Among about a dozen bills being considered by Florida’s state legislature to reduce the rising insurance burden is a proposal to change homeowners’ coverage options.
H.B. 809 and S.B. 1070 would require insurance companies to offer policies that cover only the unpaid principal on a mortgage, instead of the traditional replacement value of a home and the value of the land it sits on.
Proponents say that this would lead to lesser premiums in a state with the highest homeowners’ insurance in the country, but opponents worry that it could leave those devastated by hurricanes no money to rebuild or buy new.
The proposal was filed by Sen. Ileana Garcia, R-Miami, and State. Rep. Alina Garcia, R-Miami in December 2023.
It specifies that before such a policy is issued, the insurance company must obtain a signed statement from the insured indicating they consent to the following text: "You are electing to purchase coverage at a limit that is equal to only the unpaid principal balance of the mortgage loans on your home. Accordingly, in the event of the total loss of your home or a loss for which the cost to repair your home exceeds the unpaid balance on your mortgage loan, you will incur significant financial losses, including the potential loss of some of your home's equity."
Edge Home Finance mortgage broker Lazaro Toledo isn’t so sure that the proposed legislation will be a viable solution to the state’s insurance woes. He became a broker after working for Allstate Insurance, in one of the company’s top-performing offices in the country.
“Especially in Florida, where you have hurricanes or wildfires that can potentially destroy your house completely, I think it would put somebody in a bad position,” Toledo said. “They might be out of pocket $50,000, $100,000, $200,000…where now they can't rebuild that same house, so they're gonna have to downsize. And for some people, that's probably not an option.”
If the proposal moves forward, Toledo said, he probably wouldn’t recommend it to borrowers.
The majority of homeowners in Florida have Citizens Property Insurance, the state-run company created in 2022 as a last resort option for people who can’t get coverage on the private market.
“They for the most part insure anybody or any house,” said Toledo, adding that Citizens’ customer service is poor.
“I like helping people with the insurance connections that I have…just helping them establish those connections with somebody that could actually insure them,” he pointed out.
For loan originators trying to navigate this difficult landscape, Toledo encourages them to partner with a good insurance broker.
“I talk to at least five or six brokers regularly, and they kind of keep me up to date with certain things. So I think that's very important. Also just to help out with shopping around for the premium and the policies to see who can get the best deals because every client is different, every insurance company is different. So it kind of helps to have that big net.”
If a bank deems a homeowner’s policy insufficient, it can “force-place” a policy onto their mortgage. This protects the lender’s financial interest in the property, in case a calamity occurs. Force-placed insurance is typically more expensive. The question is whether lenders might put this into play with borrowers who opt for coverage based only on their unpaid principal – charging them more in the long run.
