Thousands of policies across Florida are being canceled as inflation pushes the insurable value of property above the maximum allowed.
In 2019 Citizens Property Insurance Corporation, Florida’s government-run insurance company of last resort, revised rule 208, limiting a dwelling’s maximum insurable value to $700,000. The thinking then was that by limiting coverage A (the coverage applicable to the rebuild value of the property,) the risk to the State of Florida would be reduced and incentivize property owners to seek coverage in the private markets. The change was the right thing to do.
Three years ago, the vast majority of homes across our state were well below the $700,000 maximum. Today, as home construction inflation soars, many property owners are being canceled as rebuild values exceed the maximum allowed.
Additionally, agents are seeing underwriters at Citizens Insurance increase scrutiny of replacement cost estimators, the software used by agents to estimate a home’s insurable value. With hundreds of data inputs, most agents complete the estimator using property appraiser information and other data publically available. But even the software is not an exact science and leaves room for some interpretation. Selecting whether a home is economy, custom or semi-custom, the types and quality of amenities inside, the number of sides of the home and other factors can all make significant changes to the value estimate the software produces.
Now, it seems as though underwriters are erroring on the high side of just about any factor that could be open to opinion. This has caused many new policies to be raised after closing, increasing the original quote premium and in some cases pushing a property over the maximum allowed resulting in cancellation.
The agent would try to find alternative coverage in a normal market. But this market is far from normal. Carriers are fleeing the state, closing new business and implementing stringent underwriting guidelines. A shock to some, even Citizens has underwriting standards. For example, they require shingle roofs to have at least three years left. We have seen scenarios where a home inspector certifies a roof having three years of useful life. But if closing happens even a day after the inspection, the roof now has less than three years remaining because citizens uses the inspection date. The policy then cancels after closing and the new homeowner would immediately need a new roof or be left with no coverage.
The Florida market is failing and many erroneously believe they can rely on Citizens to pick them up. This is simply not the case.
If you find yourself in the position of being canceled by Citizens Insurance because the value of your home exceeds $700,000 and no other private carriers will write your policy, you will need to find an agent that works with a broker that sells Lloyds of London or other excess and surplus lines policies. Expect to have limited water damage coverage of $10,000 or none at all, possible exclusion for roof damage coverage, high deductibles, and other exclusions. Sadly, in some cases, there are no options available.
State leaders are aware of the issues and hopefully, they will pass much-needed reform so the private market can once again provide lower rates and better coverage to Floridians.