JUST PLAIN TALK: Up, up and away – rising homeowner's premiums

Buz Livingston
Buz Livingston

On the first cut of John Prine's debut album, he laments that all his friends "turned out to be insurance salesmen"; Prine's lyrics rang a bell for me and probably for you, but some of the sharpest minds I've had the pleasure to know worked in the industry. Most likely, he was looking for some words that rhymed the best.

With insurance premiums rising sharply, Floridians aren't smiling when they open their premium notices. Rarely a day goes by I don't look at the Gulf; psst, it's not the ocean. More often than not, the view is spectacular. Unfortunately, the vista has peril. If not for a simple twist of fate, Hurricane Michael, a Cat 5 storm, hits Walton County and not Bay.

Over the last decade, more than a quarter-million people relocated to Florida, and COVID-19 cranked those numbers up. Working remotely from the beach is great until the bills come due. My crystal ball doesn't work all the time but expect higher homeowner's insurance premiums. With the population booming in a disaster-prone area, more claims are unavoidable.

The National Oceanic and Atmospheric Administration's historical storm tracks obliterates Florida. From 2006-2015, no named hurricanes hit Florida, the longest 10-year stretch in recorded history, so there was little pressure on prices. Unfortunately, many large national companies had bailed out of Florida after four storms hit the state in 2004. To replace them, smaller Florida-specific companies took their place, but many were forced to raise prices after Hurricane Irma raked Florida's eastern coast in 2017; they lacked the broad exposure more prominent companies have.

In the same, hurricane-free period, 2006-2015, interest rates tumbled. The low-interest-rate environment made catastrophe (CAT) bonds and derivatives enticing for yield-hungry investors, hedge funds, and pension funds. The additional money flowing into the reinsurance market helped drive down prices on CAT bonds.

In the reinsurance market, weaker prices, coupled with fewer claims, was a perfect storm for modest homeowner premium increases. But as catastrophic events worldwide increased, including but not limited to hurricanes, the stock market's vagaries looked less chilling, and investors pulled money out of CAT bonds. From their peak in 2018, alternative capital in the reinsurance market has dropped almost 10 percent.

Another factor affecting premiums is the number of companies offering policies has dropped even though the number of policies continues to rise. With rising premiums, lowering coverage may seem a viable option, but that's shortsighted. If a hurricane hits, it will be a colossal blunder.

Building costs in South Walton are already above the national average; after a storm, demand for supplies will increase. Qualified tradespeople will be in high demand and hard to find. Landlords have the flexibility to raise rates. Understand how homeowner's insurance works.

Storms on the eastern coast of Florida affect your premium in the Panhandle. Homeowner's insurance premiums will continue to rise; bet the ranch.

You can't always get what you want, but Buz Livingston, CFP, can help you figure out what you need. For specific advice, visit livingstonfinancial.net or drop by, masked, 2050 West County Highway 30A, M1 Suite 230.