Self-insured Floridians 'taking an extreme risk'
With the average premium around $6,000, some Floridians are foregoing homeowners insurance in favor of self-insurance with their investments.
Homeowners insurance rates have risen across the U.S., and hard markets such as Florida, California, and Texas have been hit the hardest. The average annual premium for Florida homeowners is $6,000, compared to the national average of $1,700, notes Mark Friedlander, Director of Corporate Communications at the Insurance Information Institute (Triple-I). This steep hike has caused 15-20% of Floridians to resort to self-insurance.
Self-insurance is a gamble in which a homeowner uses their investments or savings to cover potential losses in lieu of purchasing a policy and paying monthly premiums. With the rise in severe weather events, self-insured homeowners could face devastating consequences after one or two major storms or hurricanes.
“Self-insuring is a very risky proposition and not realistic for most U.S. homeowners,” said Friedlander. “Thinking you can recover from a catastrophe like a hurricane, wildfire or tornado without property insurance is unrealistic for more than 99% of U.S. homeowners.”
A faulty plan
A Bankrate survey showed 56% of American adults can’t cover a $1,000 unexpected expense, let alone save to cover hundreds of thousands of dollars in losses after a hurricane or tornado. Self-insurance is a sort of luxury only some can afford, such as Florida retirees who paid for their homes in cash. (Homeowners with mortgages are legally required to carry homeowners insurance by their loan agreement.)
The idea of self-insurance is that individuals use the funds they would have spent on premiums to fortify their savings and investments and draw from these accounts if they have property damage, but that financial security is not guaranteed. Job loss, a new medical condition or surgery and other expenses can make it difficult to set aside enough money to cover self-insurance. Even with significant financial resources, repairing major property damage could exceed the amount available, depleting one’s savings and investments in one fell swoop.
“People who decide to self-insure rather think FEMA will bail them out,” said Friedlander. He notes there’s no guarantee your area will be designated a FEMA zone or that you’ll get the grant. Additionally, the typical payout for a FEMA grant is $7,500. He added, “You’re not going to be able to replace your home from a catastrophe with a FEMA grant.”
Another consideration with self-insurance is liability. If someone is injured on the property, the total cost of a liability lawsuit could be greater than the financial reserves set aside for self-insurance, leaving the homeowner responsible for the injuries and other damages.
“While nobody wants to pay more for insurance, you have to weigh the pros and the cons… there are no benefits to self-insuring,” said Friedlander. He recommends homeowners ask themselves, ‘Can I afford to repair or replace my home?’ ‘Twice?’ For all but the upper echelons of society, the answer is no.
Tips for lower premiums
Premiums are rising across the country, not just in Florida. Friedlander offers tips to help property owners handle these increased costs.
- Lower premiums without reducing coverage by increasing deductibles; homeowners pay more out of pocket, but the premium is significantly lower.
- Bundle home and auto insurance to save up to 25%, if possible.
- Install smart home devices to get an insurance discount.
- Earn safety system discounts by installing burglar alarms and other security measures.
“Your insurance agent is your best advocate for that [discounts],” said Friedlander. He also noted that many insureds are unaware they don’t have flood insurance because they think it falls under their hurricane coverage. “Four out of five Florida homeowners [are] without flood insurance, and Florida is the most prone state to flooding in the country.”
Homeowners insurance and flood insurance are necessary to cover losses after most catastrophes. With Florida being a high-risk state for hurricanes and severe storms, self-insurance is an “extreme risk,” said Friedlander.
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