Florida, California insurance crisis is spreading. Is your state next?

An insurance crisis that has sent premiums skyrocketing and caused carriers to flee coastal states like Florida and California is spreading, and it is fundamentally changing the real estate market in states across the country.

“Not only is the cost higher than people anticipated, but just the inability to secure insurance at all makes deals fall through before they even happen,” said Bill Baldwin, owner of Boulevard Realty in Houston.

Increasingly, Baldwin said, he and other brokers are seeing insurance companies swoop in just as deals are about to close, making nearly impossible demands.

“A new roof, for roofs that are only seven years old, or 10 years old. They want trees cut down that are within 20 feet of the edge of the house. Oftentimes those trees are on the neighbor’s property,” he said.

“And when that can’t happen, you can’t get insurance, which causes the sale to fall through.”

A similar dynamic is playing out in commercial real estate, said Ross Markowitz, director of insurance risk management at AEW Capital Management, a global real estate investment advisory firm in Boston.

“We’re having to really educate our internal teams,” he said. “Don’t expect your buyers to be able to get the pricing of insurance that we have, so they’ll probably [want] to offer less for the deal.”

Mounting insurance losses

The new dynamic comes after several years of staggering losses for the insurance industry from natural disasters, including nearly $80 billion in insured losses last year alone, according to the Insurance Information Institute.

“It’s directly related to climate risk,” said Jeremy Porter, head of climate implications at the nonprofit First Street Foundation, which quantifies climate-related risks. He said that insurance companies are increasingly interested in the organization’s data.

“Insurance companies are responding to the fact that we’re seeing more frequent and more severe climate events, and the fact that they’re paying out more than they’re bringing in,” he said.

Leash Yu, managing director of personal lines at Higginbotham in Houston, said insurance carriers are scrambling to maintain their financial ratings and, in some cases, just to stay in business.

“There’s three things they can do. They can drastically increase rates, they can get rid of some of their risks, or they can severely limit the type of the new business that comes in,” he said. “And some carriers are doing all three.”

Hurricanes, wildfires and extreme premiums

The crisis showed up first in Florida, which has endured three major hurricanes in two years. Florida policyholders now pay nearly five times the national average, according to Insurify. With multiple carriers either leaving the state or going out of business, the state’s insurer of last resort — Citizens — has seen its policy count triple in four years, to nearly 1.2 million. Now,…