I was at lunch recently with friends and we talked about new vocabulary words that may come out of the pandemic, like covid brain, covid dining and covid social distancing. Real estate has always had its own set of buzz words, so it’s likely that covid will add several more. How about covid-renovated homes, covid-sized, covid-ready furniture, covid home office, covid learning labs – well, you get the picture.
Unfortunately, about a week ago the Miami Herald published an extensive article about what may be Florida’s newest covid word: “covid wind insurance.”
The Herald didn’t actually call the increase in wind insurance in our state “covid,” but we might as well blame it on the virus since I’m sure there has to be a connection, like the high unemployment rate. According to the Miami Herald, home insurance is getting a lot more expensive in the state, which already has the highest property insurance rates in the country.
The reason for this is the increased premiums in reinsurance. Reinsurance is insurance for insurers or stop-loss insurance. It acts as a buffer for insurers to transfer portions of their risk to other parties. The object is to keep the insurance companies afloat and guarantee there is enough cash to pay claims in the event of a devasting storm with multiple losses.
This year, reinsurance premiums rose by an estimated 26%, the highest since 2005 when Florida experienced back-to-back hurricanes. It frequently takes years to determine the real cost of claims after a storm. For example, Hurricane Irma’s initial estimate of damage in 2017 was around $9 billion, a figure that experts predicted was manageable. However, that initial dollar amount has risen to $17 billion in just three years. Reinsurers also point to the increase in lawsuits and the resulting legal bills for insurance companies pushing up the premiums.
One of the major worries here, in addition to the financial aspect, is homeowners with no mortgages on their property dropping coverage. Lenders require adequate insurance coverage on any properties they hold the mortgage on as a condition of granting the mortgage, but homeowners without mortgages frequently assume the risk of not insuring.
Insurers are already dropping South Florida clients, stating the cost is prohibitive for them to do business. This will increase the number of properties being insured by Citizens, the state-owned insurer of last resort. Obviously, this is bad news for the entire state since all Florida residents will be on the hook to make up any shortfall in funds as a result of a major storm. Florida does have a large pot of money known as the Florida Hurricane Catastrophe Fund to fall back on, but adding private insurers is the better way.
There is one way to help mitigate hurricane damage to your residence – build a round home. Round home construction is aerodynamic and in theory prevents wind from building up enough pressure on any one side, avoiding a structural failure. The roof is also constructed with an optimal pitch, deflecting winds and reducing lift. If you’re interested, check out Deltec Homes, an Asheville, NC company that is building these homes along the Atlantic coast.
So, let’s see, we have a pandemic, soaring infection rates in Florida, a busier-than-average hurricane season and now, of course, insurance rates are going up. Part of this is the price we pay for living in paradise and part of it is our covid cross to bear. Stay safe.
