Home Insurance Is So High in This Florida Town, Residents Are Leaving

https://www.wsj.com/real-estate/home-insurance-is-so-high-in-this-florida-town-residents-are-leaving-bb00c96f

33 71 3 years ago

Simulacra• 3 years ago

I understand that cities will sometimes raise the property tax to increase the affluence of a certain area, but this makes me wonder if insurance companies might do the same thing.

bombcar• 3 years ago

If costs are so high only the rich can afford to live there, you either end up with a rich area or an abandoned one.

Macha3• 3 years ago

Insurance is about playing the odds game where you amortise risk amongst all your customers. As risk approaches certainty, the economics don't work out as you need to charge each customer the replacement cost which at that point they won't want to pay.

hef19898• 3 years ago

Thus. I happened to work with a former Allianz-employed mathematician once (the wonders of working around Munich). Insurances are very good in calculating risks, and if the numbers don't work out anymore, you will see it immediately in premiums. That is all there is.

In a sense, you can se the impact of climate change in insurance premiums. Including the math behind those risks. And the insurance industry doesn't have the reputation of being anything but profit driven.

TheJoeMan• 3 years ago

Purely an anecdote, but I live within XX miles of west palm beach. Insurance cancelled with our HOA because our "15-year" roofs reached 12 years old. We just spent 3 million dollars redoing all the roofs in our community, and the new insurance rate is still increased over year 12's.

I wonder if this is retribution for all the TV infomercials for filing for "hail damage" many months after a hurricane last season.

londons_explore3• 3 years ago

People still have the option to live without insurance.

Perhaps you just decide that you're gonna keep everything that matters upstairs in your house, and the downstairs flooding a couple of times a year is worth it for the substantial reduction in house price.

1270018080• 3 years ago

The houses in the article are selling for millions of dollars. They’re already ultra rich or house poor.

JKCalhoun5• 3 years ago

Depends on when they bought of course. It sounds like with Florida's wild real estate ride, even having bought a few years ago might mean they're not rich or house poor.

JKCalhoun5• 3 years ago

https://archive.ph/mUQGC

jmclnx• 3 years ago

Florida’s explosion in insurance premiums threatens to ground the state’s highflying housing market

I looked up the place on a map, people now alive now will see that area underwater. So no wonder insurance rates are raising. To me, Florida is the very last place to buy a house in the US if you want the value of it to pass to your Children or Grandchildren.

It is already known at some point in the future, 80% of the state will be ocean. It is just a matter of when, and with how things are going, the "when" is arriving faster.

rightbyte• 3 years ago

Isn't rates set per year?

Macha3• 3 years ago

Before you get to "being year round underwater" you'll face phases of "elevated flooding risk" and "frequent flooding", and both of the latter two are already of concern to insurers.

Arnt2• 3 years ago

Here's a link: https://coastal.climatecentral.org/map/16/-80.1391/25.7865/?...

It's just a question of time. The chance that the property will be flooded every year before a 30-year mortgage has been paid off seems to be about 50%.

Someone1234• 3 years ago

That link, if you zoom out a little, makes the situation seem LESS bad than many in this thread are claiming. Even setting it 100+ years into the future, only shows major annual flooding along the coastlines.

andreygrehov• 3 years ago

80% of the state will be ocean

I played with simulations and nothing crazy serious is expected even after 200 years. Can you point to the source of your claim?

forinti• 3 years ago

I find it interesting that house ads don't yet include a topographic map or simple elevation indicator, but I really do expect this to soon become standard.

I know I wouldn't buy a house without checking this out first.

ulrashida• 3 years ago

In flood prone parts of Australia it is quite common to list "property sits yy meters above 19XX flood level" as a premium signal to the risk averse.

I would suspect that this isn't standard as most properties are worse off by disclosing this information so it would be a net disadvantage to realtors (who often run these platforms).

aodin• 3 years ago

Redfin has a “Flood risk” layer option on their maps.

Interestingly, it show only small parts of Flamingo Park having substantial flood risk, especially compared to the rest of West Palm Beach.

https://www.redfin.com/neighborhood/55857/FL/West-Palm-Beach...

jillesvangurp• 3 years ago

The thing with sea levels is that it's not the average that you need to worry about but the extremes. If the average goes up, the average high during extreme events also goes up. Like high tide during a hurricane. And of course the issue with global warming is that it predicts both increases in sea levels and incidences of things like hurricanes.

For the amount of damage that hurricanes can do, just refer to the last few ones and consider them a sneak preview of what insurers consider to be likely to be much more regular. Think tens/hundreds of billions of dollars in damage every time it happens

monero-xmr• 3 years ago

This is how the free market should work. Having the government subsidize insurance in areas where destruction is likely is insane.

