Florida's commercial real estate sector's insurance woes continue in new year
Recent reforms, which are more for homeowners, are a step in the right direction, but it's not close to solving the crisis.
Florida’s property insurance landscape for commercial real estate is experiencing one of the most difficult periods in its history.
That’s according to Oscar Seikaly, CEO of NSI Insurance Group, who says there’s not enough capacity to absorb all of the business that needs to be insured.
“Insurance companies in the past, when you give them a building for $100 million to insure, they will insure it in three and a half minutes. They give you a rate and get it done,” Seikaly said. “Today, that same insurance company is saying we can only take $5 or $10 million out of the hundred million, and you have to find someone else to take the next $5 million or $10 million and then you have to find nine insurance companies to cover the rest just for one building.”
The outlook doesn’t look much better for the next six months.
“Nothing is going to change because nobody is entering the market. No insurance markets are knocking on the door saying, ‘We’re open for business in Florida.’ Nobody is doing that. Why? Because most insurance companies are at their maximum limit of insurance in Florida,” Seikaly said.
If buildings aren’t up to par quality-wise, or from a construction or age point of view, Seikaly said, it can be hard to get the $5 million in the first place, which is one of the reasons why the number of real estate transactions have gone down.
“Then they’re charging you for the $5 million almost the same as what they’d charge for the $100 million,” he said.
Some of the factors that have gotten the insurance landscape in Florida to this point are that, historically, consumers have underinsured their buildings, reinsurance costs are rising and the values of properties are changing.
“The underinsurance ace factor is the starting point, but the reinsurance is not catching up to the losses they’re incurring every year. No matter what they charge, the losses have been more than what they’re predicting, so then they have to go back and charge more,” he said.
As Seikaly sees it, insurance companies can get stuck in a cycle of raising prices, making a small profit, but having to raise them again because that profit is not enough. Insurance rates have gone up about 30%-40% a year for the past three years.
“They’re playing catch up,” he said.
What’s the solution?
Insurance reforms, which are more for homeowners, are a step in the right direction, but it’s not close to solving the crisis.
“It resolves the fraud part of the crisis … the defrauding of insurance companies and the defrauding of citizens. It cuts down on the fraudulent claims by people and lawyers that represent them,” Seikaly said.
Figuring out how to attract and open up the market to more insurance companies is the solution. However, according to Seikaly, unless there’s a way for them to make money, the problem will continue.
“We need to get our arms around global warming and the cost of that on the insurance market. We haven’t been able to predict it very well. Every year, we just increase rates,” he said. “Fires have been a surprise, flooding has been a surprise. Places that never flooded are flooding. All of these things are unpredictable, so the closer we get to predicting these events, the better we can price things and access what they should be.”
Seikaly also believes it’s important to use Citizens Insurance as the insurance company to serve Floridians rather than referring to it as the insurance company of last resort.
“It should just be permanent so that the Florida consumer, at least the homeowners, have a way of being insured at a reasonable premium,” he said. “Reinsurers are not going to insure a company like Citizens because 100% of their business is in Florida. The state would have to fund some of the deficiency in the reinsurance market for them to write more business, and for the reinsurers to allow them to write more business.”
Related: