HOMEOWNERS INSURANCE
High rates weigh on housing budgets
Steep premiums forcing moves, scaring buyers
By Paul Owers
and Kathy Bushouse Business writers
December 18, 2005
Software developer Michael Gordon owns a five-bedroom house in Coral Springs. It's certainly big enough for his family of four, but he was hoping to move into more luxurious digs in Parkland.
That was before he learned that he'd have to pay at least double -- about $7,000 a year -- to insure the new house. Already incensed over his insurance bill in Coral Springs, Gordon, 45, decided to stay where he is.
"When I drive through the neighborhood that my wife and I considered buying into," he said by e-mail, "I constantly ask, `How do these people do it?'"
Insurance rates have joined home prices and property taxes as major deterrents to living in South Florida -- and some of the state's largest insurers haven't even been granted the additional increases they're seeking.
The rate increases, which insurers are blaming partly on the five hurricanes to hit the region in 13 months, are causing some buyers to back off or to consider smaller homes that are less costly to insure, agents say.
To avoid having to pay steep premiums, homeowners who don't have mortgages are choosing to self-insure -- putting money into savings that they would have spent on insurance. Retirees from the North are opting for less-costly tropical climates, and middle-class consumers are "buying down" coverage by accepting higher deductibles -- but that means they'll have to come up with thousands of dollars out of pocket if they ever make claims.
"There is major sticker shock," said Beverly Rothstein, an agent with Exit Team Realty in Coral Springs. "People have learned to live with home prices, but the monthly amount they have to pay has skyrocketed. A lot of people are reticent about going forward on deals."
Other agents say they haven't seen sales slow because of insurance, noting that buyers grumble over the higher rates but reluctantly pay them. That soon could change, though, as premiums are set to increase yet again, potentially pricing some people out of the market.
Many residents have had to shell out money for insurance deductibles and homeowners association special assessments from the recent hurricanes. With the increase in property taxes and looming insurance rate increases, only the wealthy may be able to afford to live here, said agent David Dweck, founder and president of the Boca Real Estate Investment Club.
"This is a crisis," he said. "If we can't do something as a state, the housing market will really suffer."
Citizens Property Insurance Corp., the state-backed insurer of last resort, is seeking two increases: one that raises rates to keep Citizens' premiums higher than what's charged by private companies, which is required by state law, and a second that raises rates to make them high enough to cover the amount of risk the company has in certain areas.
Citizens is seeking increases as high as 22.2 percent for nonhurricane premiums and 32.2 percent for wind-only premiums in Broward County. In Palm Beach County, nonhurricane premiums could jump as much as 14.3 percent while wind-only premiums could increase as much as 21.6 percent.
The second phase of the company's rate request calls for wind-only premiums to rise as much as 67 percent in Broward and 52 percent in Palm Beach County.
State Farm Florida is raising premiums by as much as 40 percent in some parts of Broward and 35 percent in some parts of Palm Beach County. Nationwide Insurance of Florida's rate increase calls for average increases of 19.1 percent in Broward and 24.1 percent in Palm Beach County for single-family homes, while condo owners will see average increases of 18 percent in Broward and 14.2 percent in Palm Beach County.
State Farm and Nationwide generally don't write new policies here. Still, the impact on existing policyholders could be huge.
"There are plenty of people who already stretched to buy the home they are in," said Kiku Martinson, director of real estate for Campbell & Rosemurgy in Deerfield Beach. "If you start playing with those numbers a little bit, I could see it being a problem."
The fallout could be plenty of distressed sales, with financially strapped homeowners selling their properties and renting or moving out of the area because they no longer can meet the monthly mortgage payments, said Ramon Rasco, chairman of Miami-based U.S. Century Bank.
"More and more people are having to get their insurance from the state," added William Stander, the Tallahassee-based regional manager for the Property Casualty Insurers Association of America. "I can't see how that wouldn't affect real estate at some point."
Higher insurance rates soon could mean fewer people being able to afford to live in areas insurers deem high-risk.
"What you could wind up with is simply wealthier people moving to Florida who can afford to build these stronger structures," said Robert Hartwig, chief economist for the Insurance Information Institute.
Martinson, the Deerfield Beach agent, said many people, particularly first-time buyers, worry about insurance only after they've decided on a property. She tells her clients to start shopping around while they're looking at several different homes because insurance could be a deciding factor in what they buy.
Buyers also should consider homes that have new roofs, shutters and other hurricane-proof features because those properties generally can get less-expensive coverage, experts say.
Donn Roebke, an agent for Illustrated Properties in Wellington, tells buyers they should be prepared to pay at least $2,000 for insurance, no matter the property. Rodney Dillard, vice president of Illustrated, said the rising insurance rates and other costs have some people opting for the Bahamas and Caribbean, where it's generally less expensive to maintain houses.
"It's becoming an increasing concern," Dillard said. "It constantly comes up in the conversation. Before, people wouldn't even ask about taxes and insurance, but now they're quite put off by the total amount."
Marc Tanner, 40, who lives in a seven-bedroom house in Parkland, said he paid $4,000 for insurance four years ago. He just got a bill for $8,500 and was told he soon could be paying close to $12,000.
"That's a thousand a month just for insurance -- before I'm even paying for my house!" said Tanner, who owns a gift shop.
Tanner said moving to a new house within the area is difficult because his property taxes would increase substantially. But staying in the same house isn't attractive, either, because of the rising insurance rates.
A friend of Tanner's who lives in Atlanta pays $700 a year for insurance on a $350,000 house. If not for his business and extended family here, Tanner said he probably would move away.
"We'd probably be going to Arizona or New Mexico," he said.
Jeff Siskind, a West Palm Beach real estate lawyer, said many people buy a house based on their monthly payment at the time. But that's not proving to be such a good idea because of the budget-breaking insurance costs.
"I think everybody should get a 100 percent raise," he said only half-kiddingly, "and that should solve all our problems."
Paul Owers can be reached at powers@sun-sentinel.com or 561-243-6529.
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