Escalating Reinsurance and Repair Costs

Reinsurance, which insurers buy to protect against large losses, directly impacts consumer premiums in Florida. Due to the state’s high-risk profile and a history of significant hurricane losses, global reinsurance markets charge Florida-based insurers higher rates. The cost of reinsurance for Florida property specialists more than doubled from $3.1 billion in 2019 to $6.4 billion in 2023. These increased costs are then passed on to policyholders through higher premiums.

The expense of repairing hurricane damage has surged due to rising costs of building materials and labor. Construction material and labor costs have significantly increased since early 2020, directly inflating the payouts insurers must make for repairs or reconstruction. This inflationary pressure affects claims processing, leading to higher financial burdens for insurers and, consequently, higher premiums for consumers.

Shrinking Insurance Market

A lack of competition in Florida’s insurance market contributes to elevated rates, as many private insurers have reduced their exposure or left the state entirely. The combination of frequent natural disasters, extensive litigation, and escalating costs has made the Florida market less attractive to many companies. Over 30 companies have either left Florida or significantly reduced their presence in the past three years, with some even becoming insolvent.

Fewer insurers operating in the state means less competition, allowing remaining companies to charge higher premiums due to reduced market pressures. This situation has led to the expansion of Citizens Property Insurance Corporation, the state-backed “insurer of last resort,” which provides coverage to property owners unable to find it in the private market. While Citizens serves an important role, its growth reflects challenges in the private market, and it may also implement surcharges or higher rates. Recent legislative reforms aim to stabilize the market and attract new insurers, with some positive indications of new companies entering and rate increases slowing.