Florida’s property insurance market was distressed before Hurricane Ian appeared on the radar, with the state’s 6.2 million homeowners paying at least three times more than those elsewhere in the United States spend on coverage, according to the Insurance Information Institute.
After the massive, slow-moving storm punches its way through the state, analysts fear that property insurance claims could knock many of the 50 thinly capitalized carriers writing policies in Florida out of business, force more property owners to enroll in the state-backed “insurer of last resort,” and impose significant costs on taxpayers nationwide.
Those more than 1 million homes represent $258.3 billion in “replacement value,” which CoreLogic defines as “the cost to completely rebuild homes in these areas” and thus is “not a representation of expected damages” from Ian.
That analysis was based on forecasts at the time that projected Ian would come ashore in-or-around Tampa Bay, Florida, which hasn’t been hit by a major hurricane since 1921. Instead, Ian made landfall to the south in Charlotte Harbor, one of the least populated stretches of southwest Florida’s Gulf coast.
But while the region’s most-congested urban area dodged a face-first smash from hurricane winds, it won’t escape unscathed from storm surge and flooding—nor will a swath of Central Florida, Orlando, and Jacksonville, all of which forecasters say are in Ian’s bruising path.
“Many homes along Florida’s western coast are at risk of storm surge inundation regardless of where the storm makes landfall,” CoreLogic senior hazard scientist Tom Jeffery said in the report. “And even more homeowners will contend with heavy rainfall and hurricane-force winds [as the storm makes its way north across the state].”
The wreckage Ian leaves in its wake could include bankrupted property insurers and a significant boost in enrollment in Citizens Property Insurance Corp., the nonprofit “insurer of last resort” created by state lawmakers in 2002 to provide property insurance to homeowners who can’t secure property insurance policies from an ever-winnowing number of commercial providers.
Major corporate insurers, such as State Farm, Allstate, and Liberty Mutual, abandoned Florida because of hurricane losses, beginning in a trickle after 1992’s Hurricane Andrew and then en masse after a spate of 2004 to 2007 storms.
By 2012, Citizens’s policy count had swelled to 1.5 million, with the state backing $10 billion in property insurance policies. A “depopulation” initiative to transfer policies—and liability—to private property insurers whittled that count to 420,000 by late 2019.
But the stability was deceptive. Property insurance rates in Florida had increased by an average of 36 percent between 2013 and 2018, according to the Insurance Information Institute.
By 2019, after a decade without a landfall hurricane, they were set to skyrocket after 2017’s Hurricane Irma caused $17 billion in damage and 2018’s Hurricane Michael caused $12 billion in damage in Florida.
According to the Florida Office of Insurance Regulation (OIR), many of the approximately 100 thinly capitalized independent insurers still issuing policies in the state by 2019 wrote less than $2.5 million in premiums and were heavily reliant on the reinsurance market.
Reinsurance is defined as insurance coverage purchased by an insurance carrier but described by some as a type of gambling on who will or won’t get hit by a catastrophe. Insurers can purchase “reinsurance” through a global market of investors that includes Lloyd’s of London.
Because Florida law allows property insurance claims to be filed three years after an event, reinsurers citing “loss creep” from Irma and Michael were requesting carriers raise rates dramatically.
Between December 2019 and December 2020, 55 insurers raised rates by at least 10 percent by late 2021, according to the OIR, with some seeking rate increases as high as 25 percent and 45 percent in hearings before the state’s Public Service Commission.
Stresses fostered by hurricanes and rising sea levels not related to storms—daylight flooding and “king tides”—aren’t the only reason why property insurance rates are so high and commercial insurers disparage the state.
Florida’s insurance market is plagued by widespread litigation related to an “assignment of benefits” (AOB) law that lawmakers reformed in 2019 to dissuade roofing contractors and attorneys from filing damage claims on behalf of homeowners in a flood of lucrative lawsuits.
After a May special session of the Legislature, Florida Gov. Ron DeSantis signed another property insurance reform measure into law that dedicates $2 billion to a “reinsurance relief program” managed by Citizens Insurance, $150 million into a grant program for hurricane retrofitting, outlaws insurance companies from denying coverage to older roofs, and limits attorney fees on lawsuits.
Even without getting hit by a hurricane, the Insurance Information Institute estimated more than 100,000 property claim lawsuits would still be filed in Florida in 2022, accounting for 80 percent of the property claim lawsuits across the United States.
Critics say the 2019 and 2022 reforms will take years to produce results. The state continues to shed commercial insurers in a market in which they’ve lost more than $1 billion in each of the past two years—even without a hurricane.
After six property insurers doing business in Florida were declared insolvent in court proceedings this year—including FedNat Insurance Co., which had to cancel 56,000 policies—there were approximately 50 commercial insurers offering policies in the state in early August, according to the Insurance Information Institute.
Nearly 30 are on the OIR’s “Watch List,” and in July, the insurer rating company Demotech downgraded 17, meaning that their reinsurance rates would be even higher.
Since reducing enrollment to 420,000 in 2019, Citizens now has approximately 1.3 million policyholders and is near-certain to top its 2012 high of 1.5 million policyholders by year’s end.
The growing enrollment in the state-backed “insurer of last resort” is subsequently growing Florida’s liability exposure, especially through Citizens’s newly established “reinsurance relief program” that’s backed by the $16.2 billion Florida Hurricane Catastrophe Fund.
During a Sept. 26 press conference, DeSantis said commercial insurers and Citizens won’t be liable for most of Ian’s wreckage because flood damage isn’t covered under standard home insurance policies.
But 1.73 million of the 5 million properties enrolled in the National Flood Insurance Program (NFIP) are in Florida. The NFIP was created in 1968 by Congress to provide federally subsidized policies to landowners in flood-prone areas who couldn’t secure a policy otherwise.
“We are looking at a lot of flood claims,“ DeSantis said, noting that those claims would be filed with NFIP. ”I’m not saying there’s not going to be a lot of wind damage, I mean it’s a hurricane so you’re likely to see that.”
Former Florida Gov. Charlie Crist, a former Republican who’s now a Tampa Bay congressional representative and a Democrat running for governor against DeSantis in November, in a Sept. 27 video conference call with reporters declined to get into “Monday morning quarterbacking before Monday” regarding the governor’s hurricane preparation and response.
But then he appeared to do just that, chiding DeSantis for saying the NFIP would bear the brunt of Ian’s costs.
“That’s a wrong assessment on his part in terms of if he’s trying to shift blame to the federal government, instead of the responsibility of the state government, to have a better situation as it relates to homeowners insurance,” Crist said.
