South Florida’s residential insurance rates are being impacted by a few obstacles including reinsurance, windstorm and other perils.

There are two parts that add up to the total premium. The first part is the windstorm, which is for the hurricanes, and the other part is perils, which can be fire and water-related damage, said Ryan Papy, president of Keyes Insurance.

“For example, over a seven-year period that was tracked, 90% or more of the money paid out of water claims went to attorneys, not to the insurers,” he said.

“The reason for that was if you had a claim with a carrier, and you came to me and I said it’s $5,000 and you go hire an attorney, and that attorney can get them to say that it is $10,000, not only do I have to pay for the claim, but that attorney has something called one-way attorney fees,” Mr. Papy said. “So, they could turn around and say ‘We only won five grand, but it took me $9,000 worth of lawyer hours to come up with that’ for a bill for $100,000 and only 10% goes to the insured. That was how the average claim was working for a very long time. The carriers were absolutely getting swept.”

The windstorm portion is a direct pass through that is not profitable to the carrier, Mr. Papy said.

“If you pay $5,000 on your policy, $4,000 of it is windstorm and insurance carriers attribute it to buying reinsurance,” he said. “I don’t make money on the reinsurance, obviously, never have, never will.

“But on these other portions, due to the way that the laws are written in the State of Florida, we can never make a profit. So, what happened is they all retreated. When they all retreated, it made it very difficult for homes in South Florida to find carriers that were willing to write them because it would cost them more money to basically say ‘Okay’ for this agreement with me. But if you hire the right lawyer under these laws, we may pay you 20 times your premium in the first year.

“The private market retreated, which led to fewer options and more eligibility issues, and what that meant was pretty much everybody went to Citizens [Insurance, the state-sponsored carrier] and everybody saw increased rates because it’s important to say that there’s a lot of protection in the State of Florida for what your carrier can do if they want to raise your rate.”

The issue that most people have experienced is the current carrier they had is no longer offering them coverage and now they have to go to the next-best available carrier, with a rate increase of up to even 70%, Mr. Papy added.

“In December, the state had an emergency session,” he noted. “They came in and they changed that law, so attorneys can no longer make these huge fees off of this.”

“I’m on the insurance agency side,” he said. “I represent the people. I don’t represent the carrier and I’m telling you wholeheartedly at that system that they have before we’re screwing them over big time because when carriers lose money, the only way they can get it back is by raising your rate.”

Since the law changed, claims on the portion that’s not windstorm related have gone down 60% to 70%, Mr. Papy explained. “It means that the private market in the last six months is coming back. So people are definitely going to be able to see more options, which should lead eventually to better pricing.

“Now, do I expect pricing to go down? I do not. I do expect them to stabilize,” Mr. Papy said. “I do expect that if one carrier was to drop them there’d be another carrier available at pretty much the same price.”

The reinsurance costs continue to increase, said Oscar Seikaly, CEO of NSI Insurance Group.

“There are maybe half a dozen reinsurance companies that insure basically 100% of insurance companies around the world. So, any major disaster that happens anywhere in the world starts to affect the cost of reinsurance,” he said.

When it gets to condos, it’s a little bit more complex, Mr. Seikaly said.

“You’ve got the condo association, which basically insures the common areas, and then you’ve got the unit owner, who’s buying the units and is responsible by law to ensure the interior of that unit,” he said.

“First thing is, there’s a lot of buildings that have construction defects,” Mr. Seikaly said.

“Number two,” he said, “it takes about $200 million to build a building of 15 stories and they ended up insuring them for $30 million to $50 million. So now, the insurance companies are saying no, we’re not going to do this anymore. So now, just by increasing the value from $40 million to $100 million, you’re adding a massive cost to the unit owners and your deductibles are higher, so your out-of-pocket expenses are higher.”