Rising Florida property values raise big questions about insurance for homeowners, landlords and renters

by | Sep 23, 2023

While inflation is forcing families across the country to grapple with higher grocery bills and other increased costs, one of the spinoffs is how the effects of inflation are creeping into other places too. In Florida, where the property insurance market was already broadly out-of-whack long before inflation set in, those increased costs are having an outsized effect on premiums and deductibles, and even renters aren’t safe. The bad news is arriving every day across the state as Floridians go to the mailbox to see skyrocketing lease renewals, shocking new insurance premiums, and worse, deductibles that need to keep pace with rising home values.

All of those factors are forcing more and more homeowners to make the risky gamble with self-insurance. It’s a multi-pronged squeeze that’s affecting entire communities, and it’s not clear if the Republican-controlled state legislature plans to do anything about it in the upcoming 2024 legislative session. But Democrats have made it a key plank in their own efforts to regain power in Tallahassee.

Rising Home Values: The Double-Edged Sword for Property Owners

It’s old news that inflation has been driving up property values, particularly in Florida. That’s creating a wealth effect for homeowners, at least on paper. But those increased home values come at a cost: higher insurance premiums, and potentially higher deductibles in the event of a claim. But only if the home is properly and adequately insured in the first place. If you bought your home in 2018 for, say, $300,000, but now it’s worth $500,000 thanks to rising property values, your insurance coverage may not cover the replacement value of the home.

Property insurance experts advise homeowners to be wary of the 80 percent rule, which stipulates that insurers will only fully cover damage costs if the homeowner has insurance coverage equal to at least 80 percent of the house’s total replacement value. Failure to meet this threshold means the insurance company will reimburse only a proportionate amount of the required minimum coverage. Factors like capital improvements and inflation can alter a home’s value, affecting the 80% rule and possibly necessitating policy reviews to ensure adequate coverage. For instance, if a homeowner sees a spike in property value, their current coverage might fall below the 80 percent replacement value threshold, leading to reduced payouts when filing a claim.

Even Renters Are Getting Squeezed by Property Insurance

As insurance premiums have spiked renters are starting to see those costs reflected in their lease renewals, too. Like single-family homeowners, landlords with multi-family homes have also been handed hefty insurance bills, and as the costs pile up, they are left with little choice but to pass on some or all of the burden to their tenants. The Florida Apartment Association says that apartment owners are experiencing this trend right alongside other property owners, with some seeing their insurance premiums more than double.

The upshot is that renters will inevitably expect to see those costs reflected in their lease renewal when the time comes, and with housing demand already on the rise, the typical Florida renter could be in for an even bigger surprise than they thought.

Self-insurance on the rise

The escalating cost of property insurance has led some homeowners and even commercial property owners to take matters into their own hands by opting for self-insurance. The approach involves setting aside the money normally spent on insurance premiums and investing it in a liquid account to cover any future repair costs or damages. The benefit is that homeowners can save significantly on insurance payments while growing their money in an investment account. However, this model comes with substantial risks, particularly in a state like Florida that is prone to natural disasters like hurricanes and flooding. Without an insurance policy, homeowners are entirely responsible for all costs related to damage or loss, something that could be financially devastating if a major event occurs.

Despite those risks, the number of Floridians self-insuring has seen a notable uptick. Industry analysts estimate that between 15 and 20 percent of homeowners in Florida are currently opting for self-insurance. This is significantly higher than the national average, which stands at 7 percent, and represents a 2 percent increase compared to last year. Back in 2016, only 8 percent of Florida homeowners were without insurance coverage.

Legislative Measures and Future Outlook

Despite several recent legislative sessions dedicated to tackling the insurance crisis, Florida lawmakers have acknowledged that it will take time for the enacted measures to bear fruit. New laws have sought to create a more favorable environment to attract insurance companies back to Florida, enhancing competition and potentially lowering premiums. However, residents still find themselves caught in the immediate crosshairs of soaring inflation costs seeping into housing costs, putting Floridians into a particularly more painful financial squeeze than the rest of the country.

Throughout the summer, though, Florida Democrat lawmakers (and a few Republicans) have made it a point to keep property insurance front-and-center in everything they talk about.

As Floridians grapple with these insurance challenges amid economic uncertainties, the cost of living in the Sunshine State keeps creeping up. Democrats have made it a point to keep the issue in the forefront of Florida voters. Republican lawamkers aren’t apathetic, in fact they were quite vocal during the spring legislative session and are now watching to see how the new legal changes play out.

Experts and industry watchers say that nothing is likely to bring property insurance costs down. Instead, the consensus is that the best Floridians can hope for is stabilization. But in the meantime, property values, insurance premiums, and rental costs remain on the rise with every lease and policy renewal that lands in a Florida mailbox.


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