© Can Stock Photo / radiantskies
For the second year in a row, I was invited to address two local Florida Realtors® chapters in Navarre and Pensacola. The members were engaged and extremely concerned about the state of the property insurance market with one explaining that the condo market is getting hit as hard as those living in single family residences. I shared a letter received by a condo unit owner just across the border in Alabama that explained the condo association premium was $480,000 last year and the premium renewal is now $1.6 million. As a result, unit owners will have to pay an extra assessment from $9,600 to $15,000 by May 15. Part of the reason is their market value has risen but the other reason was reinsurance pricing that has a direct effect on the premiums we all pay. This isn’t just about condos just across the Alabama-Florida border. A Ft. Pierce condo board president shared that their 2020 $390,000 premium jumped to $1.7 million this year.
The local Realtor® association leaders asked if the banks would be affected when condo unit owners “lock the door and walk away” from their unit because they can’t pay the insurance assessment much less the increased HOA dues to satisfy new legislative requirements to increase building maintenance reserves, following the Surfside collapse. In my opinion the banks will have an increase in foreclosures because of the inability for some unit owners to pay for the immediate and required insurance and reserve assessments.
To address this alarming situation, many in the insurance industry have been advocating to reduce private insurance company premiums because of the long-term economic harm of escalating rates. Reinsurance experts have crafted a temporary, state-sponsored reinsurance bridge called the Florida Insurance Rate Reduction Mechanism (FIRRM). According to the FIRRM briefing paper, the plan would cost the state nothing and would give insurance companies the option to buy less expensive reinsurance which would, in turn, bring rates down for consumers. This program would be in addition to what the insurance companies are buying from the Florida Hurricane Catastrophe Fund. I explained to the Realtor® audience that the idea most likely, in the short term, will reduce rates about 15% versus the 30%+ rate increases we are seeing on top of the 2022 increases. I stressed that it requires no state financial resources, would be temporary until the private reinsurance market settles, and could be purchased at the option of the insurance companies at what is commonly called “the lower layers“ of their reinsurance tower.
This FIRRM is a reinsurance bridge that’s akin to a mini Florida Cat Fund. I often use the example that if a dollar bill graphically represents your entire homeowners insurance premium and you fold it in half, that’s the amount (nearly 50%) that currently is paid for reinsurance to cover a portion of a policyholder’s future claims. Now if you took that half of a dollar (now spent on private reinsurance) and folded it into fifths, reinsurance could be purchased from the state for one or two of those fifths under the FIRRM concept.
Those in the audience asked what more they could do. We talked about the 2022 special sessions that will make great long term strides in returning the insurance market to a sense of “normalcy” in the long run. We discussed the great work the Governor and legislature have accomplished with litigation reform last month that will serve as a long term solution (18-24 months) to impact homeowners insurance rates. The audience then asked what could be done in the short term. I stressed that the FIRRM could bring short term help for consumers, most likely in the next 90 to 120 days. But we need to act now. Florida property reinsurance rates are expected to jump 40%-50% at the June renewal, when insurance companies buy coverage for the hurricane season.
Florida Insurance Commissioner Michael Yaworsky
As Florida Insurance Commissioner Michael Yaworsky says, it’s a simple truth that nothing moves, is built or is healed these days without insurance being involved in most cases. So it’s the road on which basically everything else travels. That includes Florida’s real estate market, a critical part of Florida’s continued growth and success.
We look forward to working with the incredible and influential Florida Realtors and other stakeholders in these last few weeks of the Florida legislative session to create the appetite for a state-sponsored reinsurance mechanism, particularly in light of the recent round of renewal premiums arriving in the mailboxes of Floridians. Our real estate market has enough barriers to entry with higher mortgage rates and inflation per a recent Florida Realtors News story, without adding even higher property insurance premiums. FIRRM is a practical and easy solution for our current insurance challenges.
So just how high might homeowners insurance rates rise in Florida this year? Turn the page to our Property Insurance News digest to find out, followed by the rest of this week’s newsletter of news you can use!
LMA Newsletter of 4-17-23
