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Tag: property insurance

Florida insurance ground zero

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

We are on the brink of hurricane season and this year promises to be an active one, so what goes hand in hand with hurricanes? Insurance.

We’re talking here about homeowners’ insurance, although flood insurance is also slated to have increases over the next few years. FEMA is changing the way they calculate flood insurance and revising the factors used to determine their premiums.

High insurance premiums aren’t anything new to Florida. During the 2004 hurricane season, there were five named storms, bringing billions of dollars in damage to the state within a six-week period. After that, many private insurance companies left the state, leaving Citizens Property Insurance Corp., the state-sponsored insurer, as one of the few options.

Homeowners with mortgages, which is about 60% of all owners, are required to purchase property insurance. There are homeowners who have opted to go without insurance if they own their home free and clear or to self-insure. The average annual home insurance cost rose about 20% between 2021 and 2023 according to an insurance shopping site called Insurify, and they are projecting another 6% increase this year.

Why is this happening? Obviously, storms and the higher number of storms that appear in the Atlantic basin are increasing. However, the primary cause is the amount of fraud that has been going on in the state in recent years. In April of 2022, Florida Gov. Ron DeSantis called a special session of the Florida Legislature to address the issue of insurance fraud. At that time according to the Office of Insurance Regulation, Florida accounted for 79% of the nation’s homeowner’s insurance lawsuits.

Insurance companies reported $1 billion in underwriting losses in Florida in each of the last two years, much of it due to lawsuits that resulted when homeowners transferred their rights through the “Assignment of Benefits” form. Homeowners would sign a form transferring the full rights of the policy from the policyholder to the contractor, who was working with an attorney.

Once the rights are transferred, the attorneys pay the contractors, usually for roof replacements or repairs, then file a lawsuit against the insurance company, adding up to three times their standard rate. This type of fraud resulted in insurance companies reporting $1 billion in underwriting losses in Florida for the past two years.

The other generator of increased homeowners’ insurance costs is the increase in reinsurance. Insurance companies require their own insurance in order to write policies assuming some of the risk. Reinsurance has increased rates in recent years because of COVID-19, inflation and climate change.

On the positive side, Florida Senate Bill 2022-D has reined in the litigation of this fraud by 20%. This opened the door for private insurers to come back into the state and start stabilizing rates through competition and lower future premiums. In addition, Citizens Insurance has started the process of “depopulation” of their customers, who are starting to go over to private insurers.

Florida may have the largest hurricane risk in the world but we’re not alone. Homeowner’s insurance has gone up along with everything else all over the country. California in particular has issues because of the wildfire threat, and Louisiana is also one of the major targets for hurricanes coming up the Gulf of Mexico.

Ground Zero and our insurance problems may be overstated, but we are certainly volatile and subject to the whims of the weather. Again, the price we all pay for living on a sub-tropical coast.

Castles in the Sand

Tallahassee finally at work

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Just when you think it’s hopeless, there is a sliver of hope. The special session of the Florida Legislature is finally getting some changes on the books related to condominium recertification and homeowner’s insurance, all in the same week.

The special session called by Gov. Ron DeSantis was originally meant to address skyrocketing property insurance rates, however, the condominium safety bill was added to the agenda at the last minute. Both subjects were addressed in bills passed by the House and the Senate and signed by the governor.

Broadly, this is the outline of the condominium recertification requirements:

  • Recertification of condos three stories or taller will be required after 30 years, or 25 years if the building is within 3 miles of the coast, and every 10 years thereafter.
  • In addition, the bill requires that condominium associations have sufficient reserves to pay for major repairs and conduct a study of the reserves every decade.
  • Also, it will require associations to provide inspection reports to owners, and if structural repairs are needed, work must begin within a year of the report. Most of the provisions in the law will take effect in 2024, giving everyone some time to prepare.

There are estimated to be more than 1.5 million condominium units in Florida operated by nearly 28,000 associations, according to a legislative analysis conducted earlier this year. Of those, more than 912,000 are older than 30 years and are home to more than 2 million residents. With only about 650 certified structural engineers in the state, this will be a problem in getting the recertification program up and running in a timely manner.

