There's a looming storm cloud over Florida’s property insurance market.
Florida homeowners currently pay property insurance rates that are three times the national average. This is primarily due to significant catastrophic risk from hurricanes and flooding. Hurricane Ian caused between $35 billion and $73 billion in insured damage in the state of Florida. This further served to decrease the affordability and accessibility of property insurance in the state. Six property insurance companies have even dissolved in the last year due to the pressure. The state-run insurer, Citizens Property Insurance, now has more than 1.1 million customers, the highest in more than a decade.
What if we put more restrictions in place to prevent lawsuits?
This means restricting the ability of consumers to sue insurance companies when they refuse to pay claims or if they lowball damage estimates.
The Insurance Information Institute, stated that while Florida has only 8% of the national property insurance claims filed in the United States, it has close to 80% of the litigation. Property insurance companies also site insurance fraud as a contributing factor in the cost increase.
Restricting the amount of lawsuits would certainly give property insurance companies some breathing room, but at the expense of Florida policy holders. While it's true that both policy holders and insurers should be held accountable, the problem with the market goes deeper than excessive litigation.
What about insuring the insurers?
Another problem is the rising cost of reinsurance, the product insurance companies can purchase to help pay claims when their losses reach certain thresholds. However, because insurance companies have been allowed to pass on the costs of reinsurance to policyholders, when reinsurance costs rise, the cost of insurance also rises for Florida homeowners.
How about diversifying the market?
More and more Florida homeowners have been flooding into the state-backed Citizens, which now has 15% of the state market. With the substantial increase in Florida homeowners switching to government-backed property insurance, the average costs per policy are bound to rise as well. Then, if/when another natural disaster uses up all the funds set aside, the costs will fall on the Florida taxpayer to support these recovery programs.
However, with a healthy, competitive property insurance market, homeowners would have options when it comes to insurance. This would also drive down the cost of property insurance overall, which is the ideal scenario.
What does this mean for the Real Estate sector?
With the accessibility and affordability of property insurance falling, one can definitely expect economic repercussions to affect the entire Real Estate market; the very same market that has helped to keep the Florida economy afloat throughout the pandemic and recovery. Important to note too, is that with the Real Estate market slowing down, that also means that there's bound to be a decline in state revenue. This creates a bit of a predicament where the outcome really becomes less than ideal for everyone living in the Sunshine State.
So, hopefully legislators can come up with a solid plan that doesn't break the bank, the housing market, or the economy. Only time will tell, as there is no quick fix to this problem, and changes will likely take place over the course of the next several years.