Homeowners’ Insurance…OMG!

If you buy a home in South Florida, the mortgage lender will require homeowners insurance, but here’s the catch:  Private insurance companies have all but ceased writing new policies.  And what you can get is crazy expensive!

Most likely you will have just one option—the state-run Citizen’s Property Insurance Corporation, which was set up in 2002 after private insurers started abandoning Florida in the wake of the catastrophic losses from Hurricane Andrew in 1992.  The insurers’ retreat became a stampede after the bad 2004 hurricane season. Citizen’s was originally intended to be the insurer of last resort, but now is virtually the only one writing new policies on South Florida properties.

Because Citizen’s is state-run, it is also a political football.  The current Republican-dominated state government hates it on ideological grounds because it’s a government program and would love to eliminate it.  But that would leave prospective home buyers unable to purchase properties, because there is no one else willing to insure them.  In Florida’s foreclosure-ridden real estate market, that would be an even worse disaster, crippling any chance for recovery.

So instead, the governor and legislature just diddle with Citizen’s to eat away at coverage and arbitrarily increase rates.  Such proposals have even included one a couple of years ago to eliminate policies for coastal wind damage (i.e., hurricanes), which of course was the reason Citizen’s had to be created in the first place.  There seems to be no real plan or effort to find a solution for the situation.  Rates just jumped drastically and without explanation this year, even though Florida has had six years of respite from damaging hurricanes which, presumably, would have allowed Citizen’s to build up reserves.  The cost to the home owner goes up regardless—good year or bad.

Now because Citizen’s has such an enormous share of home insurance, the state government is looking for ways to “depopulate” its policies by passing them off to other companies.  This is called the “take-out” program—and we’re not talking pizza here. Several companies (none of them big national insurers that you’ve ever heard of) have been authorized to take over selected homeowners’ policies.  You can opt out and stay with Citizen’s if you choose, but you have to do so in writing.  It looks like the same thing as the “slamming” that phone companies did in the 90s.

You might have better luck if your home was built in the last 10 years or so, after the adoption of post-Andrew building codes pioneered by Miami-Dade County.  And, you may be able to get rate discounts by retrofitting “wind mitigation” measures such as hurricane-impact windows or roof improvements if your home is older.

But you will pay through the nose in any case.  (BTW, realtors tend to downplay insurance costs, probably fearing they’ll scare away buyers.)  The rates are based on hurricane risk, and Miami-Dade and Monroe (which includes the Keys) counties are at the top of the scale, with Broward close behind.  Other factors such as proximity to water also come into play, so if you really want waterfront, just remember that will jack up your insurance costs.

My own experience is probably fairly typical.  My house was originally built in 1938 and added onto in the ‘80s.  It’s a solidly built house that has withstood decades of storms, and I love its vintage style, but of course it does not meet current code requirements.  When I bought, my insurance broker told me that Citizen’s was my only option, so I sucked it up and paid the breathtakingly expensive premium.  I then—at great expense–replaced all the windows and doors with hurricane-impact rated products.  This got me a substantial discount on my premium—close to 25 percent—and I thought things were looking up.  Then I got my bill for the renewal and was astonished to see that the rates had been increased to almost what they were before I did the “mitigation.”  So I was pretty much back to square one, costwise.  Then I opened my mail one day to find that my policy was being transferred to another company I had never heard of.  I called my broker and asked his advice, and he said I would probably be better off sticking with Citizen’s, so that’s what I did.  Who knows if that’s right or not, but as Simon and Garfunkel once sang:  “Any way you look at it, you lose.”

Oh, and then there’s the flood insurance, but that’s a topic for another post.