As hurricane season approaches, 3 insurers canceling thousands of Florida customers

As another hurricane season bears down on the state, more than 50,000 Florida home insurance customers will soon receive notices that their policies have been canceled or won’t be renewed.

State insurance regulators recently authorized “extraordinary” terminations of thousands of policies of Florida-based insurers Universal Insurance of North America, Gulfstream Property & Casualty, and Southern Fidelity.

And the bloodletting will likely continue over the coming months with other insurers seeking to shed risky or unprofitable policies while refusing to insure older homes with roofs, electrical systems and plumbing that have not been upgraded to comply with current building codes, said Paul Handerhan, president of the consumer-focused Federal Association for Insurance Reform.

“For the average consumer, the outlook is not bright,” he said. “There will be less options at higher price points.”

The consent orders by the state Office of Insurance Regulation authorizing the early cancellations did not specify locations of affected policyholders, and officials of the companies did not respond to requests for information. But if recent history is any guide, affected consumers are likely disproportionately located in Broward, Miami-Dade and Palm Beach counties, as well as in the Orlando metro area.

Insurers have been reducing their exposure in the three South Florida counties for several years, saying they are the source of inflated damage claims, excessive litigation and outright fraud. The trend recently has spread to Orange, Seminole, Osceola and Lake counties in Central Florida, insurers contend.

The consent orders, signed by Insurance Commissioner David Altmaier, said approval of the cancellations and non-renewals “is an extraordinary statutory remedy reserved to address insurers which [otherwise] are or may be in hazardous financial condition.”

Many, though not all, Florida-based insurers have been reporting operating losses over the past five years as a result of rising claims costs, more frequent severe weather events, increased lawsuits and higher costs of reinsurance — insurance that insurers buy to guarantee they can pay all claims after a catastrophe.

Here are details of what Altmaier authorized in the consent orders:

—Gulfstream Property and Casualty — The Sarasota-based company, which reported a net loss of $22.6 million in 2020, may cancel 20,311 policies before their terms expire with 45 days’ notice. They include 932 condominium owner policies and 47 tenant policies. Refunds for the balance of those policies’ terms must be sent to policyholders by June 1.

—Universal Insurance Company of North America — Also based in Sarasota, the company may cancel 13,294 policies with 45 days’ notice. Not to be confused with Universal Property & Casualty, the state’s largest property insurer, the company also reported a $22.6 million net loss in 2020. The company agreed to administrative supervision by the state if its pending merger with Texas-based Universal North America Insurance Company is not approved by Texas insurance regulators.

—Southern Fidelity Insurance Company — Based in Tallahassee, the company was approved to drop 19,600 residential policies over the next 14 months. About 2,300 insurance customers will be sent notices of nonrenewal with less than the required 120 days’ advance notice. Last year, state regulators authorized cancellation of 23,800 policies following Southern Fidelity’s merger with Capitol Preferred.

Homeowners who get a notice of cancellation or nonrenewal should move quickly to secure coverage with another company, the Office of Insurance Regulation says on its website. Terms of the consent orders require the companies to work with affected customers and their insurance agents to help them find new carriers.

Many, if not most, of those customers will end up with little choice but to buy a policy from state-owned Citizens Property Insurance Corp., the so-called “insurer of last resort.” Citizens policies are considered inferior to private-market policies because the company limits personal liability coverage and subjects its customers to surcharges if Citizens can’t pay all claims after a catastrophe.

Citizens has been rapidly growing as private-market insurers cancel and decline to renew Florida policies. That growth is worrying legislators who know that an inability by a swollen Citizens to pay all claims after a major storm will trigger not just surcharges for Citizens customers but surcharges for all property insurance customers in Florida.

Citizens, which expands and contracts as market conditions warrant, is growing by about 5,000 policies a week and could reach 700,000 by the end of the year. In 2018, it had fallen to 452,000 policies.

Handerhan said policyholders who receive notices of cancellation or nonrenewal should contact numerous agents if necessary to find out if another company will insure them at an affordable price. They should settle for Citizens only if they cannot find a viable alternative, he said.

Citizens spokesman Michael Peltier said he doesn’t know how many of the canceled policies will end up at Citizens. But the company is ready for them, he said.

“We are in a good position to handle any policies that come our way,” he said by email. “We have been in ramp-up mode for some time as we respond to market conditions over the past year.”

Ultimately, owners of older homes in Florida will have some serious and expensive decisions to make if they want to avoid going with Citizens, Handerhan said. More and more companies are deciding it’s too expensive to insure homes that don’t conform to current building codes, he said.

As a result, “owners of older properties are going to have to dig into their pockets and come up to current code” before insurers will accept their business, he said.

Joesph Petrelli, president of the insurance strength rating firm Demotech, said further cancellations could follow, thanks to the Florida Legislature’s failure to pass legal reforms that would have sharply reduced insurers’ obligations to pay roof replacement claims and slashed financial incentives for attorneys who sue insurers.

“The status of the residential property insurance marketplace in Florida is such that carriers are rethinking their business models and their operations,” Petrelli said by email.

While the reforms that were passed — and currently await the governor’s signature — are expected to reduce costs for insurers, those reductions won’t become apparent for 12 to 15 months, Handerhan said.