Soaring Insurance Premiums Leading to Sticker Shock, Cooler Florida Housing Market
Current and would-be Florida residents arestill reeling from sticker shock over soaring property insurance rates, according to the Sarasota Herald-Tribune.
Derek and Alexandra Donovan, hairstylists who fled Buffalo, N.Y. for the Sunshine State last year, were looking forward to what they thought would be cheaper cost of living in Manatee County. While they were happy with a price of their $310,000 home in Barrington Ridge, the cost of Florida property insurance was staggering.
Not only were they forced to get coverage from Citizens Property Insurance Corp., Florida’s insurer of last resort, but their premium was 50 percent higher than what they had been paying State Farm in N.Y. State.
Then, they were pushed out of Citizens and into Southern Oak Insurance, a newly formed business that seems too much like an unknown quantity.
Though the main effects seem to be more psychological than actual, at least thus far, the Florida insurance crisis is beginning to weigh on an already-cooling real estate market. Premiums are soaring, with a great many companies canceling policies and refusing to write new business.
“It’s a triple whammy right now, consisting of hurricane fears, rising insurance costs and high property taxes,” Jack McCabe, head of McCabe Research and Consulting in Deerfield Beach, said. “There is a lot of anxiety and financial pain in Florida. In insurance, we are seeing rates that have more than doubled for most Florida homeowners. Imagine what happens if we get hit hard again this year. Citizens’ primary reason for being is to help support the ongoing migration of new homeowners to Florida.”
While residents can always get homeowners insurance from Citizens, as it’s the state-run insurance provider of last resort, the cost is catching new buyers completely off guard.
“There is a huge sticker shock. For some first-time home buyers, when you add $200 to $300 more a month, it could be a deal breaker,” Phil Baker, V.P. of Boyd Insurance & Investment Services in Palmetto, said.
Citizens’ rate hikes, effective April 30, break down to the following figures when applied to statewide averages.
HIGH-RISK COASTAL POLICIES
- Old premium — $2,213
- New premium — $3,145
- Approved increase — 42.1%
- Policies in force — 362,256
PERSONAL POLICIES
- Old premium — $1,362
- New premium — $1,720
- Approved increase — 26.3%
- Policies in force — 484,679
It’s a significant adjustment, to say the least. Insurance agents throughout Florida are having trouble finding coverage for homeowners and commercial property owners, according to Scott Johnson, the Executive V.P. of the Florida Association of Insurance Agents.
“It becomes more acute the closer the policy is to the coast,” he said. “There are increasing reports of those going bare, not getting windstorm coverage at all.”
Chuck McKenna, owner of Sarasota’s McKenna Real Estate, says the cost and uncertainty of property insurance is hindering the Florida housing market. As the premium on his own Laurel Lakes home has doubled to $2,400 in the past three years, he knows first-hand.
Steve Moore, Executive V.P. of SunTrust Bank’s mortgage division in Sarasota, made note of a customer who walked away from a Florida home loan because of the high cost of insurance. But, he does not think the state’s insurance crisis is a major roadblock to home buying — yet.
“The feeling is it’s an irritant, but it’s not going to stop someone from buying the home, at least at the present time,” Moore said.
Moore returned to Florida after 10 years in Green Bay, Wisconsin, where he says the state income tax of 7 percent offset any lower insurance bills he paid. Rising Florida home loan rates are slowing the housing market more than insurance, he believes.
But that could change as the Florida insurance market continues to squeeze out consumers. Citizens used to be Florida’s insurer of last resort, and is quickly becoming the insurer of only resort, leaving the residents of the state with little choice but to pay staggering premiums.
Citizens is taking on 40,000 new policies a month, and in July will assume most of the 320,000 policies from the failed Poe Financial Group of Tampa. That inundation will push Citizens over the 1 million mark, surpassing State Farm as the state’s largest insurer.
Private insurers like State Farm are asking for huge rate hikes, seeking to double average premiums in Sarasota, Manatee and Charlotte counties. These companies say they need steeper rates in order to cover the escalating cost of reinsurance, which they buy to spread their risk. The financial models used to measure risk have been adjusted to reflect the hurricanes that smashed Florida since 2004 and caused more than $30 billion in damage.
Scores of local condo associations are also being hammered with premium increases for their buildings, which are passed on to the unit owners, who are often senior citizens on fixed incomes who can’t absorb those rising costs.
“Condo association fees are going up $2,000 a year simply because of the insurance increase. It’s hard for them to continue to be able to live here, it’s really hurting them,” Tom Kochis, partner at Atlas Insurance Agency of Sarasota, said.
Some commercial real estate buyers can’t even find coverage because they can’t fall back on Citizens Property, which provides wind insurance only in designated areas, most of which are not in Manatee County.
A quieter 2006 hurricane season could help bring some stability to the Florida insurance market, but counting on that is an obvious crap shoot. Industry officials say the only way to bring private carriers back to the state is to free them from regulation and let them charge whatever they choose.
