Non-catastrophe losses up 80% in Florida; replacement cost law blamed
Florida is the only state that requires insurers to pay full replacement cost to policyholders without requiring them to repair their property or replace any of a home’s damaged contents. That is driving up the cost of insurance for all of us.
Statewide average losses per policy for non-catastrophe claims have increased by 80 percent since the law was enacted in 2005. And, these types of losses are expected to increase by another 40 percent over the next year if the law remains as it is.
In 2005, the Florida Legislature responded to concerns over claim payment delays by passing a law to make insurers pay full replacement cost upfront to policyholders who purchased such coverage. The unintended consequence is that a few people are enriching themselves by getting more money than what may actually be needed. Rather than returning to their pre-loss condition, they are profiting from an insurance claim – and that is a costly practice unique to Florida. Take a look at the chart on this link and note the trend line of the Loss_Explosion.
In states other than Florida, insurers pay actual cash value, and then subsequent checks are sent to pay for repair work as the bills come in. Similarly, for a home’s contents, a check is paid for the actual cash value (which takes depreciation into account), and once items are replaced, the remainder is paid. In Florida, full replacement cost coverage is paid before the true costs are known, which means that payouts are often more than what is needed. A bigger problem is that claims checks are being written and damage not being repaired.
Legislators are addressing this now to try to bend that rising loss trend line in the downward direction.