Florida Homeowners Insurance Market - A Changing Landscape

It's no easy feat to be a homeowner or a homebuyer in today's market - from higher taxes, increased home prices and higher interest rates. But nothing has been a bigger challenge in today's climate than the affordability of homeowner's insurance policies. Florida, home to over 22 million people, is currently facing an affordability crisis in housing and homeowners insurance. With this in mind, we've taken a deep dive into the current state of the Florida homeowners insurance market, exploring recent growth, the impact of reforms, and what the future may hold for homeowners and the industry.

Over the past four years, policy rates have increased by 50% for Floridians, and these increases show no signs of slowing down. John Rollins, a former Chief Financial Officer and Chief Risk Officer for several Florida property insurers, as well as a former Chief Risk Officer at Citizens Property Insurance, predicts reinsurance costs to rise between 40% to 50% or more in June.

Recent legislative special sessions aimed at addressing Florida's property insurance crisis have not directly tackled the increasing rates paid by residents. Instead, the focus has been on making the insurance business climate more attractive to companies and reforming property insurance litigation to reduce costs for consumers.

Hurricanes in September and November have further exacerbated the struggles faced by homeowners in the state's property insurance market. With Florida's unique disaster status due to its high frequency of hurricanes, finding a solution to the insurance crisis remains challenging.

As more property insurers leave the state's market, Citizens Property Insurance, the state's insurer of last resort, has seen substantial growth in its policy volume. While Florida has the highest private flood insurance coverage in the U.S., homeowners insurance is not required by law and is only mandatory as a condition of mortgages.

Amanda Martin, a South Florida real estate agent, highlights the challenges faced by homebuyers: "Acquiring affordable insurance in South Florida has become a challenge for many homebuyers. So sure, there are policies still being written, but that's because new homebuyers have no choice - they either pay a much higher price or don't buy the new home they need."

Furthermore, Florida's high risk of catastrophe, coupled with climate change causing more severe hurricanes, has led to insurance companies raising rates to cover potential claims. On average, most insurance companies charge Florida customers between $4,000 to $5,000 for premiums. In South Florida though, many are receiving premium rate hikes to double the statewide average.

To better understand the reasons behind the rate increases, it is essential to consider multiple factors, including the frequency of claims filed, litigation over damages, and the "concentration" of coverage. Policy concentration, resulting from multiple property insurance providers leaving the Florida market or entering receivership, has further strained the state's insurance market. As a consequence, residents are shouldering the costs, with surcharges being added to monthly premiums. In the meantime, homeowners are left to bear the brunt of increased premiums, with some even experiencing jumps from less than $4,000 to almost $7,000 in December.

Factors contributing to premium increases also include costs to the insurance companies themselves, such as "acquisition and operating expenses," which can account for 15% to 20% of an insurer's operational spending. These costs include agent commissions, rent, IT, vendor contracts, and employee salaries. If the overall premium pool decreases as homeowners go "bare," it could lead to a higher expense ratio being spread over the remaining population, resulting in marginally higher rates.

As the situation continues to evolve, it is crucial for industry stakeholders, government officials, and homeowners to work together to find lasting solutions to the ongoing crisis. While there is no quick fix, a multi-faceted approach that addresses the diverse factors affecting the market will be key to ensuring a more stable and affordable insurance landscape for Floridians in the future. In the meantime, new home buyers in South Florida can expect insurance premiums to equal about 1% of their purchase price - and they should use that figure to estimate their escrows for mortgage calculations. 

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