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What’s up with Florida’s Homeowner’s Insurance?

Have you noticed a change in your Florida homeowner’s insurance? In the last few years, 400,000 Floridians have been dropped or not renewed by their homeowner insurance company (I’m one of them). Recently 14 insurance carriers left the state refusing to do business here anymore, and five closed down altogether. In 2019 the average homeowner’s premium in Florida was $1988, in 2022 it was $4231.

So what gives?

The answer is a combination of things you may already know:

  • Extreme weather catastrophes wipe out whole areas.
  • Rising costs of materials to replace or repair damage to a home.
  • Excessive litigation (76% of nationwide litigated homeowner claims happen in Florida).
  • The exodus of insurance companies gives consumers fewer choices resulting in less competition and higher prices.

There is more complexity here as well. After Hurricane Andrew in 1992, some homeowners, especially in South Florida, had a difficult time keeping their homes insured. The State of Florida stepped in and created the entity that we know today as Citizen Insurance, which still insures homes that wouldn’t be covered by any other company (I have one of these policies myself). The number of homes insured by Citizens recently topped 1,000,000.

The State didn’t ultimately want to be in the insurance business, so they gave incentives to insurers to take over these policies. This resulted in a patchwork of smaller companies that were willing to stay and do business in Florida. Even in the face of catastrophic losses, like those from a major hurricane, the smaller insurers could stay afloat because of “reinsurance” – basically, insurance for the insurer. After the devastation from the storms we had in 2004/2005, the cost of reinsurance went way up.

Without “reinsurance” many smaller companies can’t keep their “A Rating” as an insurer. An A Rating means that the insurance company has a 97% of certainty that they can pay out on a claim from a 1 in 130 year hurricane. Many mortgages require an insurance company with an A Rating. If your mortgage lender sees that your homeowner’s insurance slipped to an “S Rating,” you will be required to find a new insurance carrier, or they will find one for you which is always very expensive. Hence, insurance companies left the state.

Florida homeowner’s insurance legislation was recently passed and is in effect as of July 1, 2022. It includes addressing the “reinsurance” issue. Provisions of the bill include:

  • A $2 billion fund to give insurers more access to reinsurance. Insurers will be required to pass the savings on to consumers.
  • No insurer will be able to cancel a policy on a roof that is under 15 years of age. And homeowners can submit an inspection to the insurer for roofs over 15 years.
  • Roofs can have a separate deductible.
  • The rules about litigation have been amended to cut down on frivolous lawsuits.

You can see a summary of the bill here.

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Calculator, pen, documents, text that says, "What is Private Mortgage Insurance?"

What is Private Mortgage Insurance or PMI?

When a buyer makes a down payment of less than 20%, the lender considers the buyer a higher risk. Private Mortgage Insurance (PMI) protects the lender in case the buyer stops paying the mortgage.