Insure Me This!

Meet the silent troublemaker for Florida's real estate market

Happy Friday Highest & Best! And welcome to the new subscribers who’ve arrived through my article last week in the NY Post, which discussed how soaring costs of home insurance could destabilize U.S. real estate.

Home insurance premiums are rising by double digits nearly everywhere, but they’re still the highest in Florida, at an annual average of $9,270. (We’re number 1!?!). And that’s the thing that could put some brakes on the nation’s hottest housing market.

In this week’s newsletter I’m highlighting Florida themes on the country’s home insurance crisis:

🏠 Florida homebuyers are cancelling purchase contracts after they get “astronomical” insurance quotes.

⚖️ South Floridians love suing their home insurance companies.

🚫 Floridians “Go Bare” — by going without home insurance.

💬 An interview with the chief operating officer of Miami-based NSI Insurance Group .

Let’s get to it!

This for-sale Jacksonville home is touting its new roof

Cancel That!

Insurance burdens are tipping the costs of owning a home beyond reach.

In Jacksonville, Florida, real estate agent Heather Kruayai said that roughly 25% of buyers who signed contracts for her sales listings backed out after receiving insurance estimates.

“They’re getting the rates and they’re astronomical,” Kruayai, an agent with Redfin, said.

It’s not that they don’t want to proceed, she said. But lenders are rejecting mortgages when insurance premiums tip buyers’ monthly costs too high against their stated income.

“If they’re already at their max budget, that extra per month is pushing them outside of what their lender is comfortable approving,” Kruayai said.

And those lender rejections are killing sales. More than 20% of pending home sales fell through in September in places like Orlando, Fort Lauderdale, and Miami, according to a Redfin study.

It’s not coincidental that the highest share of cancelled deals are in states, like Florida, with some of the highest insurance costs, Daryl Fairweather, Redfin’s chief economist, said in an interview.

So for Kruayai, insurance coverage is top of mind whenever she lists a home. If the roof is over 15 years old, she suggests either the client replace it or get an official assessment on how many years it’s got left — all this to guarantee that the house can qualify for insurance when sold, she said.

(This Jacksonville home listing, for example, touts its new roof in all capital letters as its opening pitch).

Also: here’s a list of U.S. cities with the highest share of cancelled purchase contracts, according to Redfin. Half of the top 12 are in Florida:

Share of home sales, by city, that fell through in September (Source: Redfin)

South Florida ❤ Insurance Lawsuits

When homeowners sue their property insurer, does that lead to higher premiums for everyone else?

A report released this week by Florida’s Office of Insurance Regulation provides an answer: Yes.

The state agency analyzed 58,395 home insurance claims that eventually led to lawsuits in 2022. And it found that:

💵 The largest share of lawsuits against insurers were filed from South Florida. About 28% of insurance claims from Miami-Dade, Broward and Palm Beach Counties ended up as legal actions against the insurance company.

💵 The average cost to settle litigated claims was $9,934— more than six times the cost of handling claims that did not go through the courts.

The time period studied by the report —2022 — was before Florida enacted new laws to limit insurer lawsuits.

Going Bare and Going Broke

This rising costs of litigation was a major reason Florida insurers cited for skyrocketing premiums. It’s also one reason that other carriers went insolvent — or stopped doing business in the state.

Here’s some relevant stats on that from the Insurance Information Institute:

😦 Seven home insurers in Florida have become insolvent since 2022.

😦 Florida’s state-backed insurer of last resort, Citizens Property Insurance Corp, now holds 1.23 million policies and has the largest market share — about 15% — of any Florida insurer. It offers policies to people who can’t find home insurance coverage elsewhere.

😦 In Florida, between 15% and 20% of homeowners are choosing to forgo property insurance, likely because it’s too expensive. That’s known as “going bare” in insurance industry parlance.

The Florida Lawsuit Pipeline is Thinning

The cost of paying out claims in a hurricane-prone state — with ever more people and pricey waterfront property to cover — isn’t going down any time soon. And neither are premiums.

But here’s some good news, according to Jim McCue, the chief operating officer of Miami-based NSI Insurance Group:

The pipeline of insurance lawsuits is slowing as a result of the state’s legal reforms. And that’s encouraging more insurers to do business in the state, he said.

“All the lawsuits that need to be filed pretty much have been filed and we’re getting to a point where you’re going to start seeing that impact the rates,” McCue said. “You’re going to start seeing that probably towards the end of 2024.”

A new law signed last year no longer mandates that insurers pay the attorney fees of those who sue them and win. That takes away a major financial incentive to initiate a lawsuit.

“The carriers that were around pre-legislative reform were getting sued all the time so that’s why their premiums were never adequate—because you can’t predict how many times you’re going to be sued,” McCue said. A thinner pipeline of lawsuits could add a bit more predictability to insurance premiums, he said.

That’s inspiring new insurers, who are not weighed down by old litigation, to enter Florida and assume some policies currently held by Citizens, the state-backed insurer.

“Legacy carriers are still paying those claims,” McCue said. "While the new guys don’t deal with that.”

That’s it for today!

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