Rising Property Insurance Costs in South Florida: Unveiling the Multi-Factor Dynamics

Published: 06-15-23    Category: General CRE

MyEListings' markets and economics editor and creates content about global macro events and their impact on US commercial real estate.

a hurricane as seen from space

In recent years, the South Florida insurance market has experienced significant changes, with insurance companies leaving the market and premiums skyrocketing. While the all-too-easy bogeyman of "climate change" is often pointed to as the main culprit, a closer examination reveals that more actionable other factors are at play. Solely blaming climate change for the increase in premiums would be a vast oversimplification. This article delves into the multifaceted challenges faced by commercial insurance companies in South Florida, shedding light on the complexities behind rising premiums and the market dynamics affecting the region.

Hurricane Damage and Rising Premiums

One of the primary challenges faced by insurance companies in South Florida is the escalating cost of hurricane damage. Over the past decade, the region has witnessed an upsurge in the frequency clustering and intensity of hurricanes, resulting in substantial financial losses for insurance companies. Notable hurricanes like Irma (2017), Michael (2018), and Dorian (2019) have caused billions of dollars in property damage in the state, leading to substantial payouts by insurance providers. In order to recoup these losses and cover the high replacement costs, insurance companies have had no choice but to raise premiums significantly. Premium increases of 50% or more have become common, rendering insurance unaffordable for many businesses in the region and leading to some closures.

Beyond Climate Change - Other Contributing Factors

While climate change undeniably influences the severity of hurricanes, it is critical to recognize that multiple factors contribute to the current insurance market challenges in South Florida. Fraudulent claims and the rising cost of reinsurance, for instance, are significant factors that exacerbate the situation to a much greater extent than solely attributing it to climate change.

Insurance companies have been grappling with material increases in fraudulent claims, which strain their financial resources and result in additional costs. Moreover, the cost of reinsurance, the coverage that insurance companies purchase to safeguard against significant or catastrophic losses, has risen substantially for reasons mostly secular to reinsurance. Insurance providers are compelled to pass these increased costs on to their customers in the form of higher premiums to adequately cover property damage.

The Impact of Market Dynamics on Commercial Property Insurance Costs

Market competition is an important factor to consider when examining insurance premiums. Generally, a larger number of competitors in a market tend to drive down premiums due to increased competition. However, there are exceptions, such as when a few dominant companies monopolize the market, allowing them to charge higher premiums despite competition. In South Florida, the number of competitors has been decreasing in recent years due to multiple factors, including the recent spike in the cost of hurricane damage and industry consolidation. Consequently, premiums in the region have witnessed a consistent upward trend.

Understanding Different Types of Insurance and Covering Property

Business property insurance, which includes coverage for physical assets, personal property, tools and equipment, and commercial real estate, is vital to protect businesses from potential losses. However, the rising costs of insurance premiums impact both businesses and individuals. It is important to evaluate the type of insurance coverage needed for your specific property and assess the additional coverage required to adequately protect your assets. Factors such as replacement cost, property type, and the wide range of risks associated with the South Florida region should be considered when determining the appropriate coverage.

Addressing the Challenges

Recognizing the pressing need to stabilize the South Florida insurance market, the state of Florida has taken several countermeasures. These include establishing Citizens Property Insurance Corporation (Citizens), a state-run insurer of last resort for homeowners, which has now become the largest insurer of commercial property in the state. Legislative efforts have also been made to reduce litigation costs for insurers, including capson attorney fees and stricter regulations regarding policyholder lawsuits. Furthermore, the state government has provided financial assistance to insurers to support their financial stability and cover the cost of hurricane damage through loans and grants.

While these measures aim to address the declining number of insurers and mitigate the challenges faced by insurance companies in South Florida, their effectiveness remains uncertain. The market dynamics and complexities involved require ongoing evaluation and potential adjustments to ensure a sustainable insurance environment in the region.

Other Causal Factors More Actionable

The recent departure of insurance companies from the South Florida market and the subsequent increase in premiums cannot be solely or reasonably attributed to climate change. While the rising cost of hurricane damage undoubtedly plays a significant role, other factors such as fraudulent claims, the increasing cost of reinsurance, and the declining number of insurers contribute in actually measurable ways to the challenges faced by the insurance industry in the region, and are thus actionable. We simply do not and cannot control the climate, therefore any strategy beyond adaptation is likely a losing one.

Understanding the intricacies of the insurance market in South Florida requires a comprehensive analysis of multiple factors, including market competition, regulatory environment, and the unique risks associated with the region. Blaming climate change oversimplifies the complex web of challenges faced by insurance companies and the market dynamics at play while ignoring more actionable contributors. A nuanced approach that considers factors such as physical assets, replacement cost, property damage, business property insurance, and the costs associated with covering different types of property is therefore required.


While adapting to climate change remains critical in the long run, it is essential to recognize that a wide range of factors influences insurance premiums in South Florida, and we have far greater influence over them than we do earth`s climate. Regulatory reforms, industry collaboration, and government support are vital in stabilizing the market and ensuring the availability of affordable insurance coverage for businesses and homeowners. Additionally, efforts to attract more competitors to the market and foster healthy market competition should be explored to help lower commercial property insurance costs in the region.

As the South Florida insurance market continues to evolve, ongoing monitoring, research, and proactive industry measures will be necessary to strike a balance between risk management, affordability, and the sustainability of the insurance industry. By understanding and addressing the various factors at play, stakeholders can work toward creating a resilient insurance market that can withstand the challenges posed by multiple factors, including climate change, and ensure the long-term stability and viability of the insurance industry in South Florida.

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