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Hurricane Ian blows more ill winds into Florida’s distressed property insurance market

By on September 28, 2022 0

Florida’s property insurance market was struggling before Hurricane Ian appeared on the radar, with the state’s 6.2 million homeowners paying at least three times more than those spent elsewhere in the United States. United for coverage, according to the Insurance Information Institute.

After the massive, slow-moving storm made its way through the state, analysts fear property insurance claims could bankrupt many of the 50 small-cap carriers writing policies in Florida, forcing more homeowners to enroll in the state-supported program. insurer of last resort”, and impose significant costs on taxpayers nationally.

CoreLogic, a California-based insurance data analytics firm, released a report Sept. 26 that estimated 1,044,412 single- and multi-family homes on Florida’s Gulf Coast were “at risk” if Ian made landfall in as a Category 4 hurricane, which it did on September 28 after reaching Category 5 earlier in the day.

These more than one million homes represent $258.3 billion in “replacement value”, which CoreLogic defines as “the cost of completely rebuilding homes in these areas” and is therefore “not a representation of expected damage. ” from Ian.

This analysis was based on forecasts at the time that Ian would make landfall in or around Tampa Bay, Florida, which has not been affected by a major hurricane since 1921. Instead, Ian made landfall south in Charlotte Harbor, one of the least populated stretches of Florida’s southwest Gulf Coast.

Disaster modeler Enki Research released a projection after Ian’s landfall that the hurricane would cause at least $54 billion in damage, about the same as 1992’s Hurricane Andrew, the seventh most recent U.S. disaster. most expensive since 1980, according to the Federal Emergency Management Agency (FEMA).

But while the region’s most congested urban area dodged the brunt of hurricane winds, it won’t escape storm surges and flooding unscathed – nor will parts of central Florida, Orlando and Jacksonville, which forecasters say are on Ian’s murder path.

“Many homes along Florida’s west coast are at risk of storm surge flooding, regardless of where the storm makes landfall,” said Tom Jeffery, principal risk scientist at CoreLogic. , in the report. “And even more homeowners will face heavy rain and hurricane-force winds [as the storm makes its way north across the state].”

The wreckage left by Ian in his wake could include bankrupt property insurers and a significant surge in enrollments at Citizens Property Insurance Corp., the nonprofit “insurer of last resort” created by state lawmakers. in 2002 to provide property insurance to homeowners who cannot secure property insurance policies from an ever-increasing number of commercial providers.

Major corporate insurers, such as State Farm, Allstate and Liberty Mutual, abandoned Florida due to hurricane losses, starting in a trickle after 1992’s Hurricane Andrew and then en masse after a series of storms from 2004 to 2007.

By 2012, the number of citizen policies had grown to 1.5 million, with the state supporting $10 billion in property insurance policies. A “depopulation” initiative to transfer policies – and liability – to private property insurers reduced that number to 420,000 by the end of 2019.

But the stability was deceiving. Florida property insurance rates increased an average of 36% between 2013 and 2018, according to the Insurance Information Institute.

In 2019, after a decade without a hurricane, they were expected to soar 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 roughly 100 small-cap independent insurers still issuing policies in the state in 2019 underwrote less than $2.5 million in premiums and were heavily dependent on the market for insurance. reinsurance.

Reinsurance is defined as insurance coverage underwritten by an insurance company but described by some as a type of betting on who will or will not be affected by a disaster. Insurers can purchase ‘reinsurance’ through a global investor market which includes Lloyd’s of London.

Because Florida law allows property insurance claims to be filed three years after an event, reinsurers citing Irma and Michael’s “loss slide” were asking insurers to dramatically raise rates.

Between December 2019 and December 2020, 55 insurers increased their rates by at least 10% by the end of 2021, according to the OIR, with some seeking rate increases of up to 25% and 45% during hearings before the State Civil Service Commission.

Stresses from hurricanes and sea level rise unrelated to storms (daytime flooding and “king tides”) are not the only reason property insurance rates are so high and commercial insurers denigrate the state.

Florida’s insurance market is plagued by litigation related to an “assignment of benefits” (AOB) law that lawmakers reformed in 2019 to deter roofing contractors and attorneys from filing claims for damages on behalf of the owners in a deluge of lucrative lawsuits.

After a May special session of the Legislature, Florida Governor Ron DeSantis signed another property insurance reform measure into law that commits $2 billion to a Reinsurance” run by Citizens Insurance, $150 million to a hurricane retrofit grant program, prohibits insurance companies from denying coverage to older roofs and limits attorney fees in lawsuits.

Even without being hit by a hurricane, the Insurance Information Institute estimated that more than 100,000 real estate claims lawsuits would still be filed in Florida in 2022, representing 80% of real estate claims lawsuits in the United States.

Critics say the 2019 and 2022 reforms will take years to produce results. The state continues to dump commercial insurers in a market where they have 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 legal proceedings this year, including FedNat Insurance Co., which had to cancel 56,000 policies, there were about 50 commercial insurers offering policies in the state in early August, according to Insurance Information. Institute.

Nearly 30 are on the OIR’s ‘watch list’ and in July insurer ratings firm Demotech downgraded 17, meaning their reinsurance rates would be even higher.

Since enrollment reduced to 420,000 in 2019, Citizens now has approximately 1.3 million policyholders and is almost certain to reach its 2012 peak of 1.5 million policyholders by the end of the year. .

The growing number of enrollments with the state-backed “insurer of last resort” subsequently increases Florida’s liability exposure, particularly through Florida’s new “reinsurance assistance program.” Citizens, backed by the $16.2 billion Florida Hurricane Catastrophe Fund.

At a Sept. 26 press conference, DeSantis said commercial insurers and citizens would not be responsible for most of Ian’s wreckage, as flood damage is not covered by the standard home insurance policies.

But 1.73 million of the 5 million properties registered with the National Flood Insurance Program (NFIP) are in Florida. The NFIP was created in 1968 by Congress to provide federally subsidized policies to property owners in flood-prone areas who could not otherwise obtain a policy.

“We are reviewing many flood claims,” DeSantis said, noting that those claims would be filed with the NFIP. “I’m not saying there won’t be a lot of wind damage, I mean it’s a hurricane so you’re likely to see it.”

Former Florida Gov. Charlie Crist, a former Republican who is now a Tampa Bay congressman and a Democratic gubernatorial candidate against DeSantis in November, in a Sept. 27 videoconference with reporters declined to comment. getting into “Monday Morning Quarterback Before Monday” regarding the governor’s hurricane preparedness and response.

But then he appeared to do just that, chastising DeSantis for saying the NFIP would bear the brunt of Ian’s costs.

“It’s a misjudgment on his part as to whether he’s trying to shift the responsibility onto the federal government, instead of the state government’s responsibility, to have a better situation with regard to the home insurance,” Crist said.


John Haughey has worked as a journalist since 1978 and has extensive experience in local government, state legislatures, growth and development. A graduate of the University of Wyoming, he is a Navy veteran who fought fires at sea during three deployments aboard the USS Constellation. He has reported for daily newspapers in California, Washington, Wyoming, New York and Florida; a writer for Manhattan-based trade publications.