Florida & Gulf Coast Property Insurance: A Market in Crisis

For most of CRE history, property insurance was a small, stable operating-expense line -- easy to underwrite, rarely worth a second look. That stopped being true in Florida (and, to varying degrees, the broader Gulf Coast) starting around 2019. A well-documented private-insurance-market crisis has made insurance-expense growth its own underwriting stress variable on coastal deals, one that deserves the same explicit modeling attention as interest-rate risk or exit-cap-rate risk -- not a rounding error buried inside a general expense-growth assumption.

Between roughly 2019 and 2023, dozens of Florida domestic property insurers became insolvent, were downgraded, or pulled back sharply from coastal, condominium, and multifamily risk. As private capacity shrank, Citizens Property Insurance Corporation -- a state-created, statutorily-mandated insurer of last resort, not a private company -- grew into Florida's largest property insurer by policy count, a role it was never designed to play at that scale. Citizens runs ongoing depopulation (take-out) programs, incentivizing private carriers to assume blocks of its policies back out of the state pool as private capacity slowly returns.

A major identified driver was Assignment-of-Benefits (AOB) abuse: a property owner assigns their right to an insurance claim to a contractor or public adjuster, who then pursues the claim (and often litigation) on the owner's behalf. Widespread AOB litigation abuse -- inflated repair estimates, one-way attorney's fee exposure that made insurers settle rather than fight even weak claims -- became a major cost driver behind the carrier exodus.

The Florida legislature responded in two steps: SB 2-A, passed in a December 2022 special session, eliminated one-way attorney's fees and the assignment of benefits on property insurance claims; HB 837, passed in 2023, enacted broader tort reform. Both are widely credited with beginning to stabilize the market -- new carriers have entered and some rates have moderated -- though the market has not fully reverted to pre-2019 pricing.

The practical consequence for CRE underwriting is that property-insurance expense on Florida and Gulf Coast assets has, in many cases, grown far faster than rents -- compressing NOI, DSCR, and achievable leverage on coastal deals specifically. A sponsor or lender underwriting a coastal asset today should model insurance-expense growth as its own independent annual-escalation assumption, separate from the general operating-expense growth rate applied to the rest of the T12 -- rather than assuming one blended expense-growth number covers both a stable line item (like landscaping) and a genuinely volatile one (like windstorm coverage).

A 180-unit coastal Florida multifamily property carried $146,000 of annual property insurance in Year 1 -- roughly 4% of a $3,650,000 effective gross income, a minor line item. If insurance grows at 12% annually (a realistic stress assumption for Florida coastal risk in recent years) while the rest of operating expenses and rents grow at a more typical 3%, by Year 5 insurance reaches roughly $257,000 -- now competing with payroll and real estate taxes as one of the property's three largest expense lines, even though rental income grew only modestly over the same period. A sponsor who underwrote insurance at the same 3% growth rate as everything else would materially overstate Year-5 NOI and understate refinance-maturity DSCR risk.