Self-Insuring In Florida. If You Can Afford To Do It, It's Likely Worth The Risk
Bottom Line: Earlier this week we learned 50,000 Florida homeowners would be dropped by their current home insurance carriers upon policy renewal. The three carriers shedding some of their Florida policies are Gulfstream Property and Casualty, Southern Fidelity and Universal Insurance. The problem for those carriers comes down to carrying too much risk within their portfolio of business. Insurance carriers must be able to prove they can pay out claims and must maintain specific standards to qualify for reinsurance which is required during times of emergencies. As storm related risks have risen higher than ever, with Florida considered the riskiest state for a natural disaster in the country, combined with record high home prices... It’s a recipe for potential problems. The kinds we haven’t seen since the end of the 04-05 hurricane cycle and the subsequent housing boom and bust of the Great Recession. Now thankfully conditions aren’t anywhere near as dire as in those days but still there’s reason for concerns. Fewer carriers mean fewer options which mean higher prices which were already happening. This might be a time for some who’ve paid off their house to consider weighing their options.
There's a reason Warren Buffet has always loved the insurance business. It doesn't get a lot better than getting paid money upfront that you can invest and benefit from with the potential that you'll never have to payout any proceeds to the person paying you the premiums. As a society we're often conditioned to accept the "insurance mindset". We're sold insurance on products that cost as little as a hundred or two hundred bucks. This just in. That will almost never work to your advantage.
I prefer to self-insure when and where you can. In other words, if you can afford the cost of a worst-case outcome from something that's insured, you probably shouldn't pay to insure it. Instead save and invest the money you'd pay in premiums to yourself (which is all the insurance company does anyway – they just reap the benefits rather than you) and create your own insurance fund that you reap the benefits of over time.
- The average American spends 12% of their gross earnings on insurance products
That means that the average household spends around $8,000 on insurance per year. Then consider for something like home insurance how much you’re paying for your policy, how much the deductible is and your history of claims. No doubt it’s a risk to self-insure and you need to be in a position to be able to afford to do it, however the value proposition, even in risky South Florida most often historically would be to your benefit. The average Florida policy is 32.5% higher than five years ago and prices are only heading higher. As major Florida insurers are rebalancing it might be food for thought for you to rethink the way you do things too.
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