How insurance companies could stiff the victims of Hurricane Milton

Hurricane Milton is pounding Florida and is expected to cause billions of dollars in damage. But many Florida homeowners — even those with insurance — will receive little or no help rebuilding. 

Major insurance companies like State Farm flood the airwaves with advertisements where agents quickly help homeowners repair any damage to their homes. Reality is different. According to Weiss Ratings, which evaluates insurance companies, State Farm Florida Insurance Company "flatly denied" 46.4% of all homeowner claims in 2023.  

State Farm is not alone. Weiss Ratings also reported that Castle Key Indemnity Company and  Castle Key Insurance Company, subsidiaries of Allstate, both denied more than 46% of all homeowner claims last year. 

Rick Tutwiler, a public adjuster based in Tampa who represents property owners in disputes with their insurance companies, told the Wall Street Journal that, across the board, "[i]nsurers have become significantly tougher on hurricane claims." Tutwiler says the insurance industry is "dominated by exclusions, diminishing coverages, and even harsher policy terms." Many insurance policies now include "higher deductibles for wind damage, reduced payouts for older roofs, limits on interior water damage, and exclusions for damage from wind-driven rain." These restrictions are being imposed along with massive rate increases for home insurance — up 20% nationwide since last year.

Further, according to Dr. Martin D. Weiss, the founder of Weiss Ratings, denying legitimate claims has become a part of the insurance industry's business model. "Many Florida insurers are short on reserves because they’ve diverted funds to shareholders or to parent companies outside the state," Weiss said. "Thus, some are abusing their power to deny damage claims as a deliberate tactic to conserve cash and avoid bankruptcy.”

Florida insurance industry whistleblowers claim that, after Hurricane Ian struck the state in 2022, "several insurance carriers used altered reports to deceive customers and lower payouts." One adjuster told CBS News that an "estimate he wrote for about $488,000 [in damage] was changed to approximately $13,000. Another was revised from about $239,000 to around $3,000." In other cases, adjusters "were instructed by some of their managers to leave damage off of reports."

When valid claims are rejected, policyholders have little choice but to sue their insurance company. Florida attorney Steve Bush believes that "some insurance companies are unwilling to fork over cash for a roof replacement unless a policyholder sues." But, due to a new law enacted by Florida Governor Ron DeSantis (R), homeowners may have a tough time prevailing in court. 

How DeSantis made it more difficult for Florida policyholders to get paid

In December 2022, DeSantis signed SB 2-A into law, a “105-page rewrite of the state’s property insurance laws” created during a three-day special session requested by DeSantis. The law reduces the time period available for policyholders to file claims with their insurance companies and makes it harder for homeowners to “win extra compensation” from insurance companies that act in “bad faith.”

The law also removes a policyholder’s right to “one-way attorney fees,” which required insurance companies to pay the policyholder’s attorney fees if the policyholder was successful in suing the company. The change makes suing insurance companies more expensive for policyholders and makes finding adequate attorneys a challenge, as attorney fees now need to be paid out of pocket. The change means that even if a policyholder succeeds in suing their insurance company, policyholders still have to “spend money meant for home repairs on legal bills,” investigative journalist Jason Garcia reported. 

Additionally, the law grants insurance companies the ability to offer “new policies with mandatory binding arbitration agreements” for a discounted price. Customers who purchase the discounted policies forfeit the right to sue the company. The law also removes the option of Assignment of Benefits, which allowed policy owners to “hire a contractor who [would] battle directly with their insurers.” When signing the sweeping bill, DeSantis championed the legislation, saying it “reins in the incentive to litigate” and will “make a huge, huge difference.” 

DeSantis has received millions of dollars in donations from the insurance industry. Between January 2018 and December 2022, “[i]nsurance industry employees donated at least $3.9 million to his gubernatorial race” and to his former political committee, Friends of Ron DeSantis, according to a 2023 report. DeSantis’ inaugural celebration in 2023 also received $125,000 from “a subsidiary of Heritage Insurance and People’s Trust Insurance.”

Why many Floridians lack flood insurance

Many more may be out of luck if the damage to their homes is caused by flooding (or if their insurance company can make a compelling claim that it is). Most home insurance policies do not cover flood damage. Instead, insurance companies sell separate flood policies. Who is required to purchase these policies and how much they cost is determined using flood risk maps from the Federal Emergency Management Agency (FEMA).

FEMA’s maps, which show how likely an area is to flood, are utilized at every stage of property development and use. Developers use FEMA maps to help determine where they will build homes and businesses. When these buildings are purchased, mortgage lenders use the flood maps to assess whether they will require flood insurance as a part of a loan. Insurers then use the maps to determine rates for flood insurance policies. When hurricanes and other severe weather events occur, local officials use FEMA’s flood maps to guide their evacuation orders.

The problem with FEMA’s maps is that they are often outdated and do not account for the effect of climate change on severe weather events and flooding.

In 2022, Smithsonian Magazine reported that FEMA considered 8.7 million properties to be at high risk of flooding, but a separate analysis by the nonprofit First Street Foundation found that the real number of properties at high risk was 14.6 million. The last time that FEMA’s maps for the Tampa Bay area were updated was October 2021. Underestimating the number of properties at high risk for flooding means that millions of properties nationwide could be underinsured for flood damage.

The state of Florida does not require homeowners to purchase flood insurance, leaving it at the discretion of property owners, mortgage lenders, and, in some cases, the federal government. According to FEMA’s National Flood Insurance Program (NFIP), homes and businesses located in FEMA-designated high-risk flood areas that either have a government-backed mortgage or have previously received FEMA disaster relief funds are required to have flood insurance.

Both FEMA and the state of Florida encourage property owners to purchase a flood insurance policy, even if they do not live in a high flood-risk area. According to the Florida Department of Financial Services, 25 percent of floods happen in low-risk areas, and over 40 percent of claims submitted to FEMA’s NFIP come from outside of its designated high-risk zones.

Despite this data, the number of flood-insured properties in Florida remains low. Of Florida’s 8.3 million homes, only 22 percent were covered by flood insurance in 2020. The Wall Street Journal reported that 95 percent of Florida homes hit by Hurricane Helene did not have flood insurance policies, even though Florida insurers sell more flood insurance policies than in any other state.