Florida weighs tying home insurance to unpaid mortgage balances

With Florida homeowners burdened by the highest property insurance costs in the country, the state legislature is considering a pair of bills aimed at reducing premiums by tying them to unpaid mortgage balances.

Insurance for a $300,000 home in the Sunshine State averages $9,213 per year — 421% higher than the national average cost for home insurance, according to Insurify data. Florida is the least affordable state for home insurance, the digital insurance agency recently reported.

Actions proposed by pair of bills

House Bill 809 and Senate Bill 1070 would require home insurance companies to offer policies with coverage limits that match the unpaid principal balance of the homeowner's mortgage on the property. The bills would also prevent insurers from including in policy coverage limits the value of land a home sits on.

If passed, the bills would empower the owner of a home with a replacement cost value of $300,000 and an unpaid mortgage balance of $175,000 to buy a policy with a dwelling coverage limit of $175,000. And if the land the home sits on is valued at $100,000, the insurer wouldn't be allowed to require the homeowner to buy a $275,000 limit to cover the mortgage and the land value.

Elevated risk to homeowners

"I think the obvious potential problem with this legislation would be the increased financial risk to homeowners," says Cassie Sheets, a data journalist with Insurify and author of the company's recent insurance industry report. "What if your $300,000 home is declared a total loss, but you only get $150,000 to pay off your mortgage? How will you pay to rebuild it? That's a lot of risk to take on just for the reward of a lower premium."

The House bill would require insurance policies to display a detailed warning in large type that homeowners could "incur significant financial losses" with mortgage-only coverage. But some homeowners might not fully understand the risks, which could lead them to sue insurers if their claims don't pay enough to cover their total losses.

Florida has just under 7% of all homeowners insurance claims in the country but accounts for 76% of all homeowners insurance lawsuits nationally, according to data from the National Association of Insurance Commissioners.

Premiums might not fall much

And there's no guarantee that this type of coverage would significantly reduce premiums for Florida homeowners, two experts told the Insurance Journal.

Dwelling coverage — which pays to repair or rebuild a home damaged by a covered loss — is only part of a standard home insurance policy. Homeowners insurance also typically covers:

Liability for homeowners if someone is injured on their propertyThe homeowner's personal property within the dwellingLoss of use if a covered loss forces a homeowner to live elsewhere until their home is repaired

Insurers may rely on premiums for those coverages to help cover property loss expenses, so homeowners could actually see increased costs for those parts of a home insurance policy.

Potential conflict with lender requirements

Both bills place requirements on insurance companies, but neither addresses the involvement of mortgage companies.

Generally, lenders require homeowners to purchase and maintain home insurance on a mortgaged property. Lenders may also have specific requirements for the types and amounts of insurance homeowners must buy.

For example, both Freddie Mac and Fannie Mae require dwelling coverage equivalent to a certain percentage of the home's replacement cost value (RCV).

Fannie Mae mandates coverage up to 100% of the RCV of improvements or the unpaid principal balance of the mortgage provided that sum isn't less than 80% of the RCV. Freddie Mac's limits are the higher of 80% of the RCV or the unpaid principal balance of the mortgage.

Homeowners with mortgages may find that they wouldn't be able to purchase the kind of policy proposed by the two bills.

What's next?

The Florida House heard a first reading of House Bill 809 on Jan. 9, 2024, after the bill moved quickly through committee reviews after its filing on Dec. 8, 2023. SB 1070 was introduced in the Senate on Jan. 9 as well.

Both bills will need to move through the legislative process of reviews, amendments, and votes before going to the governor for signature and becoming law.