Home insurers are pulling out of California and Florida at breakneck speed. Earlier this year, State Farm, the largest property insurance company in California, Announce It would stop accepting new applications for all property and casualty insurance in the state, citing “historic increases in construction costs outpacing inflation, rapidly increasing catastrophe risks, and a challenging reinsurance market.” Soon after, news came that the good reach Quietly stop selling Property insurance in California for similar reasons after an initial moratorium on new policies. Others, like Farmers Insurance, followed suit, wear a hat The number of policies it has written in the state.
In Florida, in the last month or so alone, Farmers Insurance announced it was withdrawing from the state’s market to “effectively manage exposure,” the company said in a statement previously provided to the state. wealth. Shortly after, AAA said it would not renew a “very small percentage of high-risk homeowner policies in Florida” due to the state’s “challenging market,” according to a statement shared with AAA. wealth Before.
Things have become increasingly difficult in Florida and California, given that housing markets have seen prices soar during the pandemic. Not to mention that mortgage rates have gone back up, latest reading The 30-year average fixed rate was 7.37%, the highest in 20 years. Affordability is down, and insurance issues only exacerbate the problem. Insurance issues are slowing new home sales in Florida and California in part, according to a survey of homebuilders by John Burns Research & Consulting.
Eric Finnigan, vice president for research and demographics at John Burns Research & Consulting, told us wealth They heard anecdotes from industry contacts that the troubled insurance industries in Florida and California were having an impact on their real estate markets before they got data to back them up. It all started with investors looking to buy properties with insurance quotes that were double or triple what they were a few years ago, he said. In some cases, they were unable to justify the costs, causing those deals to fall through. For the survey, John Burns Research & Consulting asked builder buyers how concerned they were about the availability and cost of homeowners insurance in their area and how that affected sales, Finnegan explained. .
“About one-third of homebuilders in Florida say buyer concerns about insurance availability and cost have slowed sales in part,” Finnegan told wealth.
Specifically, 32% of homebuilders in Florida said buyer concerns about insurance had slowed sales at least in part. But to be clear, in the Florida case, 68% of builders said it had no impact on sales. Still, in Northern California, 20 percent of homebuilders surveyed said buyer concerns about property insurance had slowed sales somewhat, while in Southern California, 29 percent said the same. By comparison, nationally, only 9% of builders said insurance issues had slowed sales somewhat, and in Texas, just 4% said the same.
Clearly, buyers in these markets are concerned. In Florida, 54 percent of builders said buyers were somewhat concerned about the availability and cost of homeowners insurance, and 14 percent said they were very concerned. They have reason to do so. Homeowners in Florida already pay some of the highest insurance premiums in the country, averaging $6,000 a year compared with the U.S. average of $6,000 a year, said Mark Friedlander, Florida-based director of corporate communications for the Insurance Information Institute. $1,700.
Insurance operating costs are rising in both markets (although operating costs are rising in most industries, Finnegan said). Additionally, there appears to be an increasing number of extreme events, whether extreme weather or natural disasters, leading homeowners to file insurance claims. This results in higher costs for insurers and is the main reason we are seeing insurers either pull out of these states entirely or reduce renewals. Those who remain may be more selective about who they cover, leading to fewer options and higher costs for homeowners. Several factors are at play, and these are just two of the many forces behind the insurance exodus.
Interestingly, “concerns about cost are only going to keep people in rental units longer,” Finnegan said. , the increase in property insurance has pushed it into the affordable range.
As Finnegan said, the insurance issue may be a minor issue, but he still considers the problem at hand to be “serious.” So far, builders have been able to incentivize buyers by lowering mortgage rates, he said. The longer rates stay above 7%, insurance issues will exacerbate housing affordability strains in California and Florida.
“These markets are even riskier than Georgia, Texas or Colorado because of high mortgage rates, where insurance issues are less prominent,” Finnegan said, trying to understand each Monthly mortgage payments have more than doubled in just a few years, and higher insurance costs have only made homeownership more unaffordable. As Finnegan points out, that may mean people continue to rent for longer, or it may mean that families who would otherwise have wanted to move to Florida choose not to, or delay their move.
“If these natural disasters or extreme weather become more severe, I could see that intensifying and the impacts actually getting worse,” Finnegan said.
He believes the biggest risk is that insurance issues will have an impact on housing demand. For California, that could lead to more people moving out of the state, and for Florida, it could lead to fewer people moving there, Finnegan explained. Heading into the fall, we’re likely to see a seasonal slowdown in some markets, “and if the insurance issue stays where it is, or gets worse, it will have a bigger impact,” Finnegan said.
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