Homeowners at RISK

Some people like to roll the dice. But if you're thinking of gambling on going "bare" on your property insurance, it may not be your luckiest move.

Going bare, another name for self-insuring, is a trend more and more homeowners are opting for to escape the mental stress and physical pain in the pocketbook caused by skyrocketing property insurance premiums.

A national survey published in June by the Insurance Information Institute and Munich Reinsurance America Inc., a global reinsurer, showed that about 12% of U.S. homeowners are now going bare.

"That is a big jump from several years ago 2016, where we had data that showed only 5%," said Mark Friedlander, communications director for the institute, a consumer education group funded by the insurance industry. "So it's more than doubled."

Florida has always been above the averages, he said. "While we didn't specifically break it down by state, based on the trend, our determination is that in Florida, we're seeing approximately 15% to 20% of homeowners go bare. So that means roughly one out of every five homeowners potentially is self-insuring. They don't have coverage. That's a disaster waiting to happen, because we saw what occurred with Hurricane Ian last year and how many homeowners didn't have adequate coverage and how difficult it's been for so many of those homeowners to recover.

Self-insuring means you are on your own, Friedlander said. It means you are going to use your own funds to cover what otherwise would be insured losses. "Could you afford to rebuild your home? Out of pocket, meaning out of your bank account, if it is severely damaged or destroyed by a natural disaster such as a hurricane, tornado or just other storm event? And most people can't. Nine out of 10 homeowners, probably even higher percentages than that, cannot do that."

"But at the same time, when you have the highest average cost of home insurance in the country, it's very understandable why people want to self-insure or go bare. Because it's just gotten too expensive. And they're willing to take the chance."

Homeowners in Florida are paying annual premiums that are three to four times higher than the national average, according to insurance experts.

The institute estimates an average Florida premium of $6,000 per year versus a national average of $1,700.

According to the Florida Office of Insurance Regulation's July 2023 Property Insurance Stability report, average insurance premiums for homes in Florida's 67 counties range from $1,651 in Sumter County to $7,584 in Monroe County.

But a few individual insurance premiums dwarf these averages. A Wall Street Journal story published Oct. 16 reported that a homeowner of a four-bedroom home in a historic area of West Palm beach received a new premium rate of $121,000 per year. The homeowner said it was 13 times what he had paid for insurance when he first moved to the home in 2019. He ended up finding another premium for $33,000. But he subsequently put the home up for sale for $3.5 million, according to the Journal story.

Florida ranks No. 1 in the country in homeowner's insurance dissatisfaction, according to a 2023 report by Clearsurance.com, a website that aggregates and analyzes customer reviews and ratings of insurance companies and policies.

Tasha Carter is the state's insurance consumer advocate, appointed by state's chief financial officer, but working independently from the Department of Financial Services

She gets many questions about property insurance, usually regarding high rates, being unable to get in touch with insurance companies, slow payment, no payment or underpayment on a claim.

"I'm very concerned about homeowners who are contemplating or already made the decision to go bare," she said. "It's difficult to adequately predict and prepare for unforeseen losses," she said. "Most consumers don't have the money for a catastrophic loss," although they may think they have, she said. "They need substantial capital." If there is a fire, flood, significant damage to your property, do you have enough? What about liability protection? She asked.

No mortgage is a must for going bare

The desire to go bare is one thing. But the reality is that the option is really open only to people who have paid off their mortgage. If you do have a mortgage, the mortgage company won't allow you to go bare. The insurance requirement is written into the terms and conditions of the agreement. The company needs to protect its investment.

A typical insurance policy covers your dwelling and other structures, your personal belongings, perils like fires, lightning strikes, hail damage, explosions, etc. Liability in case someone is injured on your property. Maybe alternative living expenses if damages force you out of your home.

Damages for windstorms are also covered in a standard policy. But not "named" storms, that is, tropical systems named by the National Hurricane Center. Think Ian, Idalia, Charley, Irma, Michael.

"That triggers a separate deductible," Friedlander said. It's called a windstorm deductible, also termed a hurricane deductible.

Can you get out of having a wind deductible if you have a mortgage? Yes, but only if the terms and the conditions of the mortgage do not require it.

"I haven't met a mortgage company yet that allows you to go bare on wind," said Alicia Rosier-Stevens, executive vice president of Rosier Insurance in Bonita Springs. She gets lots of questions from people considering going bare. "There are pluses and minuses to everything," she said. "I think it really comes down to each individual's financial status or financial well-being." Talk to your attorney or financial advisor, she said. "If somebody doesn't have a mortgage, it's an easier conversation."

Flood insurance is also separate from the standard policy. Do you have to have it? If you are in a flood plain designated by FEMA, it is required. Or the terms and conditions of your mortgage may also require it. If not, it's your decision. But it's advisable to have it, even if you're inland, because it can flood anywhere in Florida, Friedlander said.

"That is the biggest insurance gap we see today, not only in Florida, but in the country," he said. "About 18% of Floridians have flood insurance. That means 82% don't. So roughly one out of every five homes have flood insurance. That's a big gap." But in the U.S., only 4% of U.S. homeowners have flood insurance, he said.

"We saw many homeowners interviewed after Ian last year that had dropped their flood insurance," because it was just too expensive, he said. "Then they suffered a catastrophic flood loss from Ian. Your property insurance will not help you because you didn't have flood insurance."

Mike Garcilazo, owner of Sunshine Plumbing Services for about eight years, lives in North Fort Myers with his wife and two children. The insurance market is "crazy right now," he said.

