Mark Friendlander is Director of Corporate Communications at the Insurance Information Institute a think tank focusing on insurance education. In this episode we dig into a bunch of detail of the ways in which the insurance ecosystem in Florida is doing Floridians harm and why the world is like that.
What are the root causes of the fraud in Florida?
What are the outcome?
What happens if nothing changes?
What are some special powers you have as an insured in Florida and how are they ultimately harmful?
show notes: https://notunreasonable.com/?p=7641
Social Science of Insurance Essays: https://notunreasonable.com/the-social-science-of-insurance/
My guest today is Mark Friedlander, Director of Corporate Communications at the Insurance Information Institute, a think tank dedicated to providing objective fact based information about insurance. Today, we'll be talking about Florida, and insurance problems there in Mark, welcome to the show.Mark Friedlander:
Thanks for having me. Really appreciate it, David.David Wright:
So first question, is there a problem in Florida? And if so, what is it?Mark Friedlander:
Even long before Hurricane Ian formed the Atlantic, there were major problems in the Florida insurance marketplace. In fact, we consider Florida to be the most unstable property insurance market in the US in 2022, caused by what we consider to be a manmade crisis. What do I mean by that? Two key factors, roof replacement claims schemes and excessive levels of litigation are why the insurance market is in such turmoil today, and unfortunately, even more so after the impacts of hurricane Ian, do you have an idea for what the magnitude of these two things than in terms of contributing to the problem are? Well, here's what we've seen. Just looking at the last two years of losses for the insurance industry here in Florida. We had no direct hit hurricanes for the 2020 and 2021 seasons, yet, we saw an average cumulative industry loss for the last few years have about $1.6 billion each year, that's underwriting losses. You don't see this in any other states in the country, when there are no major catastrophes contributing to these losses.David Wright:
So why is this a problem in Florida? It can't be a coincidence that you have Florida the most catastrophe bone from state in the world. region in the world, I would say probably. And then you also have this problem, which is, as you say, human created. Are they related? They must be related.Mark Friedlander:
Florida has always been known as the US Capitol of insurance fraud, whether it's auto insurance fraud, or property insurance fraud. Florida is always a leader in we've had these roofing contractors, and we'll call them a group of unscrupulous contractors. I don't want to put a blanket over all roofing contractors. But there are a group of unscrupulous contractors that are taking advantage of loopholes in Florida state regulations to solicit business door to door and basically scam homeowners into thinking they need their roof replaced and promising them A free roof. If they just sign over the claim, which is called assignment of benefits. That's another big problem assignment of benefits abused. So the homeowner gets scammed thinking the roof really needs replace replacement when it doesn't. They've been told by this contractor, the insurance company is going to pay for everything. It's a free roof. Just sign here will take care of everything. So the scammed homeowner signs it over. And then that's when the contractor goes to work on continuing the scam, they will replace the roof, but then they'll charge the insurance company double the market rate. So say it should be a $20,000 roof replacement. If it's a legitimate roof job, they might send a bill to the insurer for 40,000. In most cases, the insurance companies are going to say there's no way we're not going to pay this. They reject it. Then this contractor gets together with we'll call them unscrupulous trial attorneys. And unfortunately, Florida leads the nation and unscrupulous trial attorneys that love to sue insurance companies. This is their livelihood. They're making millions and millions on these lawsuits. In fact, there is one South Florida lawyer who boast about suing insurance companies. He is on The Real Housewives of Miami, the reality TV show. He shows checks he has received from Florida insurance companies. He shows the yachts that he's bought with those checks, he shown the private jets that he's bought with those checks. It's unbelievable the volume of really unethical attorneys. There's no better way to say it and some have been sanctioned by the Florida Bar Association. Unfortunately, not enough. But there have been some that have actually had their law licenses taken away and there will be more in the future. I mean, there are literally law firms suing Florida insurance by the 1000s. And because of this six Florida property insurance have gone itself at this year. Six companies have failed because of this excessive level of litigation.David Wright:
So if we talk about kind of the chain here important thing that I want to kind of get my head around it in this is that people in Florida, this is like an assumption I make maybe you disagree, are people and there are unscrupulous people everywhere. In every state in every walk of life and every country in Florida somehow they are super powered. And they're able to achieve much more unscrupulous outcomes, because of their unscrupulous not only because there's something in the system here, which is supporting this behavior, which you don't get in Idaho. I don't know, wherever else. What what is that thing?Mark Friedlander:
Well, here, let's just do a quick comparison. Florida 107,000 property claim lawsuits in 2021 81% of the US total. We looked at all the other states that next state on the list, California 3600, California has double the size. Why is there such a difference? 3600 in California, with a 40 million population versus 21 million residents in Florida, that accumulated 107,000 lawsuits, regulations, much tighter, much stricter regulations, less loopholes, because in Florida, most of these scammers are taking advantage of those loopholes. In most cases, they're not breaking the law. In some cases, they are breaking the law. For example, if a roofer goes up on your roof, and intentionally causes damage, to make it look like a storm hit your home when it really didn't, yes, that is fraud, you will be arrested, you will be prosecuted. But in most cases, these unscrupulous contractors are not breaking the law. They're taking advantage of regulation loopholes that are much looser than other states. We don't see this anywhere else in the country. Nothing at this level. Do you have an example of a loophole in Florida that doesn't exist elsewhere? California? Well, we're not regulatory folks. So yeah, we're probably not the best source for that. But I can assure you that there are too many loopholes in general, and probably, lobbyists would be better to better choices to explain this. But the point is, these unscrupulous contractors are getting away with this, because they're technically not breaking the law. That's our takeaway on this, right. And the concept of assignment of benefits that seems to meet be often one of the root causes, or maybe not the ultimate root like some weird cultural factor, which I learned about. But the technical process of assigning the benefit of a claim over to a contractor, is that something you can elaborate on a little bit? Sure. Yeah. I mean, there have been tighter restrictions put in place to protect homeowners when they sign an EOB. And, for example, they could back out of the agreement, there's a certain timeframe now that was put into place with new laws passed a few years ago. So there are some consumer protection benefits ao B's, but in general, typically when a homeowner signs over an EOB, that's the last they hear of it. And it's all now in the hands of the contractor. And I know for the CFO Jimmy PETRONAS has been very public in his comments about ending AOB abuse to the point where he wants the legislature to enact a law that will eliminate a obese period, because we are in complete agreement with Mr. Patronus, there's no benefit to an A OB. To us. It's a roadmap to fraud, once you've signed over that claim, then fraudulent acts occur, whether those are technically breaking the law or not breaking the law, it's still fraud. So in the eyes of the prosecutors, but in our eyes, it is fraud.David Wright:
So this would be if I have a claim, or I have damage to my house, in some way, contract knocks on door and says, Hey, we, you know, you should go to your insurance company to pay for this? And I say, Well, I don't really I mean, I don't know, it sounds like a lot of work, is it really gonna be worth and they say How about we do this, you give me the claim payment for whatever it is I get it, and I'm gonna guarantee you a new roof or something like that, right? So I'll get you, I'll trade the claim payment for the new roof and you're like, Oh, well, I get a new roof, I just hand this over to you, then. Okay, I'll just get a new route. That sounds like an easy trade. And now you're handing it to somebody who's a professional claimant. Their entire world is full of expertise of how to squeeze every penny out of the insurance company. And so they can massively increase the amount that they can retain by, I don't know, saying the magic word here and there at the different part of the process, and they can unlock more and more cash and they actually wind up with 10x the recovery that a roof would cost is that kind of how it works.Mark Friedlander:
Well, here's what's been going on after hurricanes. And this is a really good example on why Mr. Patronus has been so forthcoming in his comments about AOP abuse. unscrupulous contractors combined with unlicensed Public Adjusters have been storm chasing basically, they are raiding neighborhoods that are most vulnerable to these schemes. Because these homeowners have lost their properties they've been destroyed or severely damaged by Hurricane Ian, they are talking these homeowners into signing over their claim saying, Oh, you'll never get the full amount of your claim through the insurer unless we take care of it for you. Basically, they're saying, we will make sure you get the full amount and get a full replacement for your home. You're not going to do that on your own. It's a very difficult process. They, they basically scam the most vulnerable homeowners in their time of need. And they have been working neighborhoods, literally since the hurricane struck in southwest Florida. And I know there have been members of the CFOs office, Investigative Services unit as well as National Insurance Crime Bureau chasing these scammers and trying to arrest them, you know, for illegal acts, basically. You know where they can where they have actually broken the law. But it has been completely out of control since Hurricane Ian struck here in Florida.David Wright:
So if you're a consumer, and you don't like insurance companies, because that's where we all start in life. Insurance. I did probably before I joined the industry. And this all sounds like okay, like wait a minute, so I don't like insurance companies, somebody shows up and tells me you're telling me mark that they're really good at, you know, beating up insurance companies. What's not the like? Right, you can see the political attractive attractant here, the thing that is like, that makes this popular potentially in some way.Mark Friedlander:
When you're most vulnerable, you'll believe anything a scammer will tell you, and they will tell you, insurance companies are impossible to deal with, we know how to handle them, you sign it over, everything will be taken care of. And that's when the scam has begun. There is no benefit to signing in a OB zero. And in fact, anytime a contractor or a public adjuster knocks on your door or catches you on the street and says sign here we're going to take care of for you tell them no thank you have a good day and walk the other direction. Never sign over anything, no matter what it is related to a claim on solicited. If you have not engaged this contractor, if you have not vetted this contractor either to your insurer or to other sources, like the Chamber of Commerce, the Better Business Bureau, you don't know anything about this contractor. Do not engage with them. Do not sign it over. Nothing but trouble. And we've never seen a positive benefit from an AOB in our analysis of this not only in Florida, but across the country. What would a positive? What would your let's say you had a debate about AOB what would somebody look for as a positive benefit? Like what's the intent? Like what's the thing that should be happening in an idealistic world and why you would want to pass a law allowing AOB? Well, if it was done legitimately, perhaps a contractor could help you through the claim process. But we've never seen that. I can't give you any example of it being a positive benefit. The potential maybe, but never happens. Typically, all AOB is is a roadmap to fraud. We don't see anything positive and we recommend any situation. Homeowners never sign an AOP not only homeowners but we see the problem here in Florida with drivers. There are windshield replacement scams here in Florida 1000s of lawsuits being filed per week here in Florida over windshield replacement scams. Now in Florida for a windshield. It's a it's covered on your comprehensive coverage, which about 80% of drivers have that coverage. And there's no deductible. So that makes it much easier to scam you because there's no deductible involved. So the homeowner doesn't have to pay even their deductible if they sang over the windshield replacement. Well, we've had for years unscrupulous windshield contractor so another group of contractors, not roofing contractors, now we're talking windshield replacement companies soliciting business, in parking lots at car washes at service station, gas pumps, where they're saying, Oh, I see a crack on your windshield. You know what, we can take care of that for you. Here I'm going to give you $100 gift card to your favorite local restaurant. If you sign this AOB and we're going to handle everything. So instead of it being say, a 200 $300 average replacement for a windshield, that's pretty much the typical average across the across Ford in the US. You sign this over now. That windshield repair could end up being 10,000 hours or more and you don't even know about it. You've signed it over. You have no idea number one what that unscrupulous windshield repair company is going to charge your insurer number two, they're going to file a lawsuit against your insurer, because insurers not going to pay $5,000 for a $200 replacement. We're now talking 1015 $20,000 or more, with the lawsuit involved for a $200 replacement for windshield. And the Florida Legislature did address this a few years ago, they passed a bill it was a bad bill. Oh, actually, I take it back. They they had an auto reform bill in last year's legislature. It did not address this. I'm sorry, if I'm mistaken there. They have not addressed this. Hopefully, the new leadership of the legislature will consider this because these fraud schemes fall under the radar, because typically, they're at a much lower level of cost than these home Roof Replacement schemes. But nevertheless, there are 1000s and 1000s of these taking place, literally every month in Florida. And nobody's doing anything about it right now. So we've got the roof replacement scams, and we've got the windshield replacement scams, Florida, once again, the US Capitol of insurance fraud, what are they doing to get $1,000 windshield into a $20,000 claim? Like do you have to, you know, like the detail of what how does that possibly make sense? It doesn't. But they in and there have been insurance companies that have filed class actions against these windshield replacement companies. So it's gone. They're going after them, because of all the scams. But the bottom line is they're taking a simple windshield replacement, which once again, no deductibles, the state of Florida, if you have comprehensive coverage, and turning it into a ridiculously priced replacement, that has litigation on top of it, when the insurance company fails to pay the bill, then the lawsuit gets filed. So it's amazing. And once again, we have certain types of attorneys lined up to take these cases, they have no problem suing insurance companies. Sometimes as I said, literally Bowser, 1000s. So I mean, back to kind of EOB for a second, if maybe you can help me on this. I know that a OB exists elsewhere. I'm pretty sure it exists in the northeast, near where I live any any case, it's another other parts of the country, but we don't hear about it, having these incredible consequences.David Wright:
