Florida’s home insurance market was a mess before Ian. It’s about to get worse

Drone video shows catastrophic damage in Florida

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Florida homeowners were already facing an expensive and difficult market for home insurance before Hurricane Ian. The devastating storm is about to make things worse — even for those fortunate enough to escape any damage.

For the better part of two decades, the nation’s major insurers have wanted as little to do with Florida as possible, as least when it comes to insuring homes.

That has left the market in the hands of small, in-state insurers with limited resources. Six of those companies were declared insolvent this year, even before Ian. And homeowners in the state were already paying nearly triple the national average for insurance — $4,231 a year per policy, compared to a US 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 for JMP Securities.

“When was the last time you had a $30 billion to $40 billion loss in Illinois?” he said. “Never.”

Climate change and increased vulnerability to storms are only part of the issue. The insurance industry also blames Florida’s “tort” laws, which it says encourages far more lawsuits against insurers than in other states, for driving up costs.

“There were 116,000 property claim lawsuits in 2021. We’re on pace for 130,000 this year, even before Ian,” said Mark Friedlander, spokesperson for the III, who is based in Florida. “In other states you might see only a few hundred. California, which is much larger, had 3,500 last year.”

The trade group for Florida’s trial lawyers says the problem is not the number of lawsuits but a lack of proper regulation. Rates have continued to rise even as the Florida legislature passed new restrictions on lawsuits, and they claim that the state is letting the industry call the shots on rates and the amount of coverage offered.

“Florida’s Insurance Commissioner, David Altameir, has given them handouts in the form of rate increases and changes that slice coverage to the bare minimum for policyholders in the interest of preserving the insurance industry’s profits,” said Amy Boggs, head of the property insurance division of the Florida trial lawyer’s association. “With Hurricane Ian barreling down on Floridians, policyholders have a weaker and harder-to-use insurance product. This storm will expose the true effect of diminishing insurance products in Florida.”

State-owned insurer no longer a “last resort”

The largest home insurer in Florida is a state-run company, Citizens Property Insurance Corp., which was set up in 2002 as an insurer of last resort for those who couldn’t find coverage in the private market. It has seen its number of policies more than double in the last two years, to 1.1 million, or 13% of the state market. The company’s market share is even greater in some large counties – 39% of policies in Miami-Dade and 36% in Monroe County, which includes the Florida Keys. Pinellas County, home of St. Petersburg, which was hit hard by Ian, has 27% of its policies with Citizens.

“That’s not what ‘insurer of last resort’ is supposed to be,” said Carletti.

State Farm covers just 8% of Florida’s home insurance market, and no other major national insurer has more than 4%. That’s just a fraction of their share of the state’s car insurance market, where the top five national insurers issue about 75% of the policies.

Citizens says it believes it has the resources to pay the expected claims for damage from Ian. If those claims exceed its resources, the company can add assessments that could raise the premiums for all of its customers, and then, if necessary, place additional assessments on all insurance customers statewide.

But if the other financially strapped insurers based in the state also run into problems paying claims from Ian, some could tip into insolvency. That is a serious concern given the financial state of the industry in Florida.

“It doesn’t matter how big a storm it is, it will be an issue because they’re already on shaky ground,” Carletti said Wednesday, just before Ian came ashore.

Homeowners whose insurers are declared insolvent have their claims turned over to the Florida Insurance Guaranty Association, which backs claims the same way the FDIC insures deposits in failed banks. But that could also raise the cost of insurance