Are Insurance Costs for Short-term Rentals Going to Surge in FL post Hurricane Helene

[Randy Buff]

As a resident of the Gulf Coast of Florida (Bradenton) we just witnessed the strength of Mother Nature with the most recent passing of Hurricane Helene in the Gulf. Even though we did not get a direct hit we encountered a storm surge that reached 5 to 8 feet in some area. I do a lot of business on the nearby barrier islands of Anna Maria and Longboat Key. Yesterday I toured Anna Maria to help a couple of my clients that experienced the effects of the surge. One lost a car and all his belongings in the lower level of his house. Another lost his primary residence plus his vacation rental and will be staying with me for the next month while he sorts out his home. As a former resident of both islands, I was shocked to see the damage firsthand and to also see all the homes that where I once lived having to dig out from the sand that came with the surge.

Coming back to my own home off the islands I could not help to think how this event is going to change our local area in the near-term. Most owners of short-term rentals on the islands and the nearby areas have been dealing with the triple whammy of a slowing economy effecting rental revenue this year, higher insurances and higher property taxes. A lot of people are losing money or operating at breaking even at the moment.

This hurricane has obviously affected the available supply of available units. With reduced supply this could have a positive affect on rental revenue this upcoming winter season for short-term rental owners of homes that were not negatively impacted by the storm. Long-term this will likely raise insurance rates for all owners, compounding on top of sky-high current insurance rates. Will this cause more short-term rental owners to sell out on top of the noticeable increase we have seen this year because of the triple whammy?

I have had several of my short-term owners go to a self-insure model (i.e. they only get liability insurance on paid for properties) in recent years. I asked why they would do that. One of my owners put it to me this way. He paid less than $500,000 for the property in the early 2010’s. Today the property is worth around $1.6M. Two years ago, his insurance was approximately $17,000 a year. A year ago, it increased to a little over $28,000. This year it went over $40,000. At that point he cancelled all insurance except for liability. He could not make a profit with that high of an insurance bill annually. He figured worse comes to worse he could sell the property for land value and still recoup more than he paid for the property. I wonder how many other property owners will be doing the same when they get notice of this year’s increase?

Do you think this storm will cause prices to finally decline in the once red hot short-term rental market in Florida?

[Trent Reeve]

why would this storm be any different than any of the previous storms? In my view, the only people that can self-insure are ones that bought a long time ago at low prices so that they can recoup some value if a tragedy hits. 

[Kumar R.]

@Randy Buff Insurance in FL is a 4 letter word show right now. Even before the Hurricane damages from Hurricane Ian, there were some legislative changes done in Tallahassee that drove most of the big insurance underwriters out of FL. Most of them now have some sister entity established so they can collect premiums and then file bankruptcy and leave when events occur. Since 2018, there has been a steady YoY raise. Compared to 2018, I am paying 6x the premiums on homes, on autos it's been more like 4x. 

I am pretty sure it will get worse. A few connections who frequent the state senate have said that there is work underway to get this under control. Good luck to us all!

I cannot imagine paying $40k in insurance every year, that's absurd!! 

[John Underwood]

I have been wondering this as well.

So many insurance companies have substantially increased their rates or quit insuring in FL altogether.

The increased Hurricane activity is just going to make this worse.

My next STR was going to be a beach house, but I am rethinking that. I will likely invest in other areas and just rent a beach house when I want to go, at least for now.

[Patricia Andriolo-Bull]

As Trent said, why would this storm be any different than previous storms?  I am in Marco Island and we had a 9' surge during Ian (my primary residence was at 11' so luckily, it did not get in my home).  Low lying homes were destroyed.  It was much worse in parts of Naples and definitely Fort Myers (they also go wind).  I just saw all my insurance policies come down for the first time (renewal last month) and my condo association is expecting a flat or decrease at renewal.  Marco was also hit my Irma which was even more destruction so the rates have been going up for a while.  I'm wondering if the insurers now have this new pattern of hurricanes built in?

On a separate note, I do believe in the short term, the reduced supply will help those that are not damaged.  I received 3 rentals since Saturday, all of which were previously in Sanibel or Anna Maria island and were cancelled because of Helene.  But I am also having a lot of booked guests concerned about their upcoming stays because of the two storms currently brewing.

I've thought of self-insuring but I've been able to find policies with good coverage that also cover the loss of income.  This is where self-insurance would not be adequate.  

It is Florida, and I think this is going to be what we should expect going forward.

[JD Martin]

I don't know, but your guy who is self insuring with those numbers is either stupid, nuts, or so filthy rich he doesn't care about taking losses. Insurance costs like that mean the majority of the value is in the building, not the land, so perhaps that $1.6 million property has a building value of $1.3 and land value of $300k. He could realize a million dollars of profit and he's going to risk that to save maybe $15-20k in annual insurance premiums?

[Chris Watson]

A majority of this hurricane's destruction was flooding (flood insurance claims) so do not expect wind insurance to jump so much.  As for insurance policies being $40k I expect it is a 2001 or older build.  I sold a beachfront home last year that was ICF constructed in 2000 with a metal roof on concrete pilings and the insurance went up triple what my larger 2019 stick built with shingle roof 6 lots down is.  The 2019 build would blow away/wash away in a storm way before the 2000 build but to the insurance company on paper the 2000 build was a higher risk.  Investing in Florida I look for 2003 or newer because of the build code changes the year before greatly reducing insurance costs.

[Andrew Steffens]

There is more that goes into it than just insurance losses.  There are insurers, re-insurers, as well as government policy etc etc that go into rates.  I think this is a wait and see.

On the management side we are obviously sold out now likely through end of the year, our traditional slow months.  If the islands can clean up quick I think we will continue business as usual.  If not it could be a slow peak season.  I guess we will see.