He bought his house nine years ago for $200,000. During the COVID pandemic, the home more than doubled in worth. "Basically, we refinanced our home two years ago when interest rates were really, really low," he said.

Then he immediately began to double his payments on his mortgage to reduce the principal. "I am in a unique position to pay it off quick. I hope to pay it off in two years," Garcilazo said.

When Hurricane Ian hit, the home suffered roof damage, but he didn't have any flooding. Citizens Insurance eventually settled the claim and he got a new roof.

Now Citizens is dropping him in December as part of its plan to reduce the number of people covered. Citizens told him that they'll send him two other companies to choose from and he should pick one, or they will pick one for him. Citizens is now also requiring all policy owners to have flood insurance.

However, once Garcilazo pays off his house, he will probably just buy a basic insurance policy with coverage for the dwelling, contents and liability, "for peace of mind," he said.

He may opt for extra wind insurance to cover damage from hurricanes. However, he's been through hurricanes from Charley onward, so he's not really worried. He doesn't want to pay for flood insurance.

Garcilazo said he's lucky to have a business that produces funds and he has set aside money for retirement.

"It just struck me as ridiculous," to pay a huge amount of money for insurance and not really be protected, he said.

"I want to get out of the market completely."

Risk may be greater for some

What if you still have a mortgage, but you can no longer take the ratcheting up of your home insurance premiums? You throw up your hands in frustration and say, "The heck with it. Insurance is just too expensive so I'm dropping my policy."

Then one of two things will happen, Friedlander said. The mortgage company will contact you and say you violated the terms of the agreement and defaulted on the mortgage, so they're taking your house. Or, in most cases, they will place your insurance policy with a company of their choosing. It's called force placed insurance. Typically, it's a very high-cost policy with bare bones coverage, Friedlander said. "You're going to pay twice as much as you're paying if you went on your own and bought a policy. So you don't want to be in that scenario."

If you have a mortgage, you have to have property insurance, but you are not required to purchase flood insurance unless you are in a flood plain or if the terms of your mortgage require it. You may opt out of the additional wind coverage for hurricanes unless the mortgage requires it.

However, if you don't have a mortgage, it's a different scenario. You can opt out of insurance and roll the dice. That is called going bare. Ideally, you would have enough money in your bank account or investments to pay for your losses in case of a hurricane, flood, fire, liability or other damages that would ordinarily be covered by insurance. There are people who can do so and choose to go without.

But 48% of the non-buyers of homeowners insurance that responded to the institute's survey have annual household incomes of less than $40,000. While they may not have a mortgage, they are also on a fixed income.

That worries Doug Quinn, executive director of the American Policyholder Association, a nonprofit watchdog organization that promotes integrity, honesty and best practices in the property insurance industry.

This group will include some in the elderly population who bought their house for cash or paid off their mortgage, he said. Maybe they used retirement savings to do so. Seniors on retirement will go bare because they don't have $4,000 to $6,000 a year to pay for an insurance premium, he said. Many people who bought their property for cash own trailers and manufactured homes, who tend to have lower incomes, he said. "Lower income people aren't going to be able to afford those insurance rates."

"It's really tough. It's a gamble." But some people just don't have a choice, he said. "Again, it's put food on the table or pay this insurance premium. What are they going to do?"

Kevin McDonough of Palm Beach County does not have a mortgage and still has insurance, but that may not be for long. He's fed up with the market turmoil.

"We just seem to be in some mad, insane vortex with this whole thing," he said.

He is actively considering going bare.

McDonough and his wife, Debbie McDonough, formerly owned what he refers to as "the mansion," a more than 5,000-square-foot, "drop dead, beautiful home on two acres in Longwood," in Seminole County. The couple paid an average of $2,500 per year for their property insurance over 25 years. "My wife and I retired, cashed out big time at the top of an insane real estate market in April 2021," he said. They paid $90,000 cash for a four-bedroom, two bath mobile home in a 55-plus community in Lake Worth in Palm Beach County.

It took him 2½ months to find property insurance at $4,000 a year. In three years, the premium doubled to $8,000 a year.

"This is the definition of insanity," he said. The premiums would equal what he paid for the home in just a few years.

McDonough has an insurance agent who is trying to hook him up with Citizens Insurance, even though Citizens is top-heavy with customers and is moving clients to other insurers. But McDonough thinks he can get in. If so, he thinks he could get a policy for $3,200 per year.

"If I can't, I'm just going to fly naked on the whole thing."

His wife doesn't want him to.

"I'm probably in the same boat as a lot of people. Trying to figure out what to do next," he said.

He's also grateful to be in this position.

He's 66, and he and his wife don't have to live on a month-to-month basis, McDonough said. "What if we did?" He's thinking about those who are retired, on a fixed income, with no savings.

McDonough has hardened his home with new hurricane windows, added insulation, rebuilt one room and added other improvements. The home is 20 feet above sea level, he said. "I'm not worried about flooding. I'm more worried about wind." But if some disaster wipes him out, "I can pay for it," he said. He wouldn't be happy about it. But he could do it.

If he keeps insurance, the question becomes, "Why do I want to deplete my funds for something I'll never need?"

People are at a crossroads with these questions, he said. "I wish I had the answer."

"I do have great concern for anyone of very limited means on fixed incomes," McDonough said. For them, "I don't see how Florida is affordable or sustainable in the long term." ¦