TALLAHASSEE, Fla. — With early predictions of $50 billion in damage from Hurricane Ian, experts worry whether the state’s struggling property insurance system will become another casualty of the storm and lead to even higher premiums.
If it fails, the cost will be passed on to all Florida homeowners, not just those who suffered damage, because of assessments levied on them to cover the losses.
“We’re relying on a strategy of hope, and that hasn’t played out,” State Sen. Jeff Brandes, a Republican from Pinellas County who has tried to push for strict insurance and litigation reforms to rein in the spiraling costs.
The governor and Legislature need to seek out solutions quickly if they want to save the industry, Brandes said, suggesting a special session after the election.
“If I’m governor, maybe not this week but in the next couple of weeks, I’d fly in the brightest minds in the insurance field and figure out how to fix this problem,” he said.
Otherwise, rates will continue to go up another 30% to 40%, he said, as they have for the past few years.
“They will gut the middle class of Florida by property insurance rates,” he warned.
The Legislature has kicked the can down the road for years, he said, failing to pass restrictions to curb the lawsuits that have driven up the cost of insurance and forced companies out of business and the state.
Also, the state has allowed many insurance companies to enter the market without enough capital to cover catastrophic events, relying on unregulated, offshore reinsurance companies, which is insurance for insurance companies.
Reinsurance jacks up the cost of premiums further, with every other dollar spent on premiums going to it.
Compounding matters are the thousands of homeowners whose policies don’t cover the extensive flood damage caused by Hurricane Ian’s epic storm surge. They will have to rely on the limited assistance available through the Federal Emergency Management Agency.
Based on conversations with industry experts, Brandes estimates that Ian will generate $55 billion in property damage claims. That’s in line with national risk analysts. Fitch Ratings estimated the damage to run between $20 billion and $40 billion, while Artemis, an industry analyst company, puts the high end closer to $50 billion.
CoreLogic estimated that wind losses for residential and commercial properties in Florida are expected to be between $22 billion and $32 billion, while insured storm surge losses are expected to be an additional $6 billion to $15 billion.
Costliest since Andrew?
Hurricane Ian is the costliest storm in Florida since Hurricane Andrew in 1992 and “will forever change the real estate industry and city infrastructure. Insurers will go into bankruptcy, homeowners will be forced into delinquency and insurance will become less accessible in regions like Florida,” said Tom Larsen, an associate vice president at CoreLogic.
The industry has already lost $1 billion a year over the last three years – without any hurricanes to deal with. Since 2017, six companies have gone out of business and four others are in the process of liquidating, shedding hundreds of thousands of policyholders who then have to rush to find new insurance with ever-shrinking options available.
Some consumers “just simply aren’t able to find any insurance company that is willing to write them” a policy, Tasha Carter, Florida’s insurance consumer advocate, told the Washington Post.
Hundreds of thousands of those dumped homeowners wind up with the state-backed Citizens Property Insurance Company, which has seen its customers grow from 500,000 to over 1 million in just a couple of years.
Fitch said the “strain on Citizens and its continued growth adds to the vulnerability of the insurance market to the next catastrophic event.”
Citizens now accounts for 13% of the property insurance market and could balloon to 2 million customers before the Legislature finally fixes things, Brandes said.
Gov. Ron DeSantis was optimistic that Citizens could manage claims from the massive storm that destroyed Fort Myers Beach before barreling across the center of the state and exiting around Cape Canaveral into the Atlantic.
“They feel very strongly that they’re going to be able to handle this and still have pretty significant reserves,” DeSantis said at a recent news briefing, noting that the state’s catastrophic fund is flush with an extra $2 billion from the Legislature.
On Friday, the Office of Insurance Regulation reported close to $474 million in losses already reported.
“That $2 billion the Legislature added is long gone,” Brandes said. “The Legislature has to decide if it’s enough and will probably say no, and raise the assessment fees.”
OIR Commissioner David Altmaier has issued an emergency order prohibiting carriers from canceling or not renewing policies for the next two months.
“The order further protects policyholders by prohibiting a company from canceling or non-renewing a policy associated with a damaged home for 90 days after the home is repaired,” Carter said in a statement. “During a time when there is limited capacity and availability, these actions are vital to ensure consumers are able to maintain coverage through the remainder of hurricane season.”
Adding up the damage
Just before the storm hit, Citizens estimated that it will have to cover 100,000 to 150,000 claims between $1.9 billion and $3.7 billion in losses from wind damage. That comes to a wide range of anywhere from $13,000 to $37,000 a claim.
That doesn’t include damage below policyholders’ deductibles or the additional cost of litigation to resolve disputes. With the deductible and social factors considered, Citizens claims team estimates the total claims count to be around 225,000.
“We anticipate that with a $3.7 billion loss, we will be able to pay all claims without having to levy surcharges or assessments,” Citizens spokesman Michael Peltier said.
Citizens has $13.4 billion in claims-paying ability, he said. Of that, $6.8 billion in surplus, or money in the bank.
In the account for homeowners, Citizens would have to reach losses of $4.7 billion before it would begin to levy surcharges or assessments, he said.
In the commercial and coastal accounts, there is no surcharge indicated. Citizens wouldn’t have to levy surcharges on the Coastal Account unless it reaches $6.2 billion in losses, and wouldn’t levy surcharges on the commercial account until it exceeded $2 billion.
Citizens is planning to have updated numbers on Monday that may include surge figures, he added.
By comparison, Hurricane Irma in 2017 caused major damage to 48 counties declared eligible for federal disaster relief. Citizens processed 77,150 claims totaling nearly $2.4 billion for an average of about $31,700 per claim. It has 4,000 claims still pending being challenged in court.
Brandes said those estimates for Ian are low.
Citizens is responsible for about 10% of the market in the 17 counties included in FEMA’s major disaster declaration, so its share would be closer to $5 billion and closer to $7 billion to $10 billion when the cost of litigation is added, he said.
That is likely to wipe out Citizens’ surplus, Brandes said, leaving little to nothing left over for another storm.
Private insurers may fare better with their reinsurance, he said, but industry analysts have already forecast a glum outlook for those companies as well.
Plenum Investments, a Zurich-based reinsurance investment manager, said “initial estimates suggest an industry loss of approximately $50 billion, which would be almost twice the level reached by Hurricane Irma in 2017.”
Even if it doesn’t break the bank, Brandes said, “There is no pathway to profitability for the next three, four years, as they’ll be busy processing Ian claims. No investors will support that. I fully expect another half dozen companies will leave before the dust settles.”
