Florida’s Property Insurance Market Is Worse Than Reported—Shrinkflation Explains Why

Florida’s property insurance market is facing unprecedented challenges, leaving policyholders with inadequate coverage at significantly higher rates. The term “shrinkflation,” commonly associated with consumer goods, is now being used to describe a troubling trend in the insurance industry. Citizens Property Insurance, a major player in Florida’s insurance market, is at the forefront of this phenomenon, offering policies that provide less coverage while charging more. According to industry insiders, Florida politicians are complicit in this deceitful scheme, further exacerbating the plight of policyholders.

Shrinkflation is a term traditionally used to describe the process where the size of a product decreases while the price remains the same or increases. Ian Gutterman, an insurance industry insider and the author behind the blog “Nominal Returns,” has aptly captured this trend in his discussions on Florida’s property insurance market. Gutterman is credited with coining the term “shrinkflation” in this context, drawing parallels between the reduced value of consumer goods and the diminishing coverage offered by insurance policies.

Here is Gutterman’s definition of shrinkflation:

Don’t know what shrinkflation is? It’s when companies shrink package sizes so they don’t have to raise prices and it’s been happening a lot lately. It’s been going on in insurance for years and is something Informed has written about previously. It’s a great way for companies to trick less aware customers into buying their product, but it’s a pretty deceptive and disrespectful practice.

Citizens Property Insurance, established as a safety net for Floridians unable to secure coverage from private insurers, is now leading the charge in this shrinkflation phenomenon. Initially created to provide affordable and adequate coverage, Citizens has increasingly adopted practices that undermine its founding principles. Policyholders are now receiving less coverage for perils and risks while facing steep rate increases. Just last week, Citizens defended its request for a 13.5% rate hike to Florida’s Office of Insurance Regulation.

The most glaring example of shrinkflation in the insurance market is the reduction in coverage limits and the broadening of exclusions. Many policyholders, upon renewing their policies at higher prices, find that essential coverages such as water damage, windstorm, and other natural disasters are either significantly limited or entirely excluded. These changes are often buried in the fine print, leaving policyholders unaware until they file a claim.

For instance, a policy that once covered water damage up to $50,000 may now only cover $10,000 despite an increase in the premium. Additionally, the introduction of higher deductibles for specific perils effectively reduces the insurer’s liability while transferring more financial burden onto the policyholder.

The Role of Florida’s Politicians and Insurance Regulators In This Mess

Industry insiders suggest that Florida’s politicians play a crucial role in facilitating this deceitful practice. The political landscape in Florida has often been influenced by powerful insurance lobbies, which have a vested interest in maximizing profits. Regulatory measures that should protect consumers are either watered down or inadequately enforced, allowing insurers to continue with these practices unchecked.

Legislative changes in recent years have made it easier for insurers to implement these shrinkflation tactics. For instance, laws that limit the ability of policyholders to challenge claims denials or reductions in coverage have effectively silenced many consumer advocates. This legislative environment, coupled with the lack of stringent oversight, has created a perfect storm for shrinkflation to thrive.

The implications of shrinkflation for Florida policyholders are profound. Homeowners who rely on their insurance policies to safeguard their most significant investments are left vulnerable to financial ruin. In the event of a disaster, the reduced coverage means that many will not have the necessary funds to repair or rebuild their homes. This situation is particularly dire in a state like Florida, which is prone to hurricanes and other natural disasters.

Furthermore, the increase in premiums places additional financial strain on households already grappling with rising living costs. For many Floridians, particularly those on fixed incomes, these higher premiums are untenable, forcing them to choose between adequate coverage and other essential expenses.

Ian Gutterman’s blog post “Shrinkflation in the Florida Insurance Market” provides a detailed account of how this trend has evolved. He highlights that the problem is not just confined to Citizens Property Insurance but is pervasive across the entire insurance market in Florida. Gutterman points out that the lack of transparency and the complexity of insurance policies make it difficult for consumers to understand the true extent of their coverage until it is too late.

Gutterman also underscores the role of regulatory bodies, which he argues have been either complacent or complicit in allowing these practices to continue. He calls for greater transparency and accountability in the insurance industry, urging policymakers to prioritize consumer protection over industry profits.

Gutterman has specific suggestions for fixing part of this mess:

What Should Happen:

1) Every insurance agent should have a conversation with their client explaining how they are losing coverage and are more at risk after a hurricane.
2) This conversation should include mathematical examples of how much they’d have to pay out of pocket now vs. before given their home’s roof age.
3) Homeowners should have to sign a document – in plain English – stating that they understood what their agent explained to them and are aware of the increased risk and don’t want to pay more for a policy with replacement cost.

Where Is Florida’s Insurance Consumer Advocate? The Need for Consumer Advocacy and Honest Dialogue

Florida has an appointed Florida Insurance Consumer Advocate, Tasha Carter, mandated under Florida Statute 627.0613 to do the following:

[M]ust represent the general public of the state before the department and the office.

And with:

[T]he powers to:

(1) Recommend to the department or office, by petition, the commencement of any proceeding or action; appear in any proceeding or action before the department or office; or appear in any proceeding before the Division of Administrative Hearings relating to subject matter under the jurisdiction of the department or office.
(2) Have access to and use of all files, records, and data of the department or office.
(3) Examine rate and form filings submitted to the office, hire consultants as necessary to aid in the review process, and recommend to the department or office any position deemed by the consumer advocate to be in the public interest.
(4) Prepare an annual budget for presentation to the Legislature by the department, which budget must be adequate to carry out the duties of the office of consumer advocate.

Where is Tasha Carter on these issues, and what is she doing? In a Google search. To be fair, I am not even certain she is aware of it.

The causes of Florida’s insurance mess are complex and started long before Florida’s CFO, Jimmy Patronis, or Tasha Carter, held positions of power with enough influence to do something to fix them. Indeed, many other states have very similar problems with insurers changing policy terms providing less coverage while charging greater premium rates. This property insurance mess and shrinkflation are not isolated to just the Florida market.

Still, the issue of shrinking coverage, which hides the true cost of raising rates, should be honestly discussed and debated by Florida’s elected and appointed officials. Those officials should not seem to be an extension of the insurance industry but looking out for Florida citizens. In other words, an insurance industry insider from Chicago, Ian Gutterman, should not be the person publicly criticizing the deception that has been placed upon Florida policyholders rather than those whose job is to do so.

Addressing this issue requires a collective effort from policymakers, regulatory bodies, and true consumer advocates. By increasing transparency, enforcing stringent regulations, and prioritizing consumer protection, Florida and other states can begin to restore trust in their property insurance market. Florida’s officials should ensure that policyholders receive the coverage they deserve while supporting a viable insurance industry that truly acts in accordance with the law that requires it to engage the public trust.

Two Thoughts For The Day

The care of human life and happiness, and not their destruction, is the first and only object of good government.
—Thomas Jefferson

Our lives begin to end the day we become silent about things that matter.
—Martin Luther King Jr.

1 Matt Sczesny, Florida’s insurance struggles show signs of turnaround but homeowners still facing ‘financial challenges’, WPTV 5, July 30, 2024.