Best Laid Plans....Florida version

[tomz]

According to a new state law, by 2008 Citizens Property Insurance (Citizens) may not cover homes valued over $1 million or second homes that do not receive homestead exemption.
As the law reads now, after July 1, 2008 Citizens will not renew or issue policies to homes valued over $1 million. The same bill prohibits Citizens from writing policies on second homes after March 1, 2007.

I thought I had it figured out.  Do a 1031 exchange next year on the condo we bought in 2000(not worth a $1M, but a  good investment nonetheless ) and buy a house.  Rent the house for a few years and then turn it into our primary residence.  Since Citizens is the biggest insurer in Florida now, I am pretty sure that the area where I wanted to buy a house (Ormond Beach east of 95) is pretty much all Citizens.   Since I’m not a homesteader yet, I probably won’t be able to get insurance for a second home used as a rental.  So much for that strategy.

One of the interesting things I've discovered about planning for retirement is that nothing is cut and dried.  For every challenge, there are multiple ways to resolve it.  It drives my DW crazy that I can't be more specific.  After this, she's starting to understand why I have 4 different plans....

 

[Martha]

It is often harder to insure second homes or vacation homes than other properties. Insurance companies don't like property that sits vacant for part of the year. You are trying to insure rental property. Two different things. I would approach looking for insurance from that point of view.

 

[brewer12345]

It is often harder to insure second homes or vacation homes than other properties.  Insurance companies don't like property that sits vacant for part of the year.  You are trying to insure rental property.  Two different things.    I would approach looking for insurance from that point of view.

It won't matter. FL property east of I-95 is toxic waste to pretty much every insurer on the planet. That's why Citizens (insurer of last resort) is the only one there.

To OP: Find somewhere else to buy property.

 

[tomz]

Thanks for the suggestions.  With the condo, the insurance is part of the association fee so I never had to worry about finding it.  I've never tried renting a house before.  I guess I need to do a little more research before I scrap this plan.  In any event as Brewer noted, with the way things are going in the windstorm insurance business in FL these days, getting insurance on a rental home will probably be more expensive than insurance on a primary residence, which is already very costly.

 

[Arif]

getting insurance on a rental home will probably be more expensive than insurance on a primary residence, which is already very costly.

Not sure about FL but in normal places insurance for rentals are cheaper than homes because you're not insuring the furniture and everything else in the house. I would talk with real estate investors in the area and see who they use as far as rental coverage goes.

 

[tomz]

Not sure about FL but in normal places insurance for rentals are cheaper than homes because you're not insuring the furniture and everything else in the house. I would talk with real estate investors in the area and see who they use as far as rental coverage goes.

Florida is definitely not normal. .  Windstorm insurance is very costly so it doesn't really matter if the house has furniture or not.  I do plan to talk to some pros in FL when I am down there again in a few months, but I'm starting to think that I should just sell the condo (if I can), pay the capital gains hit and take whatever is left over and run.

 

[Rich_by_the_Bay]

Lots of other carriers insure in this state. We do not have Citizens. Can't speak to the east coast, but lots of options here on the Gulf for most properties.

 

[lazygood4nothinbum]

It won't matter.  FL property east of I-95 is toxic waste to pretty much every insurer on the planet.  That's why Citizens (insurer of last resort) is the only one there.

To OP: Find somewhere else to buy property.

what did florida beat you up when you were a little kid?

 

[brewer12345]

what did florida beat you up when you were a little kid?

Nope, just a long-time observer of the insurance markets. FL's property insurance market is broken and I do not see an obvious fix any time in the next 5 years. Plan for steadily increasing rates, eachand every year, if you own insured property in FL. If you are elsewhere on the East Coast, expect stiff rate increases, but not on the order of FL's. $75+Billion got washed out of the insurance/reinsurance industry last year. It has to be replaced, and then some. Guess where it is going to come from?

 

[justin]

Nope, just a long-time observer of the insurance markets. FL's property insurance market is broken and I do not see an obvious fix any time in the next 5 years. Plan for steadily increasing rates, eachand every year, if you own insured property in FL. If you are elsewhere on the East Coast, expect stiff rate increases, but not on the order of FL's. $75+Billion got washed out of the insurance/reinsurance industry last year. It has to be replaced, and then some. Guess where it is going to come from?

East coast? Does that include NC/SC/VA inland areas (100+ miles inland)?

 

[brewer12345]

East coast?  Does that include NC/SC/VA inland areas (100+ miles inland)? 

Well inland will probably only see mild rate pressure, might even see some modest decreases. depending on how things shake out.

 

[justin]

Well inland will probably only see mild rate pressure, might even see some modest decreases. depending on how things shake out.

That's good to hear - more of the same year to year variations. My premium YOY is about the same, maybe down a small amount.

 

[tomz]

Nope, just a long-time observer of the insurance markets. FL's property insurance market is broken and I do not see an obvious fix any time in the next 5 years.

This is a hot topic in the upcoming governor's race.  The politics will probably force them to do something next year -  One of the more popular ideas is to expand National Flood Insurance to include all national disasters.  There doesn't seem to be much support for this at the Federal Level since the flood program loses money runs a constant deficit.

 

[brewer12345]

This is a hot topic in the upcoming governor's race.  The politics will probably force them to do something next year -  One of the more popular ideas is to expand National Flood Insurance to include all national disasters.  There doesn't seem to be much support for this at the Federal Level since the flood program loses money runs a constant deficit. 

Good luck with that. Either the policyholder have to pay, or all taxpayers get to pick up the tab. No free lunches, unfortunately.

 

[tomz]

Good luck with that. Either the policyholder have to pay, or all taxpayers get to pick up the tab. No free lunches, unfortunately.

All those years with very few hurricanes allowed them to keep the rates artificially low and underfund the reserves.  Now with 2 bad years back to back, the crap has hit the fan.  State Farm wanted 79% rate hikes and the regulators talked them down to 51%.  That's a big jolt for a lot of folks.   Companies are pulling out right and left.  Citizens is now the biggest insurer in FL in terms of policies.  There is no reason to expect any fix to be rational, that would be more than one could hope for from politicians.  However, if something doesn't happen, Florida's real estate market will be seriously stressed.

 

[brewer12345]

All those years with very few hurricanes allowed them to keep the rates artificially low and underfund the reserves.  Now with 2 bad years back to back, the crap has hit the fan.  State Farm wanted 79% rate hikes and the regulators talked them down to 51%.  That's a big jolt for a lot of folks.   Companies are pulling out right and left.  Citizens is now the biggest insurer in FL in terms of policies.  There is no reason to expect any fix to be rational, that would be more than one could hope for from politicians.  However, if something doesn't happen, Florida's real estate market will be seriously stressed. 

By way of comparison, Louisiana has a state-sponsored catastrophe fund similar to the FL windstorm pool. The LA pool asked the regulator to quadruple rates(!). The regulator only let them double rates.

 

[lazygood4nothinbum]

i don't know a whole lot but from what little i read in the papers, this strikes me more as profit scam than actual coverage cost.

http://tinyurl.com/hx2m4

At one point, State Farm Florida had requested a 15 percent profit margin, but lowered it to 6.1 percent, Lotane said.

i say to hell with insurance companies, but then, i tend towards socialism anyway. we should stop them from writing policies on our easy money cars and liability insurance too. we should just self-insure and keep the profits here.

 

[Scrooge]

we should just self-insure and keep the profits here.

Some people in FL are doing exactly that. A friend of mine has a vacation cubbyhole in a flood plain area there. He switched to self-insurance after the last couple of hurricane seasons and subsequent rate increases. We'll see what he has to say after the first flood 

 

[brewer12345]

i don't know a whole lot but from what little i read in the papers, this strikes me more as profit scam than actual coverage cost.

This is all being driven by the reinsurance market.  FL catastrophe reinsurance coverage has (minimum) doubled in price over last year when capacity can even be found.  At the same time, rating agencies are telling the State Farms, Nationwides, Allstates, etc. that they have to buy more of it now, since we appear to be in a brave new world.  The reinsurers are charging more because A) we are in a brave new world and B) there aren't as many left after several blew up in the wake of Katrina, Rita and Wilma.  The shareholders of the remaining reinsurers are demanding very high returns on capital in order to take the risk, thank you very much.  And, oh, if you don't like it, please step aside so the dozen other people who (desparately) want to do business with us don't trample you as they try to get here.

It ain't pretty, to say the least.

 

[justin]

i say to hell with insurance companies...

I think that's the kind of advice insurance co's are following re: florida. "To hell with florida!".

 

[tomz]

By way of comparison, Louisiana has a state-sponsored catastrophe fund similar to the FL windstorm pool. The LA pool asked the regulator to quadruple rates(!). The regulator only let them double rates.

The simpleton response to this is that people shouldn't live where there are disasters  But with hurricanes, floods, earthquakes, fires, volcanoes, tsunamis - nowhere is disaster proof.  That was the logic beyond National Flood insurance.  There's risk everywhere so let's spread it around.  That's supposed to be the philosophy behind insurance.

What pisses off a lot of folks in Fl and LA is that State Farm and most of their competitors had record years despite the hurricanes and now they want to raise rates so they can make even higher profits.  It's a mess.  Our whole insurance system - auto, health, homeowners is a joke.  Insurance companies don't exist to be our good neighbor or to keep us in good hands.  They cherry pick with their underwriting and cancel you when you file a claim.    There is no free lunch, but they shouldn't insult your intelligence with their stupid marketing.  Whew, glad I got that off my chest.  I feel better now.   Rant ended.  

 

[brewer12345]

I think that's the kind of advice insurance co's are following re: florida.  "To hell with florida!".   

Before or after they go bankrupt? At least three sizable FL homeowners companies collapsed within the last year.

 

[lazygood4nothinbum]

I think that's the kind of advice insurance co's are following re: florida.  "To hell with florida!".   

right, well, they've already written us off on wind but they have no problem writing us up on auto. you think they'll say to hell with florida when it comes to the easy money?

 

[brewer12345]

right, well, they've already written us off on wind but they have no problem writing us up on auto. you think they'll say to hell with florida when it comes to the easy money?

FWIW, both Allstate and State Farm (and probably others) have special "FL only" subsidiaries that they write all of the FL business out of. That way if they ever get really swamped with "the big one" it won't take down the whole enterprise. Most of this was set up after Andrew walloped Miami. I bet the remaining players in LA and MS do something similar...

 

[Nords]

i say to hell with insurance companies, but then, i tend towards socialism anyway. we should stop them from writing policies on our easy money cars and liability insurance too. we should just self-insure and keep the profits here.

You're betting that you'll be more fortunate than your risk-pool peers (or at least your neighbors) and if you "lose" then at least they'll bail you out with more money than you paid into the system.

The only way to stay ahead of health insurance costs is to own the stocks of the industry. The only way to stay ahead of insurance rates is to own the insurers... I'd start with Berkshire Hathaway, who's reporting their quarterly profits Friday night.