Understanding Florida’s Property Insurance Rate Calculation
Florida homeowners pay some of the highest property insurance rates in the country, but have you ever wondered how your premium is calculated? In Florida, the state uses a catastrophe model to determine insurance rates. This complex mathematical model incorporates historical disaster data to predict the risk associated with your home.
Dr. Shahid Hamid, a finance professor at Florida International University and member of the team that created the Florida Public Hurricane Loss Model, explains that the model surveys Florida’s housing stock to understand various combinations of house features. “What we did was basically we did a survey of the housing stock in Florida, and we basically figured out all the different combination of features houses have,” Hamid said.
The model considers several factors, including property location, construction materials, and past natural disasters, to calculate risks. It also accounts for inflation and reinsurance costs, which is backup coverage for insurers. “So, we have to have very accurate address… and then we map it to what information that we have about elevation. And that really becomes critical. And differentiating how floods affect different houses,” Hamid added.
While risk factor is just one component of property insurance calculation, insurance companies also consider the annual average for claims divided by the total value of assets they cover. Other expenses like underwriting, reserves, profit margin, and reinsurance costs are then added.
However, homeowners can lower their insurance prices through mitigation efforts. Home and mortgage expert Holden Lewis from NerdWallet suggests that improvements such as impact windows or a new roof can help reduce risks. “Just having a strong garage door, good window coverage” can make a difference, Lewis said. “Really the main thing, the main thing people can do is to have impact windows to make sure that roof is strapped down. If the house is probably less than 20 years old, you probably are pretty set on those things.”
The age and construction of your home also play a role in determining your risk factor. Older homes or those not built with resilient materials may face higher premiums. By understanding these factors and taking proactive steps to mitigate risks, Florida homeowners can potentially lower their property insurance costs.
