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Pursuing Coverage: A Journey

Insurance has become a significant barrier in some transactions, making the purchase experience harder for buyers than before. Here’s why this happened and what can be done to mitigate it.

Cyndee Haydon understands first-hand the insurance woes facing Floridians today. Both as a homeowner in a flood zone and real estate agent with Future Home Realty of Clearwater, Florida, she reports skyrocketing costs and unpredictability are putting pressure on her finances and stressing her out.

“My homeowners and flood insurance is $13,000 each year; then there are property taxes – even if I paid off my house entirely, I would need to earn $20,000 to $25,000 just to cover these costs,” says she.

Haydon is chairing Florida REALTORS(r) insurance committee and regularly receives complaints from clients and industry professionals alike about the high costs associated with insuring homes. “If we’re talking affordability,” she emphasizes, then insurance should be at the top of their minds.

Steven Moreira, CCIM and CIPS from Longwood, Florida is managing broker and director of special projects at RealSource Properties, a private REIT that owns 6,000 apartments in 12 states. “I know of one broker who lost six deals that were under contract due to insurance costs last year,” Moreira notes. Purchasing properties in Florida last year showed Moreira insurance costs spike from $300 per unit for an inland property to between $1,000-1.500 for coastal properties – an increase from 300-1500 depending on location.

Haydon warns homebuyers who find themselves overwhelmed by rising premiums: the question for them should be “How much can a homeowner absorb and still maintain a home?”

Anthony Friedman of Northrop Realty in Ellicott City, Md. near Baltimore and Washington D.C. had clients looking to retire to Florida. “For two years we had been communicating about selling their Maryland home; when they traveled down south we encouraged them to contact a real estate agent there,” Friedman noted during a November RISMedia webinar on insurance.

Clients decided not to contact an insurance agent from Florida immediately, however when they went to make an offer they were taken aback at how expensive insurance coverage actually was.

“They discovered that purchasing a house in Florida was more costly due to insurance,” according to Friedman. Additionally, some properties could not secure coverage at all – delaying plans and the sale of their Maryland residence.

Insurance has evolved into an increasing burden in real estate industry across Florida and across the nation, from being an insignificant transaction detail to becoming one of the main drivers behind expenses. Blame it on increasingly destructive weather events, fraudsters, or high costs for reinsurance policies; Florida REALTORS(r) successfully supported legislation late 2022 intended to ease this situation; yet property owners face difficult conditions nonetheless.

Florida: Ground Zero for Volatility
Floridians have become used to unpredictable and high premiums; during 2004 hurricane season alone five named storms–Bonnie, Charlie, Frances, Ivan and Jeanne–caused billions in damage across six weeks across Florida.

Florida Department of Health officials described it as “one of the most active, destructive, and costly hurricane seasons ever seen in Florida” which caused numerous insurers to withdraw from Florida, leaving Citizens Property Insurance Corp as one of the only options homeowners had for coverage. Due to market crashes that year and afterward, private insurers continued avoiding Florida altogether while Citizens grew its market share even further.

As soon as the real estate market stabilized, private insurers slowly returned to Florida. By 2015, competition among these newcomers had become fierce – ultimately leading to lower premiums according to Lindsey O’Donnell of Florida Best Quote based in Tampa Bay, Fla.

“That lasted several years until fraud became an issue,” according to O’Donnell. While many may attribute their high insurance premiums to greed on behalf of insurance companies, O’Donnell believes fraud and reinsurance play a pivotal role in creating volatility and sudden price changes in today’s marketplace.

Fraud Contributes to Insurance Losses Its On April 20,2022, Governor Ron DeSantis called a special session of the Florida legislature in order to address insurance fraud. His office made public that according to data provided by the Office of Insurance Regulation, Florida represented 79% of homeowners insurance lawsuits filed over claims submitted while only representing 9% of total claims in total filed nationally.

O’Donnell states that insurance companies experienced $1 billion in underwriting losses from Florida homeowners’ lawsuits arising from using Assignment of Benefits forms to transfer their rights, O’Donnell notes.

She notes that many lawyers and contractors realized they could work together and make money by going door-knocking, asking homeowners if they wanted a new roof, then passing along an Assignment of Benefits form which transfers full rights of the policy to them as contractors.

Once the rights were transferred, attorneys would file suit against the insurer, which would pay out to the contractor and charge up to three times their standard rate as fees against insurers. O’Donnell estimates that attorneys often earned hundreds of thousands in fees while contractors enjoyed full returns from roofing jobs completed.

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