Three Reasons Homeowners Insurance is Exploding in Florida
Three Reasons Why Homeowners Insurance Premiums are Exploding
If you own a Florida home or a condominium, you may have seen a large increase in your Homeowners Insurance premium. Bad news: You will see another significant increase again next year. Why? There are three major reasons why premiums have exploded and will continue to increase in the future: Claims abuses, reinsurance costs, and risks associated with living in South Florida.
# 1. Claim abuses:
Florida has an aggressive and active group of Public Adjusters and Litigation Attorneys. In recent years, adjusters and attorneys have exploited sections of Florida Insurance Law to pursue and expand claims in the sinkhole, water damage, and roof damage areas. Most recently there has been a wholesale push to file and litigate roof damage claims from Hurricane Irma that occurred in 2017. Advocating on behalf of policyholders with legitimate claims is noble and respected. Profiteering on insurance claims costs all consumers. Hurricane Irma roof claims have been abused beyond comprehension. This abuse has resulted in insurance carriers withdrawing from the market, refusing to insure older homes, ceasing to write new business, and drastically increasing premiums. It is difficult to find an insurance company willing to provide adequate coverage limits for Water Damage or Mold claims.
# 2. Reinsurance costs:
Reinsurance is insurance purchased by an insurance company from another insurance company, to protect against catastrophic losses (or more simply, insurance for insurance companies).
The majority of Florida home insurance is provided by Florida-based insurance companies. For the most part, the large National Insurance carriers stopped writing Homeowners policies in South Florida after Hurricane Andrew in 1992. Florida insurance companies insure approximately 80% of South Florida Homeowners policies. By insurance industry standards these companies are small and have relatively limited financial reserves. For safety purposes (and state law) the Florida insurance companies buy large amounts of reinsurance. It is not uncommon for a Florida carrier to pay 40-50% of the premium it receives for its own reinsurance coverage.
Reinsurance costs have been increasing significantly and reinsurance companies have been dictating more stringent underwriting requirements or coverage limitations. Reinsurance is a worldwide market. In recent years natural catastrophes have increased in size and frequency and now we have the COVID-19 pandemic. As this blog is being written, Tropical Storm Zeta is heading toward the Gulf Coast. This year we have gone through the Greek alphabet in named storms. Will the next storm have a Cyrillic name?
# 3. South Florida Risk Issues:
- Florida is a 400-mile long peninsula in the middle of a Hurricane Flyover Zone.
- Global warming or not, hurricanes are becoming more frequent and stronger.
- In a strip of land 70 miles long and 20 miles wide, the tri-county area has one of the largest concentrations of property values in the world.
- This small area is exposed, in its entirety, and vulnerable to a single catastrophic event or worse yet, a series of hurricanes in one season.
- Most of the construction in South Florida is not built to current Hurricane Safety Codes. Significant Code improvements only occurred in 1995 (Miami-Dade/Broward Counties) and 2002 (Palm Beach County).
- It is the concentration of values, in a small area, that causes insurance companies to be fearful of South Florida.
THIS IS ALL BAD NEWS.
This article is not meant as bad news. It is meant to explain the reasons why Home Insurance premiums are increasing.
Please keep things in perspective:
- South Florida is a great place to live.
- OK, Home Insurance premiums are high. Taxes are relatively low, home heating costs are $10 and there is no snow to shovel or mud season.
- I’ll take Hurricanes over earthquakes, wildfires, tornados, Brooklyn, or the Bronx.