The Sarasota Tiger Bay Club hosted a presentation on the “insurance crisis” today. I was a panelist along with a representative from State Farm agent and a spokesperson for Citizens Property Insurance Corporation. I always find these discussions with different perspectives interesting. The questions from the audience are informative regarding public perception.
Allocation of Benefits (AOB) was a big part of the discussion. It’s hard to argue with an agent that a $250 gift certificate just for one person to inspect a roof might signal a “feeding frenzy” of greed. It certainly did for a Florida legislature that subsequently eliminated many consumer protections.
Citizens̵7; representative, Christine Ashburn, was quite effective and shared a long-term perspective that led to the recent “insurance crisis.” She has been with Citizens for 18 years. She noted that prices also needed to increase by about 20% just to account for the increased construction costs and inflation.
My perspective is a bit longer and national. I told the audience that the causes of property insurance increases in Florida are complex, with many micro and macro issues.
The insurance industry, almost alone among major corporate industries, has been sounding the alarm about climate change and our need to do something about it since the 1990s. Major catastrophic natural disasters drive insurance prices. Wildfires, tornadoes, hail storms, ice storms, droughts, floods, and hurricanes are more severe and common worldwide. Construction costs have increased throughout the country. Investments in other forms of financing are more profitable with higher margins. These are macro issues that increase property insurance prices and the availability of insurance.
Florida’s rise in AOB and laws in Florida are micro issues. Florida lawmakers took a stick at the micro issues and provided the insurance industry with virtually everything they could ask for.
Florida real estate prices are not going to drop anytime soon. They are not expected to go down anywhere in the US due to macro issues and problems. I’m actually not so sure that prices in Florida will go down in the long term, although they definitely won’t go up as quickly.
I reminded the audience that it will be very profitable for new insurance companies in Florida. New companies will have very high rates and very little liability when they refuse to pay claims fully or fairly. I seriously joked that investors with an extra $10 million should consider starting a new property insurance company in Florida.
A lawyer in the audience asked if the Legislature was going too far in changing laws that have been on the books for over 100 years. Of course I agreed. But the insurance industry has thousands like Christine Ashburn with a multi-million dollar PR budget. My side (the policyholders with claims) lost, and that’s just the way it is.
A member of the audience asked about prices for condominium insurance. Unfortunately I had to tell her they don’t go down. In fact, condominium values will be under massive pressure as new laws require structural maintenance reserves to be fully funded. If properly maintained, long-term condominium interest rates may ease somewhat, but not in the short term. This is true for most coastal condominium structures throughout the United States.
I wish I had better news to tell the audience. My experience is that people want to hear the truth. Once people know where they stand, it’s often easier to figure out where they’re going and make a plan to get there.
Sorry for not getting a blog out a little earlier today. I appreciate all public and private comments from readers about posts this week.
Let’s all strive to make 2023 our best year ever!
Three things cannot be hidden for long: the sun, the moon and the truth.