Natural disasters and extreme weather as well as a home insurer exodus from Florida have title agencies in the Sunshine State wondering what the future holds.
Aaron Davis, CEO of AMD Enterprises, walked The Title Report through how a sudden home insurer void can throw a wrench in a title agency’s transaction flow.
“We have seen some of the (home insurance) carriers pull out, so if you do have closings in the pipeline that were using those carriers and already had quotes, it can cause some trouble,” he said. “A contract gets brought to us, the sales contract from a Realtor. There’s usually a lender already involved, and that lender or the Realtor usually has a relationship with the homeowner’s agent, so it’s kind of a package deal.”
AMD Enterprises is comprised of more than 30 businesses, including one of the nation’s largest independent title agencies, Florida Agency Network.
“If Farmers was the insurance carrier, all of the sudden things go away like ‘poof’ because Farmers says it’s not going to honor their quote because they’re not doing business here anymore,” Davis added. “Maybe the next quote is $5,000 a year more, and it makes the homebuyer unable to qualify for a house and the contract is canceled.”
In July, Famers Insurance joined Bankers Insurance, Centauri Insurance and Lexington Insurance, a subsidiary of AIG, in dropping out of Florida’s insurance market.
According to Farmers, its Florida exit will only impact Farmers-branded insurance policies, not policies from subsidiaries such as Bristol West, Foremost Signature, Farmers GroupSelect, Foremost and Foremost Choice.
Fourteen additional companies are currently listed by the Florida Department of Financial Servies as having presented grounds to have delinquency proceedings initiated against them.
“A lot of people, a lot of potential homebuyers are being priced out of the game and the transaction volume goes down as a result,” Davis said. “If someone can’t obtain insurance, they’re not going to be able to get a loan. Then you’re limiting things to cash transactions only. This is all real-life stuff that affects people. The panhandle, south Florida, Miami and other high net worth areas are where all the (cash transactions happen). It’s not an option for most homebuyers.”
Floridians are paying an average of more than $4,200 for their yearly home insurance premium, an increase of 42 percent year-over-year, a spokesperson for the Insurance Information Institute told USA Today.
The average annual premium nationwide sits at roughly $1,700.
In October 2022, the Insurance Information Institute published data showing Florida leading the nation in homeowners’ insurance-related litigation, making up 79 percent of the lawsuits across the U.S. while accounting for just 9 percent of total claims.
In that report, findings also state that roof replacement fraud, too much litigation and attorney-fee mechanisms have spelled huge underwriting losses for Florida’s homeowners’ insurers.
Jason Levy, president and founder of Professional Insurance Services, a Florida-based property and casualty agency, said some of what he’s observed matches up with that study.
“There’s been the fraudulent roof claims, contractors abusing the system through assignment of benefits claims, attorney fee multipliers and increasing reinsurance costs,” Levy said. “Also, catastrophic weather has been another driver. Increases of major expenses like reinsurance and claim expense are causing carriers to make a tough decision: either raise rates 30 to 40 percent or shut their doors for business.”
The Insurance Information Institute and other entities say a 2017 Florida Supreme Court decision allowing courts to award attorneys with much higher hourly billing rates is the driving force behind an increase in attorneys’ fees that insurers have to contend with.
Between 2017 and 2021, data from the Florida Office of Insurance Regulation shows that Florida insurers paid out $51 billion over 10 years. Nearly three quarters of that total went to attorney’s fees and public adjusters, while only 8 percent went to claimants.
Levy said home insurers can still find a way to remain solvent even with current obstacles.
“They can 100 percent still be profitable if they have the right underwriting guidelines in place, are taking on the right risks and if they have quality claims adjusters out in the field,” he said. “I think it’s definitely possible. There’s room for more what I could call creativity in the policies’ coverage. If we can, hypothetically, have more deductible options from carriers, that might help some of the people who can’t find coverage right now.”
An increase in storm hazards has also heavily contributed to the crisis. And that doesn’t show any sign of stopping.
According to studies from Florida State University and the Florida Climate Center, coastal flooding from storm surge is expected to increase regardless of changes in storm intensity due to future sea level rise.
There is agreement between theory and model projections that flooding rain associated with hurricanes will become more hazardous. It is more difficult to evaluate historical trends in hurricane rainfall, but a notable trend of slower-moving storms has recently emerged, experts at Florida State found.
“Roof schedules, for example; that’s being evaluated by a good number of insurance companies,” Levy said. “They’re going to pay a lot more if someone has a newer roof compared to someone who was due for a replacement. If your roof is depreciated, then you’re going to get whatever the actual cash value is. Doing that could eliminate a lot of these excessive costs that we’re seeing the carriers take on.”
While the mean intensity of hurricanes has not changed significantly from the past, warmer oceans raise the ceiling for intensity. Florida Stata data showed a larger proportion of storms reaching major hurricane (Category 3-5) strength in recent years, along with an increase in rapid intensification events.
Davis illustrated some of the recent hurdles faced by Florida title businesses within his network.
“We have 35 offices that sort of cover central Florida,” he said. “Two days prior to our last storm, it was veering straight at us. When it’s veering straight at us, all of our staff who have kids are taking off because the schools close so they can be used as shelters. Everyone is panicking to run to grocery store, buy plywood to board up their homes, everything. Then you have offices in the target path. We had about six offices that, if the storm continued its original trajectory into Tampa Bay, those offices would have been total losses.
“Those offices would have been in 5 feet of water. Everything there would have been gone, the files, computers, desks, everything you’ve got. We go through this on an annual basis now. You get in a huge rush to get anything in the pipeline closed. In this case, we lost everything at the end of the month, when we make all of our money. About half of closings happen on the last three days of the month, generally.”
There is relatively low confidence in projections of future tropical cyclone frequency, researchers said, and work remains in understanding what sets the global number of tropical cyclones each year.
A recently published study led by researchers from the Pacific Northwest National Laboratory and published in the peer-reviewed journal Science Advances looked at how climate change was strengthening hurricanes along the East and Gulf Coast.
They concluded that hurricanes impacting the U.S. could rise by one-third compared to today without a significant move away from current climate trajectory.
“This last storm came into the bay and hit Florida in a way that no storm has in about 100 years,” Davis said. “Two of our offices had some of the heavy rain and wind, but all of our coastal offices were out of the storm’s path, thankfully. It doesn’t always end up like that, and all we can do is prepare.”