Florida’s 125% Surge in Property-Insurance Bills Sows Havoc

Florida’s 125% Surge in Property-Insurance Bills Sows Havoc

(Bloomberg) — For Filicia Porter, insurance bills were the last straw. They had soared for his assisted living business as Florida was hit by increasingly powerful storms, and eventually the numbers stopped adding up.

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So in March, she finally called it quits, closing the location near Palm Beach that she opened just two years ago. It came four months after the closure of an older location in Port St. Lucie, which opened in 2017. Together, they left about a dozen residents scrambling to find other housing.

“Every year we see an increase. Why pay more? said Porter, who launched The House of Cares to capitalize on the growing demand for senior care as baby boomers flocked to the Sunshine State. But now, with her premiums skyrocketing on top of all her other costs, she just couldn’t “keep burning out.”

Porter is just one small example of many in Florida, where two major generational forces are colliding: the consequences of climate change and the challenge of caring for an aging society. Attracted by the state’s warm climate and low taxes, baby boomers have been crowding into this retirement haven for years, leaving it with one of the oldest populations in the United States. That makes it a harbinger for other states, as the consequences of rising temperatures ripple through the economy in ways few imagined.

As Florida faces the threat of more powerful hurricanes, commercial property insurance costs rose last year at a rate nearly five times the national rate, according to credit rating company AM Best Co . Inc. This constitutes a slap in the face of what health care providers consider to be in fact a novelty – albeit little noticed. — a tax on an industry already struggling with a labor shortage, rising wages and rising supply costs.

The result? More and more nursing homes are closing every year, while others cannot repay their debts. At the same time, the costs of elderly care – at everything from independent living to 24-hour nursing care – are rising, threatening to become unaffordable for a growing number of retirees.

“We’re headed for a train wreck,” said Pilar Carvajal, founder and CEO of Innovation Senior Living, a Winter Park-based chain of retirement homes for 339 people. Carrier insurance costs have jumped at least 50% over the past five years. “We need help to solve this societal problem,” she said.

Although climate change has driven up commercial property insurance premiums nationwide, few places have been hit harder than Florida. Over the five-year period ending in 2023, costs jumped 125%. Last year, annual premiums climbed about 27 percent in the state — for the second year in a row — while nationally, the growth rate slowed to nearly 6 percent, from about 15 %, according to AM Best.

“We have many clients who can’t afford this coverage,” said Patrick McConachie, senior vice president at Marsh McLennan Agency in Tampa, which helps senior living operators negotiate insurance policies. . “In many cases in Florida recently, the operator will simply return the keys to the owner.”

Read more: A new financial crisis brews in uninsurable American homes

Palm Garden Healthcare closed its assisted living facility earlier this year due to skyrocketing costs, President and CEO Rob Greene said. The property insurance bill for its 14-site nursing home chain has more than doubled in two years to $2.2 million. And although Greene pays more to be insured, he said the $75 million in damage coverage is far less than the $200 million he needs.

So far, Palm Garden hasn’t suffered any major storm damage since it opened in the late 1980s, but “in June we get a little nervous,” Greene said.

“Feel the pinch”

From 2019 to 2023, damage from natural disasters like tropical cyclones and severe storms at least doubled to $200 billion compared to the previous 10 years, according to the National Centers for Environmental Information. This five-year tally includes Hurricane Ian, the third costliest hurricane in U.S. history.

The increase in claims has led some property insurers to close their doors, which has pushed up rates. But this year, seven new companies are expected to enter the market, according to Mark Friedlander, director of corporate communications at the Insurance Information Institute. And negotiations with reinsurers have gone well, which could mean flat or smaller premium increases this year, said Jack Walker, senior business manager at AssuredPartners, an Orlando-based insurer specializing in senior living communities.

However, until that happens, operators like Innovation and Palm Garden must find ways to pay the skyrocketing bills. Palm Garden seniors are eligible for Medicaid, but reimbursements are never enough, according to Greene. “We don’t have the luxury, like a McDonald’s, of being able to pass on costs,” he said.

For operators serving wealthier retirees who can raise and pass on the price, even those will at some point become “unaffordable,” said Margaret Johnson, senior director at Fitch Ratings.

“Residents are feeling the effects,” said Raoul Nowitz, managing director of SOLIC Capital Advisors, which specializes in restructuring distressed companies and investment banking. And operators are struggling to have enough cash to cover their debts, he added.

Although rising insurance costs are a major problem for all groups in Florida – from homeowners to hotels – they are particularly crippling for this industry. Fitch’s Johnson has a negative credit outlook on the sector.

The majority of first defaults on debt issued to Florida retirement communities since 2009 occurred after the pandemic — 21 of 34 — according to Municipal Market Analytics. The delinquency rate for seniors in Florida stands at 18 percent, more than double the national rate of nearly 8 percent, according to data compiled by Bloomberg.

Read more: More senior housing defaults as debt matures

Supply and demand

This pressure has led to the closure of dozens of facilities. In the five years ending in 2023, an average of 146 nursing homes or assisted living facilities closed their doors each year, according to data from the Florida Agency for Health Care Administration. During this period, 2022 saw the highest number of closures – coinciding with the arrival of Hurricane Ian and the end of federal pandemic aid.

Regular closures come as demand increases and prospects for new facilities dwindle. Florida is the nation’s second-fastest-growing state in population behind Texas, according to the U.S. Census Bureau, and ranks second among U.S. states for its seniors, with about 22 percent of people age 65 and older , compared to only 17% for the United States as a whole. .

New facilities must open at a faster pace to keep pace with population growth, said Lisa Washburn, director of credit at Municipal Market Analytics, adding that “construction has slowed significantly” across the United States. There needs to be some sort of government involvement to subsidize or facilitate construction, she said.

“In Florida, there may be no income tax,” but insurance is a tax, Washburn said.

Following Hurricane Ian, Carvajal had to install a new $200,000 roof on one of its six facilities to continue being insured.

“How do we make this work when things like property insurance are becoming so expensive and unpredictable?” ” she says. “Looking ahead, if things are going to get worse, I don’t know what we’re going to do.”

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