Is there something else about it that that's specific to Florida that make it different? Or is it just Florida's has more of these entrepreneurs there? And who take advantage of the AOB there? I mean, it seems like it's not quite so catastrophic elsewhere. I don't hear about it anywhere else as we we do here if it and obviously it's it's small levels.Mark Friedlander:
Everything in Florida is magnified greatly. You know, for example, we are projecting in terms of litigation expenses from Hurricane Ian 10 to $20 billion in expenses that will be incurred by insurers fighting lawsuits related to hurricane Ian claims. We've never seen anything at that level. In other states. You know, we've had major hurricanes in many areas of the country over the past decade. We don't hear about anything at this level. While we do still hear about a lot of litigation, nothing will surpass what we might see here in Florida. Once again, everything in Florida is magnified, sometimes just because of loopholes and regulations. Other times it's because Florida is so ripe with scammers to take advantage of consumers here in the state.David Wright:
So let's say nothing happens, right? Your advocacy fails. Other insurance advocacy fails, the government succumbs to the influence of these probably very powerful interest groups very wealthy and resourceful in every sense of the word interest groups who are fighting against you. What happens to insurance in Florida.Mark Friedlander:
It continues to spiral downhill. That's the bad news. Bad news for the marketplace. Bad news for every homeowner because right now, Florida homeowners are paying the highest average premium in the US. We estimated this summer the average premium $4,231 across the state. That's nearly triple the US average of $1,544. The average increase year over year in Florida 33%. US average 9%. And then that's 33% year over year that's on top of 25% or basically I think actually borne that 27%. The year prior so 27% year over year from 2020 to 2021. Another 6% higher this year 33%. And with the expected increase in reinsurance costs that property insurers will need to purchase for the 2023 hurricane season. We'll see rates spike even more and wouldn't surprise us that the year over year increase next year will top 40%David Wright:
Very possible here in Florida, some I would be sympathetic to the the probably the eventual outcome of Florida still having the most expensive homeowners insurance in the country, because of the image kind of its little thing sticking out into the Gulf of Mexico. You know, the middle finger at Mother Nature saying Hit me if you dare, and she will, frequently. So that, you know, but the magnitude of that, do you have an idea for, you know, just adjusting for kind of hurricane risk? What the right what what should Florida's you know?Mark Friedlander:
Well, let me let me give you a good example here, reinsurance costs for this year. So let's compare Florida to another very vulnerable, hurricane prone state, Louisiana, right. Louisiana has had seven named storms for the past two seasons, meaning 2020 2021 For to hit zero. The average cost of reinsurance renewals in Louisiana for their property insurers about 30%. Florida, average 50% Why is Florida so much higher? Okay, you can say yeah, we're more vulnerable to hurricanes, the most hurricane prone state historically got that. So that's always gonna keep rates pretty high in Florida. But why is it nearly double the cost of reinsurance renewals in Florida compared to Louisiana litigation. The litigious environment, the global reinsures indicated, the state litigious environment makes it very vulnerable to major losses even without her against. And it's very hard to model for that because they can model for hurricanes. Global reinsurers have great catastrophe models, they understand how to model for hurricane losses, they can't model for uncontrolled levels of litigation. And that's why it's 50%. This year, it could be much higher next year, and several reinsurers have already indicated they're not coming back to Florida, meaning they will not offer coverage to Florida insurers next year. So it's very possible. Many of the struggling small regional Florida insurers the ones that are based here in Florida, primarily right residential business here, they may not be able to get full reinsurance programs next year, that could put them out of business, because without a full reinsurance program, most likely they cannot maintain a high financial rating, they typically need an A rating to continue to operate. Without a full reinsurance backstop, they can't operate, because they're not going to have that rating. So we could see many more of the smaller struggling insurers fail because of you know, the litigious environment combined with the reinsurance problem, which is a result really, which is his environment. That's why reinsurance is so expensive or difficult to secure in the first place. So it's all goes back to this out of control litigious environment here in Florida.David Wright:
How about kind of to the original risk part of this, because if one, if one is contributing to it, let's say you have two pieces of this puzzle, one of them is Florida is just inherent risk, and it's just gonna get hit a lot. And the other one is this, you know, laissez faire kind of regulatory culture and, and that will impact to see the impact and two things that, of course, is you're talking about litigation. But it also allows people probably to build wherever they want, without thinking that they're necessarily, you know, some areas that are riskier than others. And maybe there are restrictions on zoning or building codes and that kind of thing is are there stuff that needs to get done there too?Mark Friedlander:
