Florida’s housing market faces imminent turmoil with the recent departure of yet another home insurer

**Florida Home Insurance Market Facing Challenges: Insurers Leaving and Premiums Rising**

In recent news, AAA has made the decision to not renew a small percentage of higher exposure homeowner’s policies in Florida, citing a challenging insurance market. However, unlike Farmers, which announced a similar decision earlier this month, AAA will continue to write new home policies in Florida, only choosing not to renew certain existing policies.

Florida’s Housing Market Challenges

The housing market in Florida is currently facing numerous challenges, especially for homeowners who are already paying the highest insurance premiums in the nation. According to Mark Friedlander, director of corporate communications for the Insurance Information Institute, Florida homeowners pay an average premium of $6,000 per year, which is significantly higher than the national average of $1,700 per year. This premium cost has increased by 42% compared to the previous year. A total of 15 companies have stopped writing business in Florida over the past 18 months, three have voluntarily withdrawn, and seven have been declared insolvent, highlighting the severity of the situation.

Factors Driving Insurer Exodus

According to the Insurance Information Institute, the exodus of insurers from Florida is a “man-made crisis” caused by two key factors: legal system abuse and claim fraud. The state’s property insurance industry has been posting negative financial results since 2016, with underwriting losses averaging over $1 billion per year for the past three years. Insurers are finding it increasingly difficult to operate in such a market where they consistently lose substantial amounts of money.

Impact of Litigation on Insurance Claims

Ken H. Johnson, an associate dean of graduate programs at Florida Atlantic University specializing in real estate economics, points out that insurance claims resulting in litigation significantly contribute to the challenges faced by insurers. Data from Florida’s Office of Insurance Regulation reveals that 79% of home ownership lawsuits in the United States occur in Florida. This leads to increased costs for insurance companies, with a significant portion of their expenses going towards legal fees rather than actual damages.

Increased Premiums and Affordability Concerns

The remaining insurers in Florida are compensating for their losses by consistently increasing premiums. This, coupled with the fact that Florida’s housing market has experienced an average home price increase of over 50% between March 2020 and April 2023, puts further strain on homeowners. Additionally, mortgage rates have risen to around 7% after a period of historically low rates during the pandemic. According to Johnson, the high cost of homeownership, coupled with high-interest rates and expensive homeowners insurance, raises concerns about affordability for several years to come.

Factors Contributing to Florida’s Dire Home Insurance Market

Tasha Carter, Florida’s insurance consumer advocate, identifies four factors contributing to the dire state of the homeowner insurance market. Firstly, the significant number of claims resulting from recent hurricanes, such as Irma, Michael, and Ian, has led to estimated insured losses of approximately $46 billion. Secondly, reinsurance rates have increased by an average of 52% in the past year, resulting in higher premiums for policyholders. Thirdly, the rise in litigation involving insurance companies has further increased costs for policyholders. Lastly, insurance fraud remains a significant concern.

Impact on Homeowners’ Options

As insurers withdraw from Florida, homeowners face limited options when it comes to insurance coverage. With fewer insurers in the market, companies have greater control over pricing, potentially leading to higher costs for individuals. In response to this, more consumers may turn to Citizens Property Insurance, Florida’s state-backed insurer of last resort. However, the increasing reliance on Citizens Property Insurance is problematic due to its lower private market rates, which are approximately 40% less than private insurers. This can contribute to an unsustainable growth rate for Citizens Property Insurance.

Impact on Individuals and Selective Insuring Practices

Individuals like Jason Damm, an assistant professor of finance at the University of Miami, are already experiencing the consequences of insurance companies leaving Florida. After renewing his insurance premium in April, Damm saw a 25% increase. However, a month later, the insurance company informed him that it was exiting the state, leaving him without insurance coverage for his property. This situation is extremely risky, especially in a state prone to natural disasters.

Furthermore, insurance companies are becoming more selective about the homes they insure. They assess roof conditions, the age of roofs, and the overall age of homes. Homeowners with roofs over 10 to 15 years old are struggling to find coverage and may be asked to replace their roofs before securing insurance. Some companies are even limiting their coverage to newly built homes or homes built within the last five years. Unfortunately, these practices are contributing to increased insurance premiums for consumers, making coverage less affordable.

Future Outlook and Potential Solutions

Premiums are projected to continue increasing until legislation currently in effect takes hold. The hope is that legislative measures will address the challenges faced by the insurance market in Florida, such as the abuse of the legal system and fraudulent claims. In the meantime, homeowners may have to explore alternative options and consider the potential risks of going without insurance or seeking expensive coverage. The continuation of citizens relying on Citizens Property Insurance may also have long-term implications for the market.

In conclusion, the challenges facing Florida’s home insurance market are a result of legal system abuse, claim fraud, and an increasing number of insurers leaving the state. As premiums rise and coverage options decrease, homeowners are left with fewer affordable alternatives. Legislative measures and long-term solutions are necessary to stabilize the market and ensure homeowners have access to viable insurance options.