Florida homeowners faced an expensive and difficult home insurance market before Hurricane Ian. A devastating storm is about to make things worse, even for those lucky enough to escape any harm.
For the better part of two decades, the nation’s major insurers have wanted as little as possible with Florida, at least when it comes to insuring homes.
This has left the market in the hands of small state insurers with limited resources. Six of these companies were declared insolvent this year, even before Ian. And homeowners in the state were already paying nearly triple the average for insurance — $4,231 per policy, compared with the U.S. average of $1,544, according to data from the Insurance Information Institute.
National insurers may be reluctant to compete for business in Florida because of the risks from hurricanes and tropical storms, said Matthew Carletti, an insurance industry analyst at JMP Securities.
“When was the last time you had a $30 trillion to $40 trillion loss in Illinois?” he said “Never”.
Climate change and increased vulnerability to storms are only part of the problem. The insurance industry also blames Florida’s “tort” laws, which it says encourage more lawsuits against insurers than in other states, for driving up costs.
“There were 116,000 property claims lawsuits in 2021. We’re on pace for 130,000 this year, even before Ian,” said spokesman Mark Friedlander III, who lives in Florida. “In other states you’ll only see a few hundred. In California, which is much larger, it had 3,500 last year.”
Florida’s trial lawyer trade group says the problem isn’t the number of lawsuits, but the lack of proper regulation. Rates have continued to rise as Florida’s legislature passed new restrictions on lawsuits, they say The state gives the industry choice about rates and the amount of coverage offered.
“Florida’s insurance commissioner, David Altameir, has issued handouts regarding rate increases and changes that minimize coverage for policyholders in order to protect the insurance industry’s profits,” said Amy Boggs, division chief of property insurance. Florida Trial Lawyers Association. “With Hurricane Ian facing Floridians, policyholders have a weaker and more difficult-to-use insurance product. This storm will reveal the true impact of shrinking insurance products in Florida.”
Florida’s largest home insurer is a state-owned company, Citizens Property Insurance Corp., which was founded in 2002 as a last-resort insurer for those who could not find coverage in the private market. In the last two years it has seen its number of policies more than double, to 1.1 million, which is 13% of the State market. The company’s market share is even higher in some large counties – 39% of policies in Miami-Dade and 36% in Monroe County, which includes the Florida Keys. Pinellas County, home to St. Petersburg, which was hit hard by Ian, has 27% of its policies with Citizens.
“That’s not what ‘insurance of last resort’ should be,” Carletti said.
State Farm covers just 8% of the Florida home insurance market, and no other major national insurer has more than 4%. That’s it Just a fraction of the state’s auto insurance market, where the top five national insurers issue about 75% of policies.
Citizens believes it has the resources to pay the expected claims for Ian’s damages. If those claims exceed its resources, the company can add assessments that could raise premiums for all of its customers, and then, if necessary, issue additional assessments to all insurance customers across the state.
But if other financial insurers established in the state also have trouble paying Ian’s claims, some may face insolvency. That’s a serious concern given the financial state of Florida’s industry.
“It doesn’t matter how big the storm is, it’s going to be a problem because they’re already on shaky ground,” Carletti said Wednesday, before Ian made landfall.
Homeowners whose insurers are deemed insolvent turn over their claims to the Florida Insurance Guaranty Association, which insures the claims in the same way the FDIC insures deposits in failed banks. But that could also raise the cost of insurance for customers across all other state insurers.
One way Florida homeowners are different from those in other states is that flood water damage is not covered by homeowners insurance. Such claims must be filed with the National Flood Insurance Program, a federal insurance program administered by FEMA.
Florida has far more homes covered by the NFIP than any other state — nearly two out of three policies written nationwide, III’s Friedlander said. But that only represents about 13% of Florida homes.
Most homeowners get flood insurance if they live in a designated flood plain and their mortgage lender requires it, so few residents get it if they don’t.
There is growing concern that Ian’s excessive rain and heavy storm surge could cause flooding in many areas that are not designated flood plains.