People will still want to live there. They will build stronger houses. In the Outer Banks of North Carolina they build houses on stilts with the expectation of the first floor flooding. Or they will build cheap houses with the expectation they get destroyed and have to rebuild every N years. This is fine.

The only reason stuff never gets fixed, is when someone bails them out. Stop bailing them out and everything will fix itself.

JKCalhoun5• 3 years ago

I would agree if in fact the insurance rates followed suit. In none of these stories is it clear that putting your house on stilts would waive the insurance increases.

brianwawok2• 3 years ago

Aren't stilts actually worse for a direct hurricane hit? They are great for flooding but terrible for hurricanes.

Some kind of underground waterproof bunker is probably the safest, but not sure those are going to be real popular.

matwood3• 3 years ago

Not sure about these increases, but livable structure below the 100 year flood line will trigger a huge insurance increase. Fully elevated homes are done that way because otherwise insurance costs would be prohibitive. Other building methods and materials (like HardiPlank) also cut insurance costs.

adolph• 3 years ago

I think the concept is to build houses resilient enough to avoid storm and flood insurance altogether.

londons_explore3• 3 years ago

Plenty of communities have houses built on stilts for all kinds of reasons (10 foot snowdrifts is another reason)

sharemywin6• 3 years ago

the problem with large corp failures are it's not the execs that get left holding the bag. investors, consumers, employees, community do.

to me the easiest way to fix that is don't let companies get to big to fail.

jeo123• 3 years ago

Suppose to. But USA isn't exactly practicising free market. Coming back from doing business in China, their market is truly competitive and free as long as you factor out some specific "Government guanxi thing" and "central government policy" (e.g. clamping down on private tuition and enrichment classes). Their EVs have no restriction like in USA where Tesla cannot sell in some region because of existing car dealership. Insurance too are consider "costless" to high risk group and must never deny pre-existing. All this extra government intervention in USA really not helping "free market". In USA the last 3 presidents, things get so anti-competitive and almost like centralized planning to some extend (solyndra) especially Bush-Obama time. The only unrestricted "free market" now is people. You see that Cali moving to Texas over the last decade. Expect similar things to happen to Florida as well in this decade.

JKCalhoun5• 3 years ago

Interesting. I wonder what the ramifications are if a significant number of people drop home insurance all together.

Home prices are so high there that I can only assume that, like California, you're essentially paying for the land, not so much the structure. It means your investment is not quite as at-risk as a home in another state.

If we built less-expensive homes perhaps home insurance need not be a thing at all.

But since in theory the prices of insurance takes into account that the risk is being spread around the insurance pool, would a significant number of people leaving that pool cause it to go up more for those remaining?

rileymat2• 3 years ago

It would be interesting to hear from an expert, I would think it would cause the pool to be more volatile, but not necessarily more expensive?

sharemywin6• 3 years ago

not an expert but the insurance companies need re-insurance sometimes which adds costs. the worst thing you can do is concentrate your risk. then one event could wipe you out.

infecto3• 3 years ago

Unfortunately its not just the land. Construction prices are through the roof still compared historically.

Agree though that it would be nice to build simpler homes.

matwood3• 3 years ago

I wonder what the ramifications are if a significant number of people drop home insurance all together.

As long as there's a mortgage, people will be required to carry home insurance. I have heard of the wealthy self insuring because the premiums were so high. For them it made sense to invest premiums instead.

skybrian• 3 years ago

Banks require insurance to get a mortgage. Increased borrowing costs (effectively) will reduce what people can afford and lower the value of the land (and house).

People do live in places where you can't get a mortgage. For example, I'm thinking of a rather sparse community on the big island in Hawaii that's on the side of a volcano. However, both the land and the structures people build are much cheaper.

It seems like in the limit, it's basically like a campground, and if you need to move then you move.

skinnyarms• 3 years ago

Most mortgagers require home insurance as part of the loan terms. They will increase your monthly payment due to offset the risk of their stake in your property. It's like paying for insurance, without any of the benefits.

AnimalMuppet2• 3 years ago

You are required to carry home insurance as part of having a mortgage. If you own outright, you can choose to drop it. If you still have a mortgage, though, the mortgage holder can foreclose if you stop carrying home insurance.

Disclaimer: I don't do mortgage law. This is just my impression from having read the mortgage contracts I have signed.

ensignavenger2• 3 years ago

Most of the banks I have seen have a clause allowing them to buy insurance that covers what you owe -and usually costs more than what you would pay for full private insureance- and bill it back to you... if you don't make the full payments, then the bank will foreclose. So there is usually that extra step of them taking out a policy.

m348e912• 3 years ago

A lot of people attribute high costs of insurance in Florida to severe weather and global warming. I have also read that there has been a widespread and unaddressed roofing/insurance scam epidemic which has driven home insurance costs up all over Florida. I don't know how much of an impact it has had.

