Hurricane Andrew dealt a huge blow to the Florida home insurance market in 1992. The real estate market reeled. Insurers paid out an estimated $16 billion in claims, and home insurance rates in the state doubled in the decade following the disaster. Some coastal regions were hit with larger increases in that time.
Flash forward to the 2004 hurricane season. Wave after wave of hurricanes and tropical storms swept across the state, wreaking widespread damage and causing an estimated $20 billion in insured losses.
American Red Cross statistics found that about 315,100 residences in Florida were impacted by the four hurricanes in 2004, including single-family homes, mobile homes, apartments and condominiums. Sales of single-family homes dropped 23 percent in September, according to the Florida Association of Realtors, owing in part to the inability of prospective buyers to obtain homeowners’ insurance when hurricanes strike or are threatening to strike.
The state Realtors association, which has about 120,000 members, also reported that “property insurance problems will last well into 2005 and beyond as private insurers stop writing policies, cancel policies and ask the state for permission to raise rates.”
Also, “as an immediate problem, consumers had to pay 2 percent to 5 percent of their homes’ value as a deductible for property coverage, meaning higher out-of-pocket expenses, and a loophole forced homeowners to pay that amount repeatedly if hit by more than one storm.” The Florida state Legislature offered $150 million in relief for Florida residents hit by multiple hurricanes, and they banned the multiple-deductible requirement for future multiple-hurricane seasons.
Despite the quadruple whammy of hurricane strikes in 2004, Florida’s housing market performed remarkably well, the association noted. This month, the association reported that the statewide median sales price for single-family homes reached $192,400 from January 2004 to November 2004, which was a 22 percent increase over the same period in 2003.
Insurance Journal reported this month that four small Florida insurance companies are in the process of canceling 9,000 policies in the state and Penn Charter, which had about 6,300 home insurance policies in Florida, is pulling out of Florida market. The journal also reported that Citizens Property Insurance Corp., a state-run entity formed in 2002 as an insurer of last resort for those who cannot find adequate insurance coverage in the private market, this year plans to raise its windstorm insurance rates by as much 117 percent for some homeowners.
Frank Kowalski, 2005 president for the Florida Association of Realtors, is serving on a state-formed task force that is looking into issues relating to homeowners’ insurance and Citizens Property Insurance Corp.
Marla Martin, a spokeswoman for the Florida Association of Realtors, said that the real estate market “basically has recovered” from the hurricanes, though she said that possible rate hikes by home insurers will be a major issue in the state. “We fully expect (home insurance issues) to be a major, major priority not just for us but for home builders.”
The real estate market will certainly feel the weight of such home insurance rate hikes, said Ken Harris II, a Jacksonville, Fla., real estate broker and mortgage broker. Harris said in some cases there are waiting lists for consumers who are trying to purchase home insurance policies from some insurance carriers. “Unless you go with one of the top tier (companies), they’re very limited on how many policies each agent can write.”
Harris said he advises his clients to get on those lists to ensure that they will find coverage. “Three customers were calling me with multiple rental properties and saying they got (their policies) canceled,” he said. “They’re just having to scramble, to call every insurance company in the yellow pages. There are big problems here. I’m telling customers to start shopping today – don’t wait.”
He said he worries that if too many insurance companies become insolvent or leave the state, it will deeply affect the real estate market. “It took a couple of years for (Hurricane) Andrew to sink in, but this is immediate. All those who did not get hurt (by the storms) are getting ready to get clobbered” by insurance rates, he added.
Even those Florida areas that were scarcely grazed by the hurricanes will likely share the burden of higher rates, said Harris, who owns Harris Realty and Harris Mortgage.
A lot of lenders are looking for home insurance policies written by companies that carry at least a B+ rating with A.M. Best, an insurance rating service, he also said.
Fred Spring, a Realtor at Coldwell Banker Previews International in Sanibel, Fla., said he is optimistic that the real estate market in his area will weather the storms’ economic aftermath. “On Sanibel I don’t think (homeowner’s insurance) is going to be a significant problem,” he said. “The market’s getting back to normal,” though he said it is “too soon to tell” what kind of insurance rate increases area residents will see when their policies come up for renewal.
It seems that people are always second-guessing the Florida real estate market and making predictions about what will halt its fast-moving pace, he said. “I listen to people saying ‘The market’s going to go down.’ It never does.”
And Nina Schultz, a broker associate for RE/MAX Realty Experts in New Smyrna Beach, Fla., said that owners of mobile homes may find a particularly difficult home insurance market.
“I am presently working with a buyer who put an offer in on a mobile home. He was able to get financing, but he wasn’t able to get homeowner’s insurance, so they wouldn’t finance him,” Schultz said. “I called one local insurance company that used to issue insurance and they told me they aren’t insuring mobile homes yet. Another company told me that the mobile home was too old to insure. I have also noticed that the sales prices on mobile homes (with land) are inflated, because repairs were made with insurance money and the sellers are bailing out.”
She added, “I wouldn’t be surprised, if we have more hurricanes, that mobile homes will be uninsurable in the whole state, or outlawed.”
According to 2000 U.S. Census data, about 10 percent of Florida’s population lives in manufactured housing (mobile homes), and manufactured housing makes up about 12 percent of Florida’s housing units. About 41 percent of all of Florida’s manufactured housing was built prior to 1980, 46 percent was built between 1980-94, and 13 percent was built after 1995.
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