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Why Is Home Insurance in Florida So Expensive?

  If you’ve done your research, you already know that the price of home insurance depends on a lot of factors, such as the geographic location, size, age, and even the personal history of the owner, to name a few! Of these, it’s safe to say that geographic location is one of the biggest influencers, as geographic location also determines the kind of weather, neighborhood, safety, and other factors that influence the risk factor that your house and property face. And as we know, “risk” is what runs the insurance industry! The higher the risk, the higher the premium that you pay towards your insurance.

Taking this into consideration, Florida currently holds the “honor” of being the US state with the highest home insurance cost, with an average premium payment of $2,055 per year! Phew. An arm and a leg? But what exactly makes insurance so expensive in Florida?

The Not-So-Sunny State for Insurance!

The “Sunshine State”, with its beautiful beaches and even better weather, can be quite gloomy if you’re a homeowner in Florida! The low cost of living is almost negated by the high amount of insurance that owners end up paying towards insurance. Homeowners in Florida pay more than double the national average of home insurance (1,083)!

So let’s get to the root of this mystery, shall we?

Natural Disasters

Despite its beautiful weather, Florida is a hotbed for natural disasters. Ranked 2nd among all US states for Natural Disaster Risk by a new study, Florida attracts many natural disasters such as wildfire, hurricanes, tropical storms, and tornadoes, such as the recent hurricane Irma (2017) and the western wildfires (2015). As Florida is a peninsula, surrounded by water on three sides, hurricanes are a frequent risk, leading to flooding and damage of massive proportions.

All of these reasons lead to an increase in the risk of owning a property in Florida for homeowners and a risk of higher claims for damage to insurance companies. In fact, so high is the risk that Florida’s insurance companies use “reinsurance” without which they’d run out of money faster than Usain Bolt can run 100 meters, given Florida’s higher-than-average rate of natural disasters. (Reinsurance is an added insurance coverage that insurance companies purchase to protect themselves from high claims during catastrophic damage, sort of like an insurance for insurance!)

Unfortunately, though reinsurance may be a godsend when it comes to claims, it is one of the reasons that premium is high, as insurance companies pass on the burden of reinsurance to their clients through their policies.

Politics and Regulation of Insurance

Of course, Florida’s high insurance costs can be blamed squarely on Mother Nature. Mankind has a huge role to play, too. In 2010, the regulatory body for insurance in Florida, the Florida Office of Insurance Regulation, increased the average homeowners’ insurance by as much as 18.7%. To further rub in the salt, they also did away with certain discounts, followed by the granting of freedom to insurers to raise annual premiums up to 15% at their discretion to compensate for their reinsurance costs, all of which affects insurance premium rates in Florida.

The 2010 Hurricane Model

In addition to the effects of politics, various studies on hurricane models let the good people of Florida realize just how high the risk of hurricanes were in Florida. One model in particular (from the Florida State University) and another by Risk Management Solutions (a popular hurricane modeling company) estimated wind-speed, identifying potential hurricane winds; a wake-up call that sent insurance companies scrambling to purchase more reinsurance and ultimately, increasing insurance costs in Florida.

Citizens Property Insurance

Citizens Property Insurance Corporation is a state-run insurance company that enjoys a wide usage, providing coverage for a huge chunk of homeowners in Florida, especially those who have a tough time finding coverage with private insurance providers. With such a huge market share and client base, Citizens Property acts as an industry leader, setting the price for insurance in Florida which other insurance companies are bound to follow. Thus, when the company hiked its insurance rates by 11%, other companies soon followed suit, without which they could not have sustained themselves in the industry.

Other Perils

Apart from natural disasters caused by weather and climatic conditions, Florida is also highly susceptible to sinkholes, so much so that “sinkhole insurance” is quickly gaining popularity. With more sinkholes than any other US state, there has been an increasing number of claims for sinkhole damages, leading to higher insurance costs not just because of the increased risk, but also to fund government-led testing for sinkholes to save on future sinkhole damages.

The Ending Note

Based on all the above factors, you now know why insurance in Florida is so expensive! While the rates of insurance may be inevitable, there are certain ways you can slightly mitigate this. Only purchase houses that are a maximum of 12 years old and no higher; if not, ensure that the house has a strong structure by getting a wind mitigation inspection done. This could save you up to 30% on your policy!

Another way to lower costs is to reduce the coverage of your personal property. A lowering of 40% could save you a whole lot of money! Alternatively, you could also consider increasing the deductible amount of other deductibles to as much as $2,500 to save the dollars. Additionally, make use of discounts! Do your research and find what discounts you are entitled to as per your policy.

Given the magnitude of insurance companies in Florida, it is also not unlikely that insurance frauds could exist in the state. Therefore, put in some research and ensure that you pick the right insurer and insurance for you and you’ll find that some of the gloomy clouds may part over the Sunshine State, after all!

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