Between the threat of hurricanes, flooding and sinkholes, Florida has always been a complex home insurance market. But in the past few years, litigation costs have led to dramatic changes in the way home insurance companies operate.
Florida leads the nation in litigation related to homeowner’s claims. This has caused many insurance companies to tighten their eligibility policies or leave the state altogether, according to Bankrate’s findings.
To understand how these changes are impacting local homeowners, and what y’all can do to keep your home insurable, we invited Kerry Ward with Gainesville-based Darr Schackow Insurance to give a talk at our Haile office.
Ward brings 23 years of experience in the insurance industry to the conversation. Here are the key takeaways from her presentation, followed by a discussion of why this is happening.
Keep your roof clean.
Ward advised not to let pine needles and leaves build up on your roof. The roof will get wet, the shingles will get damaged, and water will seep in. A little preventive cleaning can go a long way in extending the life of your roof.
Make sure your roof is inspected every year. It shouldn’t have any shingles that are cupping, curling, breaking, or missing.
If the inspector says the roof has excessive “granular loss”, that means the roof is at the end of its life, and you should probably look into replacing it.
Roof age is huge with insurance companies right now.
Most insurers are going up to 15 years on shingle roofs, while some are down to 10 years.
Metal used to be forever, but some insurance companies have dropped the age maximum for metal roofs down to as few as 10 years. Some will still go up to 50 years, but it’s rare.
Avoid using 3-tab shingle material. Insurance companies prefer the architectural shingle. Absolutely avoid flat roofs made of tar and gravel, or rubber material. There are maybe only two companies in the region that will insure those kinds of roofs.
Replace your water heater after 15 years.
Another thing insurance companies are scrutinizing more closely right now: water heaters.
Some insurance companies will go up to 20 years if the water heater is not in the living area — if it’s in the garage, for example — but replacing your water heater after 15 years is the general rule of thumb.
Turn your water off when you go on vacation!
Ward: “I’ve talked to at least 3 people in the past month who have had $30 or $40,000 water claims, and every one of them told me, ‘Well I was on vacation and a pipe broke and I didn’t notice it for 4 days.'”
Get your house inspected every year.
Ward has her own home inspected once a year. The inspector looks at the HVAC, the roof, the Hardie board, signs of wood rot, and other major components of the house.
When you have a problem, call your insurance agent first.
If you think you need to file a claim, please call your agent first. “Unless your house is on fire in the middle of the night,” Ward says, “call your agent first and talk about it.”
Don’t sign any paperwork (before you talk to your insurance agent).
Ward gave an example of how a contractor can take advantage of an emergency situation to trick a homeowner into signing away their rights.
“If a pipe bursts in the middle of the night and you have water everywhere and you call a contractor to deal with the emergency, don’t sign anything at that moment. Talk to your agent first. A lot of the times they will have you sign something called an ‘assignment of benefits’, and what that does is it signs your rights over. You’re giving your policy to that contractor. They are now acting for you. You have no more rights. Your insurance agent can’t help you anymore. You have to work with their schedule.”
Ward related the story of a client who has been waiting a long time for a roof company to get back to them about replacing their roof. Since the client “assigned benefits” to the roofing contractor, there is nothing the insurance company can do to make the roofer complete the work any faster.
The homeowner could make a case that the contract was signed under a false pretext, but that isn’t going to help them replace a leaking roof any faster.
Bottom line: Talk to your insurance company before you sign anything.
Claims follow you, so think twice before you file a claim.
Claims follow the house, Ward said, and they follow the owner. An unresolved claim at one property can follow the owner to a new property.
This one was a tough pill to swallow.
“So it’s like a preexisting condition?” one attendee asked.
Ward: Yes. Even if there’s no payout, if the insurance company sees that a claim was filed, it doesn’t matter the amount.
Rabell: How long does a claim stay on your record?
Ward: It used to be 3 years, now it’s 5. Avoiding making claims under $5,000 is a really good idea if you intend to sell your house anytime soon, because the buyer will have a hard time if there’s an unresolved claim on the house.
Rabell: Is there a catastrophe only policy?
Ward: There’s not and I wish there was.
This is a good segue into a discussion of how we got here.
You can port, or transfer, your Florida Homestead Exemption when you sell your home and buy a new one, but there’s a right way and a wrong way to go about it.
So, how did we get here?
Ward described how insurers in Florida have changed their policies over the years.
“Everything used to be covered. Then we had hurricanes and screen enclosures weren’t covered anymore. If you wanted coverage you had to buy it back. When we had the sinkhole epidemic they got rid of sinkhole coverage. If you want it you have to buy it back — if you can; most companies won’t do it. Then we had the water restoration epidemic so they eliminated water coverage or made it a $10k cap. Now we’re going to roofs. So we’re slowly getting to it becoming organically a catastrophe only policy, unfortunately.”
According to Ward, the current dilemma is the result of a few bad actors taking advantage of the system. Some of those bad actors work for the insurance companies, we can assume, though Ward did not say this. But most of the bad actors are lawyers and shady contractors.
Florida accounts for 8% of all property claims nationally, but we represent 76% of lawsuits against insurance companies. So Florida sues insurance companies a lot. Way more than other states. And many of these lawsuits are fraudulent.
Here’s how a typical scam works. An of town roofing company sets up in a big neighborhood that is reaching that 15 to 18 year old roof age window, and they go knocking on doors.
The contractor tells the homeowner they might have roof damage, and offers to fix it and file a homeowner’s insurance claim for the homeowner. They may also offer to reimburse the homeowner’s deductible (which is illegal).
Sometimes the roofer finds roof damage. Sometimes they create the damage. Then they’ll tell the insurance company (for example), it’s going to be $20k to replace this roof on a 1,200 sq/ft house.
The insurance company’s response is that it really should cost more like $12k. And the roofer replies, “Well, we’re getting an attorney.” So the insurance company decides to just pay the $20k. It’s cheaper than having to pay the attorney’s fees.
Usually when the insurance company goes to court, they lose. And when they lose they have to pay the $20k for the roof, plus attorney’s fees, which are usually three times the amount of the roof.
All this money, we should note, goes to the attorneys (who may have coached the roofers on how to present these scams), not the homeowners. This happens so often that the insurance companies are running out of money. According to Ward, 6 or 7 insurance companies have gone insolvent in the last 6 months.
In response to out-of-control litigation costs, insurance companies are tightening underwriting.
“So if your roof is over 15 years old they don’t want it or they’re non-renewing you and forcing you to get a roof anyway,” Ward says. “They’re just making it hard. Getting a house insured with a roof over 15 years old is incredibly difficult right now and very expensive.”
In addition to large swaths of homes getting non-renewed and insurers tightening eligibility policies…
Renewals are going up.
“My house is three years old and my renewal just went up 30%,” Ward says. “I have a 3-year old roof. My insurance has gone up 90% in the last 3 years. I’m not part of the problem, but we’re all having to [make up for the insurance companies’ shortfalls].”
Ward ended her presentation by addressing a common criticism of insurance companies, that if they just honored homeowners’ claims, the lawsuits would stop.
If only it were that easy. “Citizen Insurance reports that half of all claims filed were filed by an attorney.” So it seems homeowners are retaining attorneys before they’ve even filed an initial claim and had it approved or denied.