Long known as the most hurricane-prone state in the nation, Florida has achieved a new status that is heightening hurricane anxieties and threatening real estate values.
Florida has the worst property insurance market.
Four Florida insurance companies have declared bankruptcy since April, and others are canceling or not renewing their policies. Hundreds of thousands of people have been forced to buy property cover through the state-created insurer of last resort, Citizens Property Insurance Corp.
“Every day there’s another company that seems to go insolvent,” Citizens CEO Barry Gilway said at a recent town hall meeting.
The number of citizen policies recently surpassed one million for the first time since early 2014 and could reach nearly 2 million by the end of 2023, according to a Citizens projection.
Two years ago, Citizens insured a little more 510,000 properties in Florida.
Gilway called the growth policy “incomprehensible”.
Floridians now have the highest property insurance rates in the country, according to the industry-funded Insurance Information Institute. The average premium is $4,231, nearly triple the US average of $1,544.
“It’s reached a point where Floridians can’t find affordable coverage for their homes,” Institute spokesman Mark Friedlander said. “It will eventually catch up with our booming real estate market and drive down property values.”
Meanwhile, from October to June, nearly 160,000 Floridians ditched flood insurance policies they had purchased from the Federal Emergency Management Agency because it raised rates for some homeowners. . Flood insurance is separate from homeowners coverage.
The instability in the homeowners market is the result of a unique mix of circumstances, including costly litigation against insurers and the exposure of Florida insurance companies to storm damage in neighboring states.
Florida hasn’t seen a major hurricane since 2018. But since then, many Florida-based insurers have expanded to cover properties in Louisiana, which suffered tens of billions in losses from Hurricane Laura in 2020 and Hurricane Ida in 2021. Insurers have been hammered.
At the end of May, the Florida legislature met in special session to address the insurance crisis and it enacted two laws aimed at strengthening the finances of the industry in part by controlling the costs arising from lawsuits brought by policyholders contesting the settlement of claims.
But since then, three Florida insurers have gone bankrupt, affecting 170,000 policies, and others have announced they are pulling out of Florida – a process that involves not renewing policies when they expire. A fourth insurer, Avatar Property & Casualty Insurance Co., went bankrupt in April.
“The crisis continues to escalate because strong enough action has not been taken within the legislature,” Friedlander said.
Kyle Ulrich, president of the Florida Association of Insurance Agents, said the legislature had enacted “meaningful and consequential tort reform,” even though the changes would take years to help the insurance industry.
“Impacts don’t happen overnight,” Ulrich said.
In July, Citizens Insurance added 63,000 new policies – the biggest one-month increase since July 2006, when insurance companies were reeling from a series of hurricanes that devastated Florida in the past two previous years.
But more important than the number of Citizens policies is its financial exposure, measured by the total value of the property it insures.
While the number of properties insured by citizens has doubled since September 2020, the value of insured properties has nearly tripled from $133 billion to $360 billion, according to Citizen Records. Growth has been concentrated in hurricane-prone southeast Florida, which has some of the highest land values in the state.
“A major hurricane or series of hurricanes like Louisiana over the past few years could easily wipe out citizens’ reserves to pay claims,” Friedlander said.
The growth raises fears that citizens will use their little-understood authority to impose special assessments on every state insurance policy, except for medical and malpractice coverage, if money runs out for pay claims. Citizens can charge their own policyholders a charge equal to 45% of their premium.
“I don’t know how many of those millions of policyholders understand that. They could literally get a bill this year,” said Florida State University insurance expert Charles Nyce.
Citizens have only imposed assessments once since its inception in 2002. That happened after five major hurricanes hit Florida in 2004 and 2005.
Gilway, the CEO of Citizens, told a meeting in July that Citizens had $13.6 billion in reserves to pay insurance claims.
“Citizens are in a phenomenal financial situation, and we are prepared for whatever happens,” Gilway said.
At the same meeting, Projected Gilway that the number of citizen policies would increase to 1.2 million by the end of 2022 and 1.55 million by the end of 2023. The number of policies could reach 1.9 million by the end of 2023.
“The larger their political base, the less this [reserve] blankets,” Nyce said.
Nyce is also concerned that Citizens is not equipped to handle the hundreds of thousands of claims a major storm would generate.
“It would be difficult for citizens to properly serve the million policyholders they have,” Nyce said. “When they go from 400,000 policies to 1 million, can they afford it? It’s a very tough job market.
Although Florida lawmakers and Citizens officials want to rebuild the state’s insurance industry, they will need to overcome obstacles such as favorable Citizens’ insurance premiums.
State law prohibits citizens from raising its average fares more than 11% in one year.
Earlier this year, citizens demanded a 10.7% rate increase. But the Florida Office of Insurance Regulation approved an average increase of 7.4%.
At the same time, private sector insurers have benefited from price increases of 30 to 50%.
The result is that Citizens has become by far the largest property insurer in the state, and many of its policyholders pay far less than what they would pay an insurance company.
“Citizens sell insurance at a loss. There’s no better way to put it,” said Friedlander of the insurance institute.
Reduced rates have made it worse for insurance companies, said Ulrich of the Insurance Agents Group.
“Some companies would like to do business, but you just can’t do it when the citizen premium is 30-40% lower than what the voluntary market charges,” Ulrich said.
The state Legislature will likely consider raising the annual citizen rate cap when lawmakers meet for their regulatory session in March, Ulrich said, though he doubts they will take such a step.
“Now, with over a million voters assured in Citizens, there probably won’t be a desire to do that because of the number of voters that would be affected,” Ulrich said.
Even if private coverage becomes available, many Citizens policyholders would resist a return to the commercial market because Citizens says payments are guaranteed, Ulrich said.
“There’s going to be a lot of citizen policyholders who are going to say, ‘I don’t want to leave, I don’t have to leave,'” Ulrich said.