Home insurance woes have engulfed the Florida real estate market, and the 32963 barrier island is not immune.

Rapidly changing laws and underwriting regulations, skyrocketing premiums and problems getting coverage at any cost are making life stressful for home owners, buyers, and realtors.

But island agents are finding practical and psychological ways to adapt and get deals done despite an insurance market that “has gone bonkers,” in the words of Alex MacWilliam agent Shannon O’Leary.

“It is the elephant in everybody’s living room,” said Douglas Elliman broker associate Sally Daley, who has come up with an ingenious way to sell houses with older, uninsurable roofs that is totally transparent, maximizes the seller’s payout and give the buyer peace of mind.

“Insurance costs and availability are almost as important as the cost of the house nowadays,” said Berkshire Hathaway agent Chip Landers, who now starts every deal with a four-point inspection that looks at roofing, electrical, plumbing and HVAC to make sure there aren’t any insurance boobytraps.

“It isn’t the second thing you talk about with sellers or buyers. It is the first thing,” said Daley, whose own home insurance just went up $3,000 a year, even though she has a new roof and hasn’t made any claims.

There are two parts to the problem. First, hazard insurance, which protects homeowners from hurricanes, fire and other threats, is going up dramatically in price while simultaneously getting harder to secure.

Second, the impact of FEMA’s new Risk Rating 2.0 pricing for federal flood insurance is beginning to hit home on the barrier island, where the average cost of flood insurance is slated to increase 500 percent on average, according to FEMA’s projections, going up no more than 18 percent a year until premiums reflect the actual risk of loss from storm surge for homes located in our watery little world between the ocean and lagoon.

FEMA currently insures 3,003 homes in 32963 against flood damage. The average premium is $1,163, but according to FEMA’s new calculations, which now are based on house-by-house analysis instead of just a flood zone designation, the fair risk-based premium is $5,526.

Of the two, the increase in federal flood insurance premiums is a simpler problem. There is a sense of sticker shock now, when homeowners look ahead at how much more they will have to pay eventually, and island agents said some people are selling their winter homes here because the added expense doesn’t make sense.

But the increases will be phased in.

The hazard insurance market is much more chaotic, with insurance companies jacking rates up dramatically and unpredictably and dropping clients across the state by the tens of thousands, either because they are leaving Florida or don’t want the risk they see in the client’s house.

More than a dozen insurance companies have faced involuntary liquidation or pulled up stakes on their own and left the state in the past two years.

Those that remain have been losing money hand over fist, more than $1 billion each year in 2021 and 2022, according to an article published in April by bankrate.com.

“In a market such as this where carriers are losing money, they respond by raising rates, tightening underwriting criteria and reducing coverage, and all three of those tactics are being implemented very aggressively,” said David Collins, vice president of Tom Collins Insurance Agency on the barrier island.

“I have seen clients with homes on the island have their home insurance rates double at renewal – and that is on top of a 50 percent increase the year before – going from $7,000 to $11,500 to $23,000.”

Reducing coverage includes instituting roof amortization schedules wherein the insurance company will only pay part of the replacement cost if a roof is damaged, based on the roof’s age.

Tightening standards include refusing to insure homes with roofs older than 15 years, which Daley said has become the standard, regardless of the condition of the roof, and putting age limits on hot water heaters, air conditioners and other systems.

“If the hot water heater in a condo is older than 10 years, it is an automatic ‘no’ from the insurance company because a leak could damage condos below,” O’Leary told Vero Beach 32963. “Electrical panels are another thing that has come up recently. Apparently, there is a blacklisted set of panels that, if they are in the house, you can’t get insurance until it is swapped out.”

Problems getting and paying for hazard insurance hit people who need a mortgage especially hard. Banks won’t fund a home loan unless the house is insured – for obvious reasons – so a last-minute insurance hitch can collapse a deal, hurting buyer, seller and agent.

Which is why Landers, Daley, O’Leary and other proactive agents go into a new listing like Sherlock Holmes, looking for anything that might be rejected by an insurance company so problems can be dealt with well ahead of closing.

“Insurance companies used to allow a grace period of 30 days after closing to make required repairs, but most of them don’t do that anymore,” said O’Leary.

Home Insurance used to be more or less of an afterthought in a home sale. Buyers’ agents often simply recommended continuing with the home’s current insurer, calculating the expected cost based on what the seller was paying.

“That’s out the window now,” Landers said. “There is no sense asking what the current owner paid for insurance. It is irrelevant and misleading because it could easily double, going from $3,000 to $6,000 for the same house with the same carrier.”

Doubled insurance costs, especially if unexpected, can kill a deal in a number of ways. The buyer may simply walk away, because the higher cost makes the house less desirable or unattainable for them. Or the bank can reject the deal because they prequalified the buyer based on their income-to-debt ratio, determined in part by the expected insurance costs.

“There is so much change and uncertainty in our market, with different insurance companies, home inspectors, lenders and others, there isn’t a lot of consistency, and that can add to the stress of the transaction,” O’Leary said.

“Sometimes, I feel like Debbie Downer, because I am the one giving the client the bad news about things that make the house uninsurable. At the lower price ranges, people may not have the money to make required repairs and they are just stuck.

“At the same time, we see homes going under contract and then falling out once the buyers realize the actual cost of getting hazard and flood insurance. It can all be overwhelming sometimes.”

“It is immensely difficult,” said Collins. “We are talking to more clients on a daily basis about rates and other issues.”

The crisis has multiple causes. Global warming is causing more and bigger hurricanes, according to most scientists, at the same time as coastal property values here and around Florida have gone through the roof, adding to insurance companies’ exposure for replacement costs.

Forbes reported this month that “six of the 10 costliest storms in U.S. history have walloped the Sunshine State.”

“There are higher insured values along our coast than there has ever been, an unprecedented density of wealth and infrastructure,” said Collins.

“We are seeing $60 to $70 billion in losses in Fort Myers and if that storm had hit Tampa Bay, it might be triple that. At some point there is no more capacity to insure these astronomical values we are seeing. All the global reinsurance in the world cannot really continue to absorb the massive hurricanes hitting our coasts.”

In addition, by most accounts, there has been a major problem with insurance fraud, having to do with something called “assignment of benefits,” that allowed contractors and lawyers to sue insurance companies on homeowner’s behalf, and “one way legal fees,” that forced insurance companies to pay the expenses of the lawyers suing them.

“Florida accounts for only 9 percent of the country’s home insurance claims but 79 percent of its home insurance lawsuits, many of them fraudulent,” according to Bankrate.com.

Collins said state legislation that went into effect in December will help correct that problem but that “it isn’t going to make companies profitable overnight or lower anyone’s premiums right away.”

Despite all the difficulty, island agents are finding ways to get deals done.

AMAC’s O’Leary recently financed out of her own pocket electrical repairs needed to secure insurance and complete the sale of a client’s house.

Other agents are similarly looking for problems early, figuring out workarounds and brainstorming new strategies – like Daley’s method for successfully marketing homes even though they have old roofs.

“Rather than market the house with an old roof, which makes it worth less and reduces the pool of buyers, we find a roofer who will take a deposit and make a firm commitment and we market the house with a new roof,” Daley said.

“We coordinate with the roofer and as soon as the deal goes hard, they start on the roof and then closing takes place after it is complete. The final roofing bill goes to the closing agent and the roofer gets paid at the closing table from the seller’s proceeds.

“Yes, the seller’s check is reduced, but they were able to price the house higher and get more for it with a new roof – and the buyer doesn’t have to worry about roof repairs and an insurance company turning them down. It could literally be the reason a buyer chooses the property and signs the contract.”