Home Insurance Is So High in This Florida Town, Residents Are Leaving | Hacker News Reader

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

wsj.com

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.

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...

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.

I suppose you don't get a lot of hurricanes in Madrid, do you?

My premium in the US for a 4000sq ft home in an area with mild hurricane risk (Cat 1-2 possible, but uncommon) is around $1400/year. Florida is a very high risk area, so it makes sense that premiums are high.

>>> I suppose you don't get a lot of hurricanes in Madrid, do you?

It works different in Spain. No standard home insurance policy will cover any natural disaster. Instead, there is a higher state organization (Consorcio de Compensación de Seguros) that will cover damages from natural disasters, terrorism, riots, revolts, etc

I would like to hear more about your experience. Permission to get in touch?

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.

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.

"Higher construction costs"

I'm sure states new immigration stance will help with that.

that's ok I guess the retirees and snow birds could get part time jobs. I'm sure they would do great lifting singles up a roof.

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

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.

Can you link a source?

I don't really have anything specific. I'm just remembering a few things I read about what happened to the economy during WWII.

With a large number of people leaving the workforce for the military, and with many goods being diverted to the military, there were both labor shortages and goods shortages for civilians.

Normally when shortages cause prices to rise that is suppose to attract new producers or get existing producers to increase output, thus alleviating the shortage. Same with rising wages and labor.

But with the war taking so much people didn't have the resources to actually start new factories to make civilian goods or excess capacity to increase production--if they had it would have went toward increasing military production.

In that environment wage and price increases don't lead to significant labor or goods availability--they just shuffle things around. This can lead to a wage and price spiral where wages and prices just keep going up without any meaningful change in the supply of labor or goods.

To stop that in WWII they implemented wage and price controls for key industries and goods.

Eventually the spiral would have plateaued as people from other countries would become willing to take even heavy risks and rush to fill the jobs, regardless of the prospects of legal immigration. So the principle would have still held, though obviously deleterious to the average consumer in terms of pricing.

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.

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.

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.

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.

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.

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.

Do you mean this?

https://www.jameshardie.com/products/hardieplank-lap-siding

I don't see how this adds structural support.

Properly installed HardiePlank and similiar siding is substantialy more durable than vinyl siding. Brick, stone, and other siding can be even stronger.

Ah, okay, brick is the standard in my area so I was confused.

It's not structural but durability. It's effectively concrete siding and holds up well.

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

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.

(I meant that more as an example to follow OP's comment. I'm sure it would have to do with roofing material and other things structural in a hurricane zone.)

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

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?

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.

> 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.

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.

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.

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.

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.

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?

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.

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.

https://archive.ph/mUQGC

>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.

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%.

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.

A typical house isn't built to withstand minor semiannual flooding either ;)

The really bad forecasts for Florida include areas where a house itself is likely to stay dry, but the water pipes may have problems, or the road network may be interrupted by floods, or the ground is likely to subside or change, or, or.

FWIW I know someone who lives near a river that often floods. One of the houses on their farm is dry, but the ground under one wall has subsided by >10cm in the past 20 years compared to the opposite wall. The walls have visible cracks. The bricks look as if the bricklayers were drunk all day and I can't imagine that any insurer will touch that house.

> 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?

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

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.

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...

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).

Isn't rates set per year?

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.

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.

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.

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.

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.

"The primary mission of a mutual company is to protect members, by maintaining the capital needed to meet their needs and cover any insured losses — not to maximize profits for shareholders"

depends on the structure of the company.

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.

It's retribution for the billions paid in claims yes. If at any point an insurer is paying out more than like 80% of the fees they are taking in, they are going to either jack rates or pull out of the area.

I think this is 100% fair, and the alternative that I should have my tax money go from BFE to subsidize beachfront living is insane. I am 100% fine with people living literally anywhere, but until every square inch of land is used - there is no reason people MUST live on the beach in a hurricane zone.

The hail chasers aren't only lurking around beaches. It is a trend happening throughout the country and leading to a lot of roof replacements.

there's definitely a problem with fake roof insurance claims in florida.

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.

I don't think you can have a mortgage without insurance to at least cover the bank's portion. If you own the house with cash then possibly.

In which case, there might be a market for mortgages for those in this position... Or perhaps a (far cheaper) insurance product that only insures the banks interest in the house (ie. after a flood, if the homeowner walks away, the insurance compensates the bank).

I don't think there's a market for paying out $20,000 in flood damage every five years in exchange for a $2,000/yr premium. The mortgage providers also don't want to be in a situation where someone owes $160,000 on a house needing $60,000 that the owner can't obtain in repairs or worth $80,000 in a damaged state as that just encourages the owner to walk away and declare bankruptcy, which is not good for the bank. The only way capitalism has of solving this is to roll the effective equivalent of market rate insurance premiums into the mortgage cost, so you've just moved the problem from "the insurance I need for my mortgage is too expensive" to "my mortgage is too expensive".

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.

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

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.

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

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

Yay US.

> 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.

> 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.

> also means that you are slowly losing

In the way I'm losing every time I buy food.

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

If you have assets, you're playing the game. If you're alive, you're playing the game. (Civilization can be modeled as insurance.) Unless one has an incantation that makes risk disappear, not playing the game is ignoring one's place in it.

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.

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