The New Multifamily Worry: Will Your Insurance Company Go Under?

Florida had some good news-bad news after Hurricane Ian. While still a costly storm, domestic insurers say losses were less than originally expected. They have enough money to pay out of surpluses and reinsurance. But their reinsurance costs are going up, which means customers will ultimately be paying more in the future.

A way to pad profits? Probably not, given the evidence that’s been mounting in such states as Florida and Texas. Because that’s the other bit of backhanded “good” news out of Ian; the storm didn’t put even more P&C insurers out of business that have already faced insolvency.

Inflation, financing expenses, construction prices, labor costs—all going up. Now there’s an additional concern: insurance companies going down for the count.

Six separate insurance companies serving Florida went insolvent in 2022, and that was before Ian struck. One reason is the lack of capital sufficient to get the degree of reinsurance required by the state. Without reinsurance, an insurance company receives a poorer review from Demotech, which rates insurance companies’ strength for Fannie Mae and Freddie Mack. The agencies want A-rated insurance on projects.

Another major reason is lawsuits. According to the Insurance Information Institute , Florida accounts for 9% of homeowners’ insurance claims but 79% of homeowners’ insurance lawsuits. The financial burden won’t get isolated to the consumer side of a company that also does commercial.

Considerations become even trickier as companies may be licensed in multiple states. Florida-based FedNat Insurance and Weston Insurance were both ruled insolvent and ordered to liquidate by the Second Judicial Circuit Court of Leon County, Florida. Both had a Texas license and book of business. Now they don’t and their clients had to find other coverage.

The dynamics of insurance as a necessary multifamily expense is officially more complicated now. You could potentially lose a policy through no fault of your own, or even of your state, at the most inopportune time.

When planning projects or reviewing current holdings, all this becomes another issue to consider. Does your choice of insurer indirectly expose you to heightened climate change-related danger in a different state? Have you chosen carriers with the financial soundness necessary for good financing? Maybe you should consider locations that have some natural strengths, like relatively low exposure to the types of weather events that climate changes can exacerbate, or better costs of construction that might affect insurance rates.

On the latter part, of what multifamily markets are like, we have insight and are happy to talk to see how we can help you.