Also: https://archive.ph/mUQGC

Link to WSJ article in question.

jmuguy• 3 years ago

When it rains and the water literally comes up out of the limestone the state is sitting on you wonder why anyone would buy property there.

infecto3• 3 years ago

I don't know about Florida specifically but IIRC from a recent podcast I was listening to, the biggest problem in the US is insurance companies have to follow state law and often state law limits the amount insurance companies can raise prices annually. The insurance company can pull out so often thats what happens, they are not allowed to raise rates to match the risk so then they pull out, the state is then pressured to try and provide a state insurance pool which is never as good as the commercial alternative. Effectively subsidizing the insurance and making people who live in these high risk areas happy for the short term.

I realize Florida does have actual issues with hurricanes and projected flooding but I think the above is important to call out too. Seems to be impacting insurance across the US.

toomuchtodo2• 3 years ago

Florida is my primary residence, my insurance is ~$4k/year (up from $1800/year most recently) on a ~$400k home ~40 years old. 90 feet above sea level, far enough from the coast that wind speeds never exceed 40mph even with a near direct hit from a hurricane (2017). My insurer is the state high risk pool ("Citizens"). They are phasing in mandatory flood insurance for all properties they insure over the next several years, even if no flood risk [1]. The risk repricing causes are: rampant litigation [2], climate risk [3], and the drastic increase in building costs [4]. The new prices are not unreasonable, the old prices were underpriced.

If you limit premium increases, insurers will leave when they can't price the risk appropriately. And they should. Long term, prices signals should be sent to communicate where it is too expensive to obtain insurance (regardless of peril insured), destroying demand where it is unaffordable to do so.

[1] https://www.citizensfla.com/-/20230803-flood-insurance-requi...

[2] https://www.axios.com/local/miami/2022/10/03/florida-propert...

[3] https://www.axios.com/local/miami/2023/09/20/report-real-est...

[4] https://www.wptv.com/money/real-estate-news/new-homes-in-flo...

fasteo2• 3 years ago

For comparison, I pay 600€ per year for a 500K € 20 year old home, about 240 square meters (that's about 2580 square feet for my fellow Americans).

This is Madrid, Spain. Small town outside the city.

sharemywin6• 3 years ago

most of the major insurers pulled out a of Florida a long time ago. If you want to figure out what's really going on with climate change ask the actuaries at insurance companies.

infecto3• 3 years ago

I was listening to an economist podcast about insurance and they were interviewing a woman representing some segment of the insurance companies. She said that climate change played a role in pricing but the vast majority of problems were because of 1) Higher construction costs and 2) states not allowing insurance companies to raise rates to match the actual risk so they pull out.

polski-g• 3 years ago

Price fixes cause shortages. There is never a time in history when this is not the case.

tzs2• 3 years ago

That's only true when raising prices can lead to an increase in supply. There have been times when that is not the case, such as in the United States during WW II.

imchillyb• 3 years ago

Insurance is a Casino. Losses are covered by the dupes playing the games.

It's a state-mandated scam perpetrated on all.

Yay US.

JumpCrisscross2• 3 years ago

Insurance is a Casino. Losses are covered by the dupes playing the games

Unless you can do the actuarial math yourself, going uninsured is the gamble. My go-to story is of a friend whose fire--in an apartment he rented--caused claims to be made against him by the owner, owners of adjacent units and the building. Not only was the risk uncapped. But now the litigation cost was his.

Insurers combine a team that calculates risk, pools that risk and then fights it for you with a team of litigators with practically unlimited budgets.

AnimalMuppet2• 3 years ago

Unless you can do the actuarial math yourself, going uninsured is the gamble.

Yes. But "not gambling" (= getting insurance) also means that you are slowly losing (by the amount of the insurance premiums, year after year). "Gambling" (not being insured) means that you avoid losing slowly, at the risk of losing massively (losing the entire house, and bearing the entire cost of that).

I don't like a "low odds but catastrophic cost of losing" game. So I don't play that game.

ejb999• 3 years ago

I don't believe the vast majority - if any - home insurance is 'state mandated' - it is almost always mandated by the banks that are lending you the money to buy - i.e. the folks who actually own your house until they get paid back.

wintermutestwin• 3 years ago

All of those rent vs buy calculations get pretty ugly for ownership when you are paying 1% of the property value annually for just supplemental fire insurance through the state because your insurance company decided they could start cherry picking.

Home Insurance Is So High in This Florida Town, Residents Are Leaving

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