As far as the homeowner’s insurance proposals, legislators came up with several short- and long-term fixes for the insurance market. Some of the proposals are:

  • Preventing insurers from dropping or refusing to insure homes solely because of a roof’s age if the roof is less than 10 years old.
  • For roofs older than 15 years, insurers will have to allow homeowners to have an inspection of the roof’s condition before refusing coverage.
  • Legislators also placed numerous limits on the fees lawyers can collect in lawsuits against insurers. Insurers have continually blamed excessive litigation by trial lawyers and claims triggered by fraudulent roofers for driving up the costs.
  • Legislators also agreed to assign $2 billion to create a new program for reinsurance – insurance that insurers buy – and require any companies that use it to pass those savings on to homeowners.
  • Enhancing scrutiny of insurers that fail.

At this point, no one can predict if rates will go down. My fear is that stricter regulations regarding roofs and scrutiny of companies will not sit well with the insurance companies and give them a reason not to do business in Florida. They will, however, like making it more difficult for lawyers to bring lawsuits. That said, we need to start somewhere, and hopefully Florida insurance companies will decide that our state is a good place to do business with a huge pool of homeowners.

The Florida real estate market has so much going for it, it’s important to everyone to make sure our buildings are safe and our insurance is affordable.

Castles in the Sand

The never-ending saga of Florida insurance

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Like a bad soap opera, the Florida insurance storyline keeps repeating itself. This time it’s not even flood insurance, which I touched on two weeks ago; it’s your regular homeowner’s insurance that is breaking hearts all over the Sunshine State.

Here’s an interesting little fact; Florida is the most expensive state in the United States for home insurance, according to the insurance trade group Insurance Information Institute, and premiums are going up. Florida residents are projected to pay on average $2,380 in premiums this year, a 21% increase over 2018. The average American homeowner is expected to pay $1,297 this year, up 4% from 2018.

Some of the reasons Florida’s premiums are going up have to do with claims resulting from two hurricanes, Irma in 2017 and Michael in 2018. As we Floridians know or should know, even if we don’t take a direct hit from a hurricane, no matter where it hits in the state, we’re all subject to increases in insurance. Adding to payouts for storms, there is an increasing amount of litigation over insurance claims and sham roof-related claims, as well as increasing rates for reinsurance insurers to mitigate some of their risk.

The end result of this is insurance carriers experiencing mounting losses and increasing premiums or dropping coverage completely in certain areas. Some homeowners are being forced to go to Citizens Property Insurance Corp., the state-backed insurer of last resort, which is quickly increasing the number of policies they carry. We’ve been down this road before with flood insurance; in the end, it’s the Florida taxpayer who gets hurt.

What we don’t know at this point is if it will have any effect on the real estate market. Florida residents and out-of-state buyers are reeling from sticker shock, but will that translate into a cooling of the blow-out real estate market we’re in? My opinion, for what it’s worth, is it won’t have any significant effect on the value of the real estate market. Individuals relocate to Florida and continue living here for reasons other than insurance premiums. In all respects, Florida is a low-tax state with so many other benefits driving up the population I doubt an insurance increase will change too many minds.

Florida lawmakers have been attempting to change some legislation to help control the growth of insurance premiums with bills that put limits on attorney fees and frivolous lawsuits and claims, hopefully reducing the incentive for homeowners to go forward with false claims.

And all of this is happening at the same time we can expect flood insurance increases in October. FEMA is reviewing its national insurance program. It is estimated that one out of five Florida homeowners (19.8%) should see a decrease in their yearly flood premium. However, one out of 25 (4.2%) should see a yearly rate increase greater than $240. We’ll know more at the beginning of October.

I personally had about a 15% increase when my homeowner’s policy renewed a couple of months ago, and what I hear from other people is about the same. Will it drive anyone out of Florida? I don’t see that happening. When the flood insurance increased several years ago there was a momentary panic, but it evened off when the federal government made some changes, and it had no effect on the real estate market.

There’s always something as the world goes round. Stay safe.