Why Florida Homeowners Insurance is So Expensive

I know an insurance agent in Florida. Clients call him all the time to ask why homeowners insurance rates here are so expensive. And can they be lowered?

For example, this call is typical: "I had a house in Vermont that was insured for $400,000," the caller said. "But my insurance premium was only $975 per year. Now you tell me that to insure this home in Florida, it's going to cost over $2,000 a year and it's only insured for $250,000. Why is Florida homeowners insurance so expensive?"

Florida Homeowners Rates Are in the Wind

To we who have lived here for any length of time, it seems like a silly question. But we forget: Florida homeowners insurance is expensive. The question deserves an answer. It's simple geography, really. And a concept called "reinsurance."

Remember, Florida is surrounded on three sides by water. Storms start off the coast of Africa and barrel westward, right toward us, gaining strength on their way. And most people in Florida want to live near the beaches, if not directly on the water. Combine all these factors and you have a recipe for disastrous levels of damage from windstorms.

These windstorms can do billions of dollars in damage. As a result, your Florida homeowners insurance rate includes a big "wind insurance" factor that you will not find in your premium back in Vermont. Sometimes that part of your premium can be higher than the part that goes to protect against fires, thefts, and other losses.

Florida Homeowners Rates and Reinsurance

Here's the problem: the insurance premium you pay must provide enough money to pay claims, cover all administrative expenses, provide a profit to owners of the company and to purchase "reinsurance" to protect against catastrophic losses. Florida property insurance rates are higher due largely to the cost of buying this "reinsurance" against catastrophic losses.

What is reinsurance? It is insurance that insurance companies buy to transfer the risk of a large-scale catastrophe. If insurers in Florida did not buy reinsurance, they would have to charge rates that included the likelihood of billion-dollar losses to all their policyholders. And that would mean rates that would be unaffordable to most homeowners.

Sometimes people say, "Well, yeah, but we had tornadoes back in Kentucky." But a tornado is usually a relatively isolated event, inflicting intense damage on a very limited area. By contrast, Hurricane Andrew, in one day, caused more than $30 billion in damage. So while tornadoes usually are more deadly, the property damage seldom approaches those levels. Hence, even in tornado prone areas, the rates are usually less.

Can You Lower Your Florida Homeowners Insurance Rates?

You most likely can. There are specific steps your agent can take to cut your Florida homeowners insurance rates, sometimes by 50% or more.