Well, here's the thing. It's amazing. You think, after seeing such a catastrophic event, like Hurricane Ian, and what it did to our Southwest, Florida coastal communities along the Gulf, that people were very hesitant to rebuild their or for investors to come in and buy properties and build new? Well, we've heard from the real estate market and the real estate market tells us that investors are coming in by the dozens to buy up properties. They want to invest more in southwest Florida than ever before. They see the potential there to make big dollars. You know, I'm building new properties and selling those to those that want to pay for it on the market. And we see this not only in Florida, but across the country. You think coastal areas are so vulnerable to storm losses that people would shy away from building near the coast. Well, if the opposite. Most people in the US want to live near a coastline, as he 80% of the population lives near the coast in the US whether it's the Atlantic Coast Gulf Coast or West Coast pacific coast. Everybody wants to be near an ocean or a Gulf. Forget the hazards they want to live where they could go to the beach every day apparently. Well, that sounds lovely. Sounds great till you suffer a loss. And what do you do now, if you have the right insurance coverage, which is all about financial protection, you will recover. But we learned many of the homeowners that were devastated by losses for me and did not have the right amount of coverage. Many of them dropped their flood insurance because they said it was getting too expensive. Well, it's expensive to live near the coast, you want to live in most one of the most vulnerable locations in the country, you have to expect to pay higher than average insurance costs. And yes, home insurance is off the scale here in Florida, we already know that it's the highest average in the country. According to our analysis, flood insurance, it's getting more expensive, but still fairly reasonable. You need both property insurance and flood insurance to be fully financially protected. So your family is not devastated after a loss. And then we moved in the inland communities. Look at Orlando, Metro, Orlando, Central Florida. Most homeowners that suffered losses from Hurricane Ian in those communities, no flood insurance. In fact, the take up rate instead to Florida for flood policies is roughly two to 4%. So that's virtually nobody. Everybody hit does, you know who suffered a loss is in a very financially vulnerable state, and they now have to rely on FEMA grants to help them recover. But FEMA grants only pay a small portion of what you lose. They're not insurance. FEMA grants do not replace insurance. Unfortunately, that's not how it works. Yeah, and you know, Central Florida, very flat, Water, water everywhere, easy to imagine flooding being a problem. Okay, so one more question will close on this concept or this sort of this? i This question is, what's the plan? What are the things that can be done between now and the next hurricane season or, you know, just now period in your mind and the legislature or wherever else that might help this problem? Proof? Well, here, here's the thing. We are cautiously cautiously optimistic. I should say that the new leadership of the legislature meaning there's a new senate president, there's a new house leader that are going to be in place after the elections in the fall, that they will take actions to help stabilize Florida's insurance market. That means addressing the ARB abuse, assignment of benefits abuse, as well as taking steps to disincentivize, this massive volume of lawsuits that's getting filed year after year against Florida property insurance, unless those type of actions are taken. We're just not going to see any roadmap to stability. So we're once again very hopeful that new leadership will put packages in place. Well thought out bills that address these issues. And either in a special session that is scheduled for December, which is going to address several hurricane related issues, or in the regular session. Next year. We're starting in March, that legislative actions are clearly needed to begin the road to stability here in Florida.David Wright:
How dopeople help. Anything people in the insurance?Mark Friedlander:
Well, well, first of all, you know, the elections coming up, make sure the state representatives and the state senators you're voting for have your best interests in heart, at heart rather, when they're going to represent you, you know, make sure to check out the candidates plant forms, see how they stand on insurance reform, it's really important to have representatives in the state house that will take actions because in the past, particularly the Florida House has been very reluctant to take steps to stop the trial bar, the trial bar very strong lobbying group, they push back on all types of legislation that may have slowed down this train of lawsuits, this endless freight train out a runaway freight train, we'll call it the runaway freight train of lawsuits. They have not passed bills that would help stop that problem. We're hoping the new house will with the leadership in place. But make sure your individual representatives that will be representing your districts understand the problem and are going to do something about it when the time comes.David Wright:
I guess it is Mark Friedlaender, Director of Communications at the III .Thank you very much.Mark Friedlander:
Thanks for having me greatly appreciate it.