Why is Florida home insurance so expensive?

Discover the reasons behind the soaring homeowners insurance rates in Florida

By Ahmed Azzam | @3zzamous | 21 July 2023

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  • Florida's vulnerability to hurricanes adds to high insurance costs

  • Major insurers withdraw from Florida due to increased risks

  • Allstate cites wildfires and repair costs for rising insurance expenses in California

  • Florida's average annual premium hits $6,000 in 2023, 42% higher than 2022

  • Insurance companies blame inflation, supply chain issues, and climate change for higher costs

Inflation continues to rise annually, surpassing the targets set by central banks worldwide. In June 2023, inflation in the United States increased by 3%, compared to a 9.1% rise in June 2022. The high inflation has prompted the US Federal Reserve to tighten monetary policy and raise interest rates significantly since 2022, with the current rate standing at 5.25% and potentially reaching 5.5% in the coming week. Furthermore, climate change is posing a serious threat to certain areas of Florida, and the costs are already being felt by residents. By the end of 2022, average annual property insurance premiums in Florida had surged three times higher than the national average. Home insurance is one of the aspects affected by both inflation and climate change risks.

Households in Florida, the third most populous state in the US, have been grappling with a property insurance crisis that is rendering home ownership unaffordable for many. Following the insolvency of at least six insurers in Florida last year, Farmers became the latest company to withdraw from the Florida market on Tuesday. They stated that the decision was driven by the risks associated with the hurricane-prone state.

why is homeowners insurance going up

According to a statement from Allstate, the cost of insuring new home customers in California has significantly increased due to various factors, including wildfires, higher home repair expenses, and elevated reinsurance premiums. Consequently, they decided to stop issuing new policies last fall.

Homeowners insurance is becoming more expensive and increasingly difficult to obtain in many areas, and unfortunately, there are no indications that the situation will improve in the near future.

Major insurance companies have mostly withdrawn from the Florida market, resulting in homeowners having to pay premiums nearly four times higher than those in other regions of the country. Florida's susceptibility to hurricanes, such as Hurricane Ian, which was the most costly storm to hit the state last year, is a significant contributing factor to this problem.

However, Florida is not the only state where insurers are scaling back their presence due to natural disasters. For instance, two of the largest national insurers, State Farm and Allstate, have stopped offering new homeowners policies in California, partly due to the increased risk posed to homes by wildfires.

While climate change plays a role in this trend, insurance companies also point to the rising costs of replacing homes, as inflation affects the prices of building supplies and labor. Additionally, some states, like California, have imposed restrictions on insurance premiums, further impacting costs for both insurers and homeowners.

Florida has the highest homeowners insurance

Florida holds the distinction of having the highest homeowners insurance rates in the United States. According to the industry-funded Insurance Information Institute, Floridians pay an average annual home insurance premium of $6,000 for the year 2023, which represents a significant 42% increase from the previous year.

Comparatively, the average annual amount in Florida far surpasses the national average U.S. home insurance premium of $1,700, which has risen by 11% from 2022. This amount covers a full coverage home insurance policy, including protection against hurricane windstorm damage, but not flood protection.

Insurify, a national insurance agency, conducted a study and found that Florida homeowners paid an average annual premium of $7,788 in 2022, solidifying the state's position as the most expensive for home insurance in the entire country. Following Florida, the states with the next highest homeowners insurance costs were Oklahoma ($6,853) and Louisiana ($5,353).

Among the cities in Florida, Hallandale Beach, located in South Florida, topped Insurify's list as the most expensive city for homeowners insurance. Three other cities in South Florida, namely Hialeah, Miami, and Lake Worth, also ranked among the top 10 most expensive cities for homeowners insurance.

Why is Florida home insurance so expensive

There are several factors contributing to the high cost of home insurance in Florida. The state is highly prone to hurricanes, a natural disaster that insurance companies cannot control. Approximately 40% of all hurricanes that hit the United States make landfall in Florida, making it a region with a higher risk of hurricane damage. This increased likelihood of hurricanes has led insurance companies to find it less profitable to operate in the state. Florida's geographic location also exposes it to various other natural disasters, including flooding and sinkholes, further adding to the risks and costs.

The frequency and severity of hurricanes in Florida have prompted insurers to raise premiums to account for potential losses they may have to cover. Some insurance providers, like Farmers and AAA, have even decided to completely withdraw from the state due to these challenges.

Florida's insurance woes have not occurred suddenly but have developed over time. The state is still feeling the impact of hurricanes and actions that occurred more than 15 years ago. The period from 2004 to 2005 saw eight hurricanes hit Florida, resulting in higher insurance premiums for homeowners, with some experiencing their premiums more than doubling or tripling after two years of hurricanes.

In 2007, Governor Charlie Crist signed a law that froze rates for Citizens, often known as the insurer of last resort, and loosened requirements for qualification. This led to a significant increase in the number of policies under Citizens, causing several private companies to either stop writing new policies or leave the market in the following two decades.

Governor DeSantis signed several bills in 2022 and 2023 aimed at reducing litigation and fraud, which are drivers of rising insurance premiums. Florida has seen an average of over 100,000 lawsuits filed against property insurers annually for the past three years, constituting almost 80% of all property insurance litigation in the US. These laws introduced under DeSantis include limitations on attorney fees and restrictions on contractors soliciting homeowners to file insurance claims. Additionally, other bills have made it more difficult for property owners to sue insurers and granted state regulators increased authority to investigate insurance companies.

One of the measures in 2022 required Florida homeowners who had policies with Citizens to switch to private insurers if the bill was less than 20% higher, resulting in some policyholders having to pay higher bills. The bill also mandated homeowners to purchase flood insurance over five years, adding to the costs.

Citizens, which is projected to have around 1.7 million policies by the end of the year, requested permission in July to raise rates by up to 13%.

Industry experts believe that the legislation should eventually lead to lower homeowners insurance prices in the long term, though the extent and timing of this impact remain uncertain.

Apart from these factors, rising homeowners insurance costs in Florida are also influenced by inflation, supply chain challenges, and climate change. Supply chain disruptions limit the availability of homebuilding materials like lumber, roofing, piping, and drywall, contributing to increased costs.