125% Increase in Florida Property Insurance Bills Wreaks Havoc

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

Bloomberg’s Most Read

Then, in March, she finally decided to call it quits, closing the facility near Palm Beach that she opened just two years ago. It came four months after she closed a longtime location in Port St. Lucie that opened in 2017. Together, they left a dozen residents scrambling to find another place to live.

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

Porter is just one small example among many in Florida where two major generational forces are colliding: the impact of climate change and the challenge of caring for an aging society. Drawn by the state’s warm climate and low taxes, baby boomers have been flocking to the retiree paradise for years, leaving it with one of the oldest populations in the US. That’s making it a harbinger for other states, as the consequences of rising temperatures ripple through the economy in ways few imagined.

With Florida threatened by more powerful hurricanes, commercial property insurance costs last year rose at nearly five times the national pace, according to credit rating firm AM Best Co. — a tax on an industry that already faces labor shortages, rising wages and rising supply costs.

The result? More and more nursing homes close every year, while others default on debt payments. At the same time, the costs of elderly care – at every level, from independent living to 24-hour nursing – are rising, threatening to become unaffordable for a growing number of retirees.

“We’re heading toward a train wreck,” said Pilar Carvajal, founder and CEO of Innovation Senior Living, a Winter Park-based operator with 339 residents at its facilities that offers services including memory care and assisted living. Your insurance costs have increased by at least 50% in the last five years. “We need help to solve this social problem,” she said.

The story continues

While climate change has increased commercial property insurance premiums across the country, few places have been hit harder than Florida. In the five-year period ending in 2023, costs increased by 125%. Last year, annual premiums rose about 27% in the state — for the second year in a row — while nationally the growth rate slowed to nearly 6%, from about 15%, according to AM Best.

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

Read more: There’s a new financial crisis brewing in uninsurable homes in the US

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

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

‘Feeling the pinch’

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

The rise in claims has led some homeowners insurers to fold, driving 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 sales executive at AssuredPartners, an Orlando-based insurer specializing in senior housing.

However, until that happens, operators like Innovation and Palm Garden will have to find ways to pay the growing bills. Palm Garden seniors qualify for Medicaid, but the reimbursements are never enough, according to Greene. “We can’t afford to be a McDonald’s, to be able to pass on costs,” he said.

For carriers that serve wealthier retirees and can raise and pass on the price, even they will become “unaffordable” at some point, said Margaret Johnson, senior director at Fitch Ratings.

“Residents are feeling the pinch,” said Raoul Nowitz, senior managing director at SOLIC Capital Advisors, which specializes in restructuring distressed companies and investment banking. And operators are struggling to have enough cash flow to cover debt, he added.

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

When he talks to chief financial officers of Florida senior living communities, labor and property insurance costs are “at the top of the list of things that keep them up at night,” said Richard Scanlon, senior managing director at BC Ziegler and Company.

Most of the first debt payments issued to Florida retirement communities since 2009 occurred after the pandemic — 21 of 34 — according to Municipal Market Analytics. The default rate for seniors living in Florida is 18% — more than double the national rate of nearly 8%, according to data compiled by Bloomberg.

Read more: More defaults for seniors living as debt matures

Supply and demand

This tension has caused the closure of dozens of facilities. In the five years ending in 2023, an average of 146 nursing homes or assisted living facilities closed 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, along with the reduction in federal pandemic aid.

Constant closures occur as demand increases and prospects for new facilities diminish. Florida is the second-fastest growing state in the country based on population, behind only Texas, according to the US Census Bureau, and ranks second among US states in terms of seniors, at about 22% aged 65 and over, compared to just 17% for the entire US. .

New facilities have to open at a faster pace to keep up with demographic expansion, said Lisa Washburn, chief credit officer at Municipal Market Analytics, adding that “construction has slowed significantly” in the US. There needs to be some kind of government involvement to subsidize or facilitate construction, she said.

“In Florida you may not have an income tax,” but insurance is a tax, Washburn said.

After Hurricane Ian, Carvajal had to install a new $200,000 roof at one of his six facilities to remain insured.

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

(Adds comment to 18th paragraph and updates 7th paragraph with more details about Innovation in Senior Living.)

Bloomberg Businessweek Most Read

©2024 Bloomberg LP

Source