A Frank Discussion About Florida’s Insurance Crisis, Including Admissions About Why Current Claims Statistics Do Not Indicate the Sky Is Falling

The truth about Florida’s property insurance market requires honest discussion, even when it means acknowledging valid points from all sides. However, this candor only reinforces the troubling reality facing Florida’s policyholders. I was reading an article, Insurance Organization CEO Michael Carlson Tackles Industry’s ‘Hot Topic’ in Florida, which stated in part:

Reports that Florida carriers wrongfully deny policyholders’ claims — and that some may have even committed fraud — to avoid paying homeowners after catastrophic storms dominated headlines in recent weeks. But Carlson said industry critics have spun up that narrative.

There are various legitimate causes for why a claim might be denied, he said, from simple explanations like the claim is not covered by the homeowner’s policy to more technical reasons, say, if the costs of damage don’t reach a policy deductible limit.

Carlson heads the Personal Insurance Federation of Florida, which is a lobbying and trade group for Florida’s insurance industry.

Is There a Flood Coverage Denial Smokescreen?

Insurance industry representatives frequently point to flood claims as justification for high denial rates. This is technically correct. I have no idea why some of my colleagues fail to point out that all-risk policies do not typically cover floods, including storm surge from a hurricane, when reciting these statistics. Many claims statistics are logically, properly, and honestly skewed higher with denials because all-risk insurers properly denied flood claims following hurricanes.

This is especially true following Hurricane Helene, which was largely a flood event except in areas close to landfall. Many critics and the media wrongly fail to state that all-risk insurers are doing so legitimately, raising distrust in the insurance claims industry when none is warranted on this point. Michael Carlson is correct on this aspect of claims statistics.

This statistic obscures another and deeper problem: the flood insurance product is flawed and out of date. I have made the case for Modernizing the National Flood Insurance Program: A Call for Higher Coverage Limits.

The NFIP’s treatment of policyholders also needs improvement. One significant change should be an anti-technicality provision so that form over claim substance allows policyholders to be paid what they are fully owed without having to be nit-picked to death about the wording of details. This was discussed in Hurricane Helene National Flood Insurance Proofs of Loss Deadline Extended for 120 Days From 60 Days.

Finally, is Citizens Property Insurance’s requirement that policyholders purchase flood coverage sound public policy? If we are trying to increase coverage for flood risk, making this coverage mandatory by other all-risk insurers is certainly foreseeable. Plenty of Citizens policyholders were happy to have had flood coverage this hurricane season. This issue is crucial because 8 out of 10 Florida households lack flood insurance coverage. While I was initially a critic of this Citizens requirement because some properties will never have a flood, it certainly has public policy aspects that seem sound.

Is There a Claim Denial Smokescreen Created By High Deductibles?

Most insurance policies in Florida now have a high deductible in the event of a hurricane or named storm. As a result, claims that result in no payment because the damage is less than the deductible logically skew the claims statistics about claims with no payment higher. Michael Carlson is correct on this point as well. Again, I think it is dishonest for others not to admit this when trying to make the insurance industry look like a demon.

Still, there is a large cost associated with allowing for or purchasing insurance with such high deductibles. Recent legislation has allowed insurers to dramatically increase hurricane deductibles. The previously required $500 deductible option has been eliminated by legislation. Instead, percentage deductibles of 2%, 5%, or 10% have become standard, meaning a $500,000 home could face a deductible of up to $50,000 before insurance pays a dime.  Policyholders naturally wonder what good insurance does them if the policy does not pay after significant damage.

The issue of claims being less than the deductible also raises issues about the product which is being sold. Some Florida insurance companies win by selling junk insurance, which makes the losses less than the deductible. Florida insurance companies write policies with vanishing coverage benefits. The erosion of coverage includes, but is not limited to, pool cage exclusions, severe restrictions on water damage claims in the amount of coverage paid or the ability to claim coverage, cosmetic damage endorsements, limited amounts paid for matching, and greater restrictions on replacement cost coverage for roofs.

Combined with high percentage deductibles, it is no wonder that claims are below the deductible. Again, many policyholders must wonder why they pay so much and get nothing or so little in return.

Not Every Disputed Claim Represents Criminal Activity, Fraud or a Lack of Good Faith

I previously noted the CBS 60 Minutes exposé in CBS 60 Minutes Exposes Alleged Insurance Company Fraud: Adjusters Reveal Altered Hurricane Damage Estimates by Claims Management. The operative word in the title is “alleged” because the full investigation and various facts from all the adjustments are not known. The flood, deductible, and Swiss cheese coverage full of coverage gaps are logical reasons for the claims without payment. Altered reports and estimates of damage from the field may or may not be legitimate and can only be determined with more transparency in the claims process. Carlson has failed to make this point clear.

Claims activity rarely results in criminal prosecution. Everyone has a right to the presumption of innocence. Prosecutors must prove a case beyond a reasonable doubt, and that is not easy when dealing with a claims adjustment, where mistakes and differences of opinion are routine.

I support the efforts of the American Policyholders Association (APA) with my time and money. It is against all types of fraud but specifically allows for an avenue of investigation of fraud committed against policyholders. While Doug Quinn and the APA may provide the authorities with information, they are not responsible for determining guilt or innocence and which cases are worthy of prosecution. Still, the insurance industry is certainly not trying very hard to find and then disclose its wrongful conduct. The APA is an important resource for trying to level the playing field when fraud and wrongful conduct by insurers occurs.

Many Florida insurance companies have claims processes and departments that are not operating in good faith. I noted what constitutes good faith in What Is Good Faith Insurance Claims Handling:

To provide a sufficient number of properly trained and motivated claims adjusters with sufficient resources and authority to promptly and fully investigate coverage and evaluate damage so that the policyholder promptly receives all benefits contemplated under the insurance product.

This is not happening with many insurance carriers following hurricanes in Florida. Many of the field adjusters are not being adequately trained, and almost none have the authority to pay anything or decide any amount of the claim. The estimates are revised without explanation to the policyholder.

If there was one point that everyone learned from the CBS 60 Minutes documentary, the field adjuster estimates and findings are being altered by those undisclosed people who have never been to the loss site or have spoken with the policyholders. The reasons for the changes or modifications are not disclosed to the policyholders in a transparent manner, if at all. When adjusters alter and modify estimates, policyholders deserve detailed explanations—not opaque adjustments buried in paperwork.

So, while I admit that the vast majority of adjustments do not represent any criminal activity or fraud by Florida’s insurance companies, adjusters, and their vendors, Florida’s insurance claims industry has a long way to go to restore trust from its customers. The civil fines for conduct noted in Understanding the Implications of the Heritage Market Conduct Study and $1 Million Consent Order Penalty, do not mean that all activities that constitute a lack of good faith have ceased by all carriers.

The Bottom Line

While we must acknowledge legitimate industry concerns, the current “market stabilization” comes at an unconscionable price. Florida now leads the nation in offering the weakest coverage while making it nearly impossible for policyholders to fight back when claims are wrongfully underpaid or denied. This isn’t market reform—it’s a systematic dismantling of consumer protection disguised as progress. Insurance rates will fall because the insurance product sold is far less than it once was. It is like a food producer keeping the price the same or slightly lower because the same size box you purchase at the grocery store has a third less product. Then, when you complain about getting less than what you thought you paid for, you learn that the food manufacturers teamed up with politicians to change any consumer protection laws.

Michael Carlson, as a lobbyist, and the insurance industry may celebrate these changes as necessary reforms, but let’s be clear: selling stripped-down policies while eliminating accountability isn’t a solution. It’s surrender, and Florida’s policyholders are paying the price.

Thought For The Day

Don’t piss down my back and tell me it’s raining
—Clint Eastwood, “The Outlaw Josey Wales”