A wave of property insurance companies that are either liquidating, voluntarily pulling out of Florida, or opting not to renew their coverage in the state is affecting the market for both individual homeowners and commercial property insurance.
Additionally, the property insurance providers that have remained are tightening eligibility requirements and requesting substantial rate increases to underwrite new policies in the state. Insurers say the higher premiums are due to climate-related risks and higher repair costs that are likely to remain in place, continuing to place Florida insurance costs among the most expensive property insurance premiums across the nation.
More than 41% of insurance claims filed in Florida in 2022 were related to hurricanes, with an additional 21% related to windstorms or hail unrelated to hurricanes. Wind-peril, mostly due to hurricanes, remains the highest share of claims in Florida, according to a LexisNexis report, making wind mitigation an increasingly important factor for property owners seeking to lower insurance costs.
The frequency and severity of recent storms and their related claims, along with increased litigation costs over the past few years, have been the main culprits affecting the Florida insurance market, with many insurers facing financial losses. Since 2017, Florida’s domestic property insurance companies have posted annual net income and net underwriting losses, according to the state regulators’ latest market stability report.
This has resulted in rising reinsurance costs across the state, with South Florida bearing the brunt of the cost increases. Insurance premiums for commercial residential properties have risen by an average of 270% across South Florida since 2019, relative to a rise of 109% for all of Florida. The Fort Lauderdale area, which used to have below-average premiums within the tri-county area, has seen the most significant hike, which has brought premiums to levels on par with neighboring Miami and Palm Beach.
Higher insurance costs are also hurting all other commercial properties, with non-residential commercial insurance premiums rising by 96% on average since 2019, according to data from Citizens Insurance, the state’s insurance corporation. Citizen’s data also shows that residential commercial premiums have increased the most, with those properties in “high-risk” designated areas that fall into the insurer’s “Coastal” account seeing the sharpest rise in premiums.
Overall, commercial premiums have increased by 252% on average since 2019 across all commercial properties and policy types. Despite this increase, commercial property owners have increasingly turned to Citizens to obtain insurance as the corporation tends to offer discounted insurance rates relative to the private market.
Policies for commercial residential properties that fall into the insurer’s “A-rated” category, those properties where the building coverage limit is $10 million or greater, increased sharply in 2022. Included in the insurer’s book of business were 349 large residential commercial buildings, up from just 42 in 2021 and 13 in 2020.
Despite typically offering lower-cost insurance, Citizens is still increasing premiums for these large commercial properties. Since “A-rated” buildings are not subject to the average 12% cap on annual rate increases, which applies to smaller commercial projects and homeowners’ insurance, these large properties lack a layer of protection from sharper premium increases.
Citizens recently communicated that starting in October of this year, insurance rates for “A-rated” commercial residential buildings will increase on average by 24% for multiperil and 28.9% for wind-only policies. These hikes come after the insurer had already implemented double-digit increases back in 2022.
Commercial property owners are not the only group impacted by higher insurance costs, as homeowners are also seeing steep increases in 2023 as well. Average annual insurance rates for homeowner’s insurance in Florida can range from as low as $432 to as high as $36,292, depending on location, building and structure.
The three counties in South Florida, Dade, Broward and Palm Beach, have the highest average homeowner’s insurance rates across all private and public insurance companies. Older properties built before 2001 typically see annual rates averaging around $5,400, with properties that have wind mitigation in place enjoying a discount of around 43% on the policy rate and averaging around $3,278. New construction with a higher covered value of around $300,000 sees higher insurance costs, which average around $5,581 across the three counties.
Despite these costs already being elevated relative to historical norms, Citizen’s has also recently announced incoming rate hikes on homeowner’s insurance, which are indicative of a continued cost rise across the whole market. Effective Dec. 16, homeowner’s insurance rates for Citizens will rise 10.7% for primary residences and up to 38.8% for non-primary residences across all of Florida.
These hikes will continue to make Florida’s insurer of last resort less affordable and are unlikely to slow in the face of increasing pressure as the insurer covers a greater share of the market. Despite a 2022 bill forcing Citizen’s policyholders to switch to private insurance if the private bill was less than 20% higher than Citizens’, policies in force by the state’s insurer have grown by over 200% since 2019 from around 442,000 to over 1.3 million as of October of 2023.
Other law changes limiting potential fraud attorney fees and making it harder for homeowners to sue insurers have also been passed, though these have done little to curb rising costs. Domestic property insurance companies saw slightly positive net income in the first quarter of 2023 for the first time in over six years, though they continued to show negative net underwriting gains, pointing to continued turbulence in the market.
Looking ahead, higher insurance costs will continue to place increased pressure on property owners. Property managers will have to place greater attention on ways to lower these costs, while developers and acquisitions analysts will have to account for these rapidly increasing costs in their underwriting.