Housing Market Updates July 20, 2023

Insurance Woes: The Brewing Storm in Florida’s Real Estate

In Florida, there’s a new tempest brewing that’s as impactful as a hurricane, but this one doesn’t involve swirling winds or catastrophic downpours. Instead, it revolves around the insurance industry’s retreat from the state’s property market, a development with grave implications for the Sunshine State’s real estate sector, which continues to attract new residents from across the globe.

In recent times, the phrase “hurricanes are expensive” has become a bitter reality for Florida. Every year, these violent storms result in millions, even billions, in damages. The latest blow comes as Farmers, a major home insurer, declared that it would stop issuing new policies in Florida. They are following in the footsteps of several insurance firms that have abandoned the state, citing climate-driven disasters, a surge in litigation, and unfavorable policy decisions.

While Florida’s housing market has shown adaptability in the face of natural disasters, Cyndee Haydon, a Tampa region agent and Chair of the National Association of REALTORS®’ Insurance Committee, flags a different problem. “With interest rates up, affordability becomes a challenge,” she notes. It’s not just about home prices but also escalating insurance costs. Renewal rates are skyrocketing by 25%, 50%, even 100%. As these prices soar, many homeowners are struggling to keep up.

The trouble in Florida’s insurance landscape extends beyond the natural disasters. According to the Insurance Information Institute, Florida is the epicenter for 79% of all homeowner insurance lawsuits. Governor Ron DeSantis’ recent bill limiting litigation has been met with mixed reactions. Proponents argue that it shields insurers from unjust lawsuits, but critics warn that it will impede homeowners from seeking redress for legitimate claims.

Haydon believes this crisis is not confined to Florida and warns of similar insurance woes in states like Louisiana, California, and perhaps Texas. She notes the dilemma faced by homeowners reluctant to pay higher premiums and insurance companies unwilling to incur huge losses year after year.

The frequency and severity of natural disasters are escalating, making it pricier to rebuild or repair homes. Despite insurers’ long-term ability to model for these catastrophes, short-term costs have soared, driving companies like Farmers to withdraw from certain states. The impacts of these rising costs are far-reaching, with some Floridians reportedly leaving the state due to the unaffordable insurance costs.

Florida’s ‘insurer of last resort,’ Citizens, has taken on a whopping 50% more policies over the past year. As private companies retreat from risk, state taxpayers have stepped in to cover the shortfall. Haydon highlights an urgent question facing society: “Is insurance a personal responsibility, or do we look at it as a societal social program?”

The crisis faced by the Florida real estate market is unlikely to remain an isolated issue. Other states, and indeed the Federal government, will be keeping a close eye on developments. Florida’s recent move to mandate flood insurance for all homes covered by Citizens, regardless of whether they have mortgages, is a significant policy shift that others may follow.

The situation has opened up vital discussions on risk preparation for future storms and insurance markets. Haydon muses, “We’ve tended to look historically. But if we model forward, are we not asking questions that would ensure that we are really prepared to cover the risk going forward?”

While there’s uncertainty ahead, there’s a silver lining too. Not all properties insured by Citizens are high-risk. In fact, several thousands of policies have been transferred to private companies. Florida’s insurance saga provides a window into the nation’s future as it grapples with the financial implications of climate change. As Haydon puts it, “Florida may be a model for the country in the most fair and equitable way to address climate financial risk.”

It seems that Florida, one of the most storm-prone states in the country, will have to take the lead in developing innovative policies to protect homeowners and housing markets. The state might set the stage for a national discussion about how to fairly and effectively distribute the cost of climate risk and the role of insurance in that equation.

Coldwell Banker Realty
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