There's been a lot of chatter lately about the Florida home insurance market. And rightfully so – it's been in turmoil for a while. Our agents have heard about it directly from our members, but comments have also been spilling over into social media and other public forums.
In our eyes, that’s a good thing! We want homeowners to be curious about insurance – both in terms of their coverage and the industry as a whole. Understanding how home insurance works is an important part of getting the right protection for any homeowner’s particular situation.
To help homeowners get a better grip on what’s happening to Florida’s home insurance, our CEO Sean Harper participated in an Asking Me Anything (AMA) session on Reddit. Most of the questions Redditors asked fell into three main categories:
- Unique troubles in Florida’s homeowners' insurance market.
- The rising costs of home insurance in Florida.
- How to keep home insurance premiums down.
If you’ve already read our article on why Florida home insurance rates are going up, then you know these topics are deeply intertwined. Let’s take a look at a few of Sean’s insights on these issues Florida homeowners brought up in his AMA.
The troubled Florida home insurance market
Far and away, the question that got the most attention during the AMA was “How soon will the entire homeowners' insurance industry collapse because things are not looking good?”
That’s an unsettling question, but it received 71 upvotes so people are clearly concerned about the situation in Florida.
But there may be hope on the horizon. As Sean said, there’s a “huge incentive for everyone involved – politicians, regulators, insurance companies, consumers … to take action to avoid such a collapse.” More importantly, he thinks recent legislation, like Senate Bill 2A, will be very helpful.
While he’s confident these reforms will ultimately help Floridians, Sean believes that further work is necessary. He also expects prices to continue to increase and availability to remain stressed until the changes have had a chance to work.
The reason? Both insurers and reinsurers need data before they can act. Insurance and reinsurance are businesses that require a lot of capital, and the investors who provide it need to know they can get a positive return over time.
Right now, the cost of capital for an insurance company is approximately 10% – perhaps even higher because the financial markets are so messy. If returns in the market are below that, then companies will likely shrink or go out of business. Above it, you can start to attract new capital and new companies into the market.
All said, Sean remained optimistic about the possibility for improvement: “[T]here have been periods of distress in homeowners insurance, and Florida homeowners insurance, but society has always found a way through.”
Home insurance premiums in Florida
High premiums for Florida homeowners insurance have been a problem for years now. Unfortunately, the combination of more extreme weather activity, increased losses across the state (largely the result of excessive litigation), and the cost of capital due to higher interest rates has created a “perfect storm” that pushes premiums even higher.
One Redditor even noted their rates doubled after Hurricane Sally when they only had $2,800 in damage, and they said they paid $7,900 in total over four years prior with no claims.
But as Sean pointed out, insurance premiums only consider your claims history to the extent it predicts your likelihood to file another claim. He explained that homeowners don’t have much control over the perils that could cause a financial loss.
“Your home could be hit by a hurricane, tornado, neighborhood fire, hailstorm, or earthquake and none of this would be in your control,” he said. “Given that these things are out of your control, your prior claims history plays no part in this portion of your premium’s calculation.”
It’s also important to remember that the overall characteristics of a home play a big role in its insurance rates. The home’s location is important, but other factors come into play, such as:
- The type of home construction (e.g., concrete block versus wood).
- The home’s age.
- The roof’s age and type.
Florida homeowners might feel better hearing that premium hikes aren’t their fault. But many are still frustrated with the high cost of insurance – like one Kin member who saw their premium go up by more than 100% at renewal time. That Redditor asked, “Is this a normal thing, for the first year to be essentially a bonus rate and bump up to a more normal rate from then on?”
Sean assured the member that there aren’t different rates for new and renewal customers. Instead, the recent rate increase is a result of devastating storms that caused big jumps in both reinsurance and repair costs. Insurers are legally required to cover these expenses, so when they go up, so do premiums.
He went on to say that “it personally feels really awful to raise rates on our members, especially because we have no choice … because our costs have increased. I interact with members who are frustrated every single day, and it stinks.”
Keeping costs down for Florida home insurance
So the impact of reforms is likely a way off, and homeowners are still paying high home insurance premiums. That led many of the Redditors taking part in the AMA to ask how they can bring their costs down.
It might seem counterintuitive, Sean said, but ”we love helping members mitigate their own risk.” Safer homes are a win for everyone because members end up paying lower premiums, and Kin pays less for the reinsurance we need to insure their homes.
Some suggestions from the AMA to help lower premiums include:
- Mitigating your wind risk. According to Sean, “a large part of the overall premium is driven by hurricane risk,” so Floridians need to harden their homes against hurricanes by securing their roofs and protecting their windows from flying debris. Not only does this safeguard your home and reduce your hurricane-wind premium, but it could also make you eligible for windstorm loss reduction credits.
- Replacing older electrical panels. Certain brands of recalled electrical panels are more likely to catch fire. When our underwriters see this, we let the member know and tell them how to fix it.
- Raising your deductible. Choosing a higher deductible usually means you have a lower premium. However, you’ll want to weigh what you might save against the reality of paying the higher deductible should you face a catastrophe.
- Think about insurance when you shop for a home. “Homes that were built recently to modern code and are more inland haven’t been as adversely impacted by extreme weather as those closer to the water,” said Sean. He also encouraged homebuyers to identify their flood zone and to budget for potential premium increases.
- Asking about discounts. Like Sean said, safe homes are a win-win, so many insurance companies offer discounts for behavior that safeguards your home.
- Replacing your roof. “Just like a lot of things, roofing material keeps getting better,” Sean said. Getting a new roof, installed by a good roofer, can save you money on insurance because most companies in Florida charge a lot more for older roofs.
- Finding a policy with a roof schedule based on age. Your auto insurance doesn’t pay for a brand-new car if you’re in a wreck. Similarly, Sean recommends getting home insurance that pays a specific percentage identified for your roof’s age. This can save you a lot of money, but it means your payout is lower if your roof is damaged.
We should note that it wasn’t just Sean talking about how important the condition of your roof is to your insurance premiums. One Redditor backed him up by saying “The roof mitigation piece is huge. Our home was built with toenails, but a quick review of the proper connectors, a hundred bucks at Home Depot, and a weekend crawling and hammering them up in the attic has saved me about $3,500 a year.”
The bottom line
The Florida home insurance market is tricky, to say the least, but there is reason for hope. As Sean said, “There was a healthy insurance market in Florida in the past, and if the legislature continues to pass legislation to address the problems, there will be again.”
But one thing we really hope our members take away from Sean’s AMA is that we are really motivated to solve the issues surrounding home insurance in Florida. Homeowners in the state deserve better, and we think we’re a company that can bring them the insurance experience they’re entitled to.
