Florida Developers Face One-Two Punch of Insurance & Inflation
By Doug Sawyer
Home builders in Florida are facing a hard insurance market that could raise the overall cost of building projects.
Most commercial lines have experienced premium increases recently, but the commercial property market has seen some of the largest rate hikes. According to the Council of Insurance Agents & Brokers (CIAB), commercial property insurance rates were up 17.1% in the third quarter of 2023, whereas construction lines were up an average of 6.5%.
It’s important to note that some accounts are seeing much higher rates hikes. Yardi Matrix says premium hikes are especially steep in states with significant climate risks, particularly Texas and Florida. According to the Tampa Bay Times, property insurance rates are rising faster in Florida than in any other state.
Natural Disaster Losses and Inflation Are Largely to Blame
According to CIAB, survey respondents pointed to higher reinsurance rates, natural catastrophes, and inflation as reasons for rising commercial property insurance rates.
Fitch Ratings says the global reinsurance market reached a tipping point at the January 2023 renewals, when property and specialty lines entered a hard market. Property markets saw premium increases of 20% to 60%. Once again, regions with significant natural catastrophe exposures are seeing steeper-than-average premium hikes. Yardi Matrix says some reinsurers are pulling out of Florida, whereas others are staying but raising premiums by anywhere from 45% to 100%.
Natural disasters have been leading to larger losses. The National Oceanic and Atmospheric Administration (NOAA) says there have been 25 separate weather and climate disaster events with losses of at least $1 billion in 2023. The events include Hurricane Idalia, which hit Florida as a Category 4 storm in August 2023. This number is already a record, but, according to NBC News, extreme weather events in November and December could bring the count even higher.
At the same time, inflation, supply chain issues, and labor costs have made construction more expensive. This impacts the cost of construction projects as well as property claims and insurance. According to the National Association of Realtors, the average cost for materials to build a single-family home increased by 42% between 2018 and 2021.
Some Florida Developers Are Delaying Projects
Florida’s population is booming. According to the U.S. Census Bureau, Florida became the fastest-growing state in the country in 2022, when the population increased by 1.9%, reaching 22,244,823. A growing population creates more demand for housing.
However, according to The Real Deal, some Florida developers are delaying projects due to rising costs. Rising construction insurance premiums are only part of the problem – developers are also facing higher interest rates (which are making construction loans more expensive) and higher building material costs. The combination of these factors means projects are simply too expensive. As a result, many developers are focusing on zoning and site plan approvals but are holding off on construction.
WPTV says homes in Florida are taking longer and becoming more expensive to build. In addition to rising costs, developers are having a hard time finding skilled laborers. Houses that would have taken 12 months to complete before may now take 15 months – and the cost may be 20% higher.
How to Navigate the Current Situation
Rising construction and property insurance costs are impacting developers, contractors, and property owners. Everyone involved in a project needs to be aware of what’s happening and the possible impact.
• Delays are common. A project could face delays due to high costs or a lack of labor. Consider the possibility of delays when writing contracts and securing insurance coverage.
• Insurance is more expensive. Property insurance rates are rising across the board, but premium hikes are larger in Florida than the national average. Anticipate higher costs and build this into your plans. Also consider that you may need more time to secure adequate coverage.
• Rein in your risks. Building materials, worker training, and safety practices all play a critical role in construction risk management. Be ready to show insurers that you’re low risk.
Do you need help securing insurance for your project? Century Risk Advisors helps real estate owners and developers secure builder’s risk insurance and other coverage types to protect their investments.