Property Insurance Woes

How the high price of homeowners and flood insurance is impacting real estate transactions and Florida residents

BY DICK HOGAN

Skyrocketing homeowners insurance premiums are posing a serious threat to residential real estate sales in Naples and around the state, experts say. The Florida Legislature has passed measures over the past year that will eventually remedy the situation—but there’s no quick solution in sight.

“In general, in Florida, the homeowners insurance industry is in a complete state of turmoil” for the time being, says Keller Williams Realty Naples broker Jeff Jones.

Further aggravating the situation, he says, was the aftermath of Hurricane Irma, which came ashore in southern Collier County in September 2017, flooding some communities and leaving behind a slew of roof damage claims. As a result, he says, “there are few major insurance carriers in Florida that write homeowners insurance policies.” Of the smaller ones that remain, he adds, “there aren’t many insurers in Florida that are not in the red.”

William Dukes Kim Vargas

e cost of a homeowners policy—once a minor factor in the mortgage approval process—is now so high that lenders are wary about how it could a ect the ability of borrowers to handle their mortgage payments, says William Dukes, senior mortgage loan o cer of Naples-based Summit Mortgage Corp. “Back in the day, people would get their insurance and tell us who their insurance was a week before closing,” he says. “And it was all ne.”

Now, Dukes says, with fast-rising insurance rates, there’s a good chance a buyer can be blindsided by an unanticipated whopper of a homeowners policy.

“We didn’t want to take that chance, so we started making sure we had a decent quote from our buyers early in the process,” he says. “We told them, ‘Hey, get this early. Don’t let this go to the end. Get this now because we’ve got to make sure it works with your underwriting.’” e situation isn’t all bleak, Dukes says. “We’re nding from the insurance agents that if you’re buying from somebody who already has ood insurance, you can piggyback onto their deal, at least until it expires.”

But he’s seen rsthand that even people who successfully navigate the loan process and settle into a new home can face an abrupt cancellation of their existing policy—followed by a hard choice of how to replace it. “My wife and I had decent insurance for our home that got canceled last December,” Dukes shares. “We got canceled because our roof was more than 15 years old. In my community, we have reserves for new roofs and we’re not getting new roofs until 2025. Our roofs are all in decent shape but everybody’s getting cut o at their renewal.”

With their $1,600 existing policy canceled, replacing it would cost $2,700 to $3,500, Dukes says. e couple ended up going with a limited policy through Citizens Property Insurance Corp. for $2,300. “Are we covered now? Yes. Is it great coverage? I’m told it’s adequate.” e bottom line, Dukes says, is that people looking to buy an older home—especially one in a high-risk ood zone or with a roof more than 15 years old—should look before they leap. “I encourage them, especially through their REALTOR®, to get some quotes before making an o er to make sure you don’t get a nasty surprise after you’re in contract.”

Help has nally arrived. A new provision passed this year states:

An insurance company cannot refuse to issue or renew a homeowners insurance policy on a home with a roof less than 15 years age solely because of the roof’s age.

If a roof is 15 years old or older, an insurance company must allow a homeowner to have a roof inspection performed by an authorized inspector before requiring the roof to be replaced in order to have the policy issued or renewed. e homeowner is responsible for the cost of the inspection. e insurance company may not refuse to issue or renew a homeowners insurance policy solely because of roof age if an inspection of the roof indicates that the roof has ve years or more of useful life.

POLICY CANCELLATIONS

Remaining insurance companies have sharply increased their rates, says Andrea Pelletier, a client advisor with Gulfshore Insurance in Naples. e problem has been compounded as the passage of time makes residences more vulnerable to water damage, she says. “All these properties are getting older,” Pelletier says. “Ceilings fail, the washing machines fail, water supply lines fail—and water loss occurs.”

As a result, she says, insurance claims have mounted as preventative measures improve. “Homeowners have been more diligent about installing di erent kinds of water leak-detection systems and so have condo associations,” Pelletier says. “So, there are fewer claims, but statistics show the claims are each becoming more severe. Even though there are fewer claims, they’re costlier, so carriers are still losing money in Florida.”

Part of insurers’ skittishness is seasonal, she says. “We do see a trend around carriers closing during hurricane season,” Pelletier says. Insurance companies “still want to write business in Florida,” she says, and she expects the situation to improve in early 2023, “after they’ve had a chance to revamp some of their underlying guidelines.”

Kim Vargas, owner of Kim Vargas/Strategic Insurance Group in Naples, has been busy allaying panicked customers. “I’ve been extremely busy; we’re just trying to problemsolve for our clients.”

Normally, the insurance company decides to cancel about 45 days prior to the cancellation, she says, “but by the time you actually get the notice in the mail you’re looking at 30 days ahead.”

After receiving a cancellation, some homeowners wait too long to react, Vargas says. “You have, here and there, a client who might have put it o ,” she says. “It’s a week away and they’re rushing and struggling to get the insurance.”

OBTAINING COVERAGE

If no private insurance company is within a homeowner’s means, the fallback is Citizens Property Insurance Corp., set up by the Florida Legislature in 2002 as an “insurer of last resort” for those unable to get insurance elsewhere.

Vargas says many of her clients are ending up with Citizens. “At a moment like this, you don’t really have much of an option but to end up with Citizens,” she says. “Ultimately, that is the last resort and pretty much the only way to provide insurance to a lot of our clients right now.”

Citizens o ers limited coverage for less than other providers so “the premiums aren’t that bad,” Vargas says. “It’s just having the client go through that process of getting all the re-inspections of their home because they have a roo ng requirement.”

When a borrower is having trouble a ording enough homeowners insurance to be acceptable to the lender, she sometimes tries to negotiate with the lender “to try to get it somewhere within at least the ballpark.” Often, she can negotiate minor changes to the coverage or deductible that are acceptable to both sides “and sometimes we can’t,” she says.

In the absence of a traditional homeowners policy, all is not necessarily lost, although higher costs and limited coverage are likely side e ects, Pelletier says.

For example, Pelletier says, it’s sometimes possible to get a builder’s risk policy that provides coverage while the buyer makes improvements that bring a house up to acceptable standards, although, typically, “the carrier will exclude the roof and they’ll exclude water damage.”

“Once the work is done, we can roll them into a homeowners policy,” she says.

Jeff Jones

Andrea Pelletier

One bright spot for homeowners is that improvements have been made in the ood insurance process, Jones says. More precise mapping ensures that owners are billed more fairly for buildings considering elevation and proximity to the water, he says. e new database makes it easier and faster to get a ood quote, Jones says. “You can get a ood quote in a few minutes from an insurance carrier, whereas it used to be a much more complicated and unbalanced process.”

A buyer can now assume the ood policy of a seller and have “a gradual glide path” to the new ood insurance rates. Under the new rates, Jones says, only four percent of property owners will experience a major increase “and those are likely homes that were probably not rated correctly in the rst place.”

WHAT IS HAPPENING?

Here’s how the property insurance crisis unfolded, experts say:

ere’s been an explosion of litigation claims against insurers, using rules originally designed for Florida homeowners who sought a judgment against an insurance company

Enterprising attorneys gured out that customers could assign their potential bene ts to a third party who could then le a lawsuit on behalf of the customer against the insurance company. Homeowners could sue the insurance company and if they won, the insurance company would have to pay the consumer's legal fees. A $15,000 water damage claim, for example, could wind up costing the insurer $100,000 with legal fees.

Laws passed by the Florida Legislature this year have closed the loophole and attorneys can no longer collect fees on an assignment of bene ts. e new laws will eventually solve the problem but, for the time being, homeowners insurance will remain expensive and providers will remain scarce.