Property insurance was high before Hurricane Ian, so now what?
If you are a homeowner or property manager, then you likely know the cost of property insurance was off the charts before the devastating effects of Hurricane Ian. The Florida property insurance industry was quickly becoming untenable. Homeowners were paying $4,231 a year for insurance. That's nearly triple what folks in other states pay. Furthermore, insurance companies in Florida are either going bankrupt or leaving the state because they can no longer afford to pay off legitimate claims. As an example, FedNat Insurance Company canceled 56,000 policies in May 2022. Recently, the company arranged to have 83,000 more policies transferred to another company. Still, with Hurricane Ian's impact hanging over everything like the Sword of Damocles, it remains to be seen if these policies will remain in effect. According to current stats, the damages from Hurricane Ian will exceed $42 billion and possibly rise to $57 billion.
One of the biggest problems facing insurance companies and their customers is widespread fraud. In a state where 12% of all homeowners have given up on getting homeowner's insurance because of the exorbitant cost, many folks are filing fraudulent claims hoping "something falls through the cracks." Worse, nefarious individuals seek to capitalize on the deplorable state of affairs by filing many fraudulent claims. Unfortunately, with so many legitimate claims occupying their time, the companies have precious few resources to investigate the fraud.
Assignment of benefits
The chief issue is the practice called "assignment of benefits." Insurance companies pay third parties directly rather than reimbursing the claimant later. Although this practice streamlines the process and helps the customer, it's a prime target for fraudsters. But, again, the issue isn't that the claimants are perpetrating the fraud. Instead, the guilty parties are those who attempt to scam both the claimant and the insurance company by promising to do repair or rebuilding work and then disappearing after being paid.
Fraud in Florida
A large chunk of the fraud seems to be in the roofing industry. The shtick is similar to a hypothetical auto repair shop doing a $200 repair and submitting a $3,000 bill to the insurance company. Crooked roofing contractors go from house to house and promise to pay each homeowner's insurance deductible if the person files a complete claim for storm damage to the insurance company.
In 2019, the Florida Legislature passed a law to try to curtail the practice, and the governor signed it. The enacting of this law has helped, but the sheer number of claims overloaded the system beyond even this law's protection. Unsurprisingly, this has led to many lawsuits regarding the entire homeowner's insurance situation. The State of Florida accounts for just 9% of all homeowner's insurance claims in the United States. Although, as unbelievable as it might seem, the state sees 76% of all lawsuits filed because of problems and abuses in the homeowner's insurance industry.
The situation worsens because most homeowners' policies don't cover flooding, and most catastrophic damage during a hurricane is from the storm surge. With homeowners' policies rising in cost to astronomical levels and people not being able to afford that coverage, most people don't have flood insurance. So, even after paying $4,000 or more per year for their homeowner's policies, those people still have to pay multiple tens of thousands of dollars for repairs or replacement out of pocket. In addition, this is also true if people turn to "the last resort," the Citizens Property Insurance Corporation, which is state-run. The corporation specifically and explicitly does not cover flooding. Often, people wind up in makeshift shelters after a storm like Ian and then face the difficult decision about rebuilding or leaving. Many must vacate.
The Florida real estate market will also become turbulent after Ian. Despite two months of falling prices, the Florida real estate market will likely see rapidly rising prices again. A spike is anticipated not only because of the destruction of Hurricane Ian but also because people from other states have bought up many high-priced houses, condominiums, and apartments all over the state, forcing local folks to seek new housing. These out-of-state people are paying cash for their properties. That's something that many Floridians can't do, particularly if they're in the low-income or middle-income demographics.
Because Ian leveled hundreds of thousands of homes, unless the government takes steps to mitigate the issue, the demand for housing will drive already unaffordable housing costs even higher. Mobile home residents facing total loss, especially because many insurance companies won't insure older mobile homes, are among the most affected.
"It is not uncommon for people to move or consider moving because of insurance and taxes."- Deidre Newton, The Landmark Group
The Biden Administration has said that FEMA would provide up to $75,000 for home repairs to lessen the financial burden. In a state where housing prices have driven up the median cost of a home to nearly $400,000, that $75,000 may not be sufficient, primarily because many homes that felt Hurricane Ian's impact were utterly irreparable.
The proceeding steps are uncertain. Necessarily, those who rebuild must account for climate change when determining where, how, and whether to rebuild. Better building codes will help. Adding wind-resistant and water-resistant features to homes, such as installing "hurricane glass" and ensuring that generators are above ground, will help homes survive most hurricane damage.
Not building directly on the coast will help too. That way, the state can create natural defenses against hurricanes, such as planting mangrove forests or cultivating wetlands areas as a "green" buffer against hurricane damage. These "green" defenses will add to the "gray" areas: dams, levees, controlled waterways, and the like. For the hardest-hit areas, as a last resort, officials are encouraging "managed retreat," where entire communities are abandoned and rebuilt in better locations.
"Life isn't about waiting for the storm to pass it's about learning to dance in the rain."-Unknown
Life for Florida homeowners is now about making decisions on navigating the increasing rates of property insurance.
In closing, I believe the federal government must step in to ensure such managed retreat remains equitable and just for homeowners.
Have you felt the pressure of rising insurance costs? If not, hang on tight and brace yourself for anticipated impact. I'm holding on for dear life.
This article is for informational purposes only. It should not be considered Financial, Real Estate, or Legal Advice. The market fluctuates; therefore, not all information will remain the same. Consult a Financial or Real Estate attorney before making significant real estate decisions.