The Alarming Changes in the Miami Home Insurance Market

Welcome to this podcast about the alarming changes in the Miami home insurance market. In this episode of the Better Decisions Podcast, I sit down with Lawyer Hugo Garcia. Hugo is a managing shareholder at Florida General Counsel who helps homeowners seeking advice on insurance coverage and defends homeowners in insurance claim litigations. This is one of our most requested and arguably most eye-opening podcasts yet.

 

Myself and Hugo discuss the changing Florida and Miami home insurance industry, future changes in premiums, and the impact of these changes on the real estate market going forward. You should know about these changes and expected premium hikes when looking for a South Florida property. At the end of this interview, Hugo gives away several tips for homeowners on how to better protect themselves.

 

 

CHAPTERS 00:00 Introduction 03:30 The Insurance Game is Changing | The Most Impactful Changes to Come 09:30 The Impact on the value of Real Estate 14:10 Natural Disasters and Increasing Premiums 18:50 The business of Insurance and Denied Claims 25:10 How will this affect the real estate market 29:25 Dry Lot vs. Waterfront Living 36:05 The Condo Market 42:10 Different Real Estate is Insured and Protected Differently 43:50 How to Protect yourself.

 

The Florida insurance industry is changing, and we expect impactful changes in home insurance policies and their premiums. The new premium for homes built in or before 2001 is one of the most impactful changes. If your property is built in or before 2001, your insurance company will probably triple your insurance premium. Investors who want to invest in the South Florida market should look at the Certificate of Occupancy (CO) from the property. The age of the property will help you determine whether this 300% increase will apply to your insurance premium. To get the certificate of occupancy, you can go to the property appraisals office or call us at 305.508.0899.

Many Miami homes were built before 2001. The working wealthy own a high number of these older luxury homes and this group will be affected by a 300% hike in insurance costs. Many of these older Miami homes are renovated, and (especially waterfront homes) already have a high insurance premium. The rising insurance costs make these properties harder to sell while owners have already invested in them. The only way to make these properties insurable or to lower the premium is to tear them down and construct a new home.

 

The local government is also encouraging buyers to construct brand-new homes. As we discussed in our last episode on home construction and remodeling, If you want to renovate in Miami Beach, you can only put in 50% of the home value before they force you to tear it down. Let’s say your home has a value of $500K. You can not spend more than $250K on renovating that home. In many cases, 50% of the home value is not enough to remodel a home. These regulations encourage the construction of new homes. If you tear down a property, they will most probably also require you to invest in the property’s foundation, which means elevating the ground underneath the house. This is all done with raising water levels in mind. It is in the city’s best interest to have more properties that comply with the latest construction and elevation standards.

 

These new policies will have cascading effects on the Miami real estate market. As mentioned before, there is a large amount of Miami homes that were built before 2001, and not all owners can carry the increasing costs. Some of these owners will need to start making a decision. You either need to sell and buy a newer home elsewhere or build a new home to avoid these rising yearly costs. The costs will never get lower, given the current climate crisis. The resale market for these properties will become increasingly challenging, and nobody wants today a premium for a property that will not give you a return.

 

The insurance companies run a business, something that many homeowners tend to forget. The investment into the policy is not a 100% guarantee you will ever see that money back. Another important question is whether that carrier will still be alive to cover you or for the claims to be processed. In case of a devastating hurricane, many companies might file for bankruptcy cause they don’t want to pay out all of these affected homeowners.

 

It also brings to question the luxury investment market. Will these rental properties still have skin in the game with such high insurance premiums? Some homeowners might prefer to not insure the property, but homeowners with a mortgage will not have a choice. This might be a game changer in the real estate industry.

 

As mentioned before, the insurance industry is a business that needs to make money. Where is all that money coming from? From you! As a result of the impact of hurricane Ian, there is a 20% to 30% increase in premiums for homeowners that use Citizens, known to be the last resort for homeowners as other insurance premiums have skyrocketed. While Ian did not hit Miami directly, homeowners in Miami will also receive that additional 20%/30% on their yearly bill.

 

Additionally, there are many minefields in the policies. Claims are not being accepted based on prior wear and tear (Eg: your roof was too old). There are so many exclusions in most policies or inclusions that might raise concerns. You should always read the small print and be well-represented.

 

Home insurance includes different coverages such as flood insurance, roof insurance, and homeowners insurance which covers wind, fire, theft, vandalism, and content insurance.

 

The premiums change depending on whether your property sits on a dry or waterfront lot. Dry lot homes out of the flood zone do not require flood insurance. The difference in insurance costs of being in the flood zone or outside of it can be as high as $20K to $75K. If you own a $5M home in the flood zone and have a mortgage, you are looking at a $20K to $50K difference in costs compared to being outside the flood zone. Of course, it also depends on the exact location and additional factors. In case premiums are going up, these differences will be even higher. This might increase the appeal of dry-lot homes. While many buyers prefer waterfront homes, the risks and insurance premiums are higher. Additionally, the codes are adapted all the time and are becoming more and more demanding.

 

Although newer homes are selling for a premium, you will save a lot of money and trouble when it comes to insuring them.

 

 

 

The new Miami condos are designed for functionality and insurance purposes. With rising sea levels and more frequent assessments, this is the only way to ensure HOA fees are kept within limits. 

 

With every tragedy (such as the Surfside condo collapse) or hurricane, there will be a reaction from the city and insurance companies. There will be more regulations, assessments, and requirements. Older buildings will likely start to suffer and might be harder to insure. The homeowners association will get more pressure to save money for special assessments and maintenance. 

 

If you apply for insurance, make sure you know about the exclusions or if there are caps on certain types of damages. Make sure you read the document very well or work with an experienced professional who can guide you and is not just there to get a quick commission. That professional should know what he is doing, the different clauses, and what is covered. In short, ensure they cannot get out of paying you in case of a disaster.

 

In addition, make sure you know the exact age of the home or the date of its certificate of occupancy. This is essential in knowing whether you are at risk of a steep increase in your premium.

 

Finally, look at the inspection report and share this report with an insurance professional. The question is whether the inspection results will make any difference to the insurance policy. You should make sure the inspection report does not have a finding that will get an insurance carrier to turn around and not pay you. Maybe the minor damage to the roof is easily fixed, but will this not affect your policy in the future?

 

Please know what you are paying! Do yourself a favor and do not pay top dollar for a policy that will leave you naked.

 

Condo buyers should check the HOA fees. In a condo the insurance is covered by the HOA fees. You want the lowest fees possible, but not so low that the building will not have reserves. Always ask whether any special assessments are coming up that might increase the HOA fees or puts the insurability of the condo into question. Also, ask when the condominium had its last inspection. Look at disclosed and undisclosed meeting minutes of the homeowners association. You need to know what is going on and how much money the association has in the reserves.

 

As you might have noticed, this is a tough subject and not the sexiest of topics. However, it is one of the most important dialogues to have right now. I advise you to work with a team of professionals that can guide you in making the right decision! As mentioned in my podcast, I am in this game for the long run and want to help you protect and grow your wealth. Contact me, and I will be glad to introduce you to Hugo. Together we can help you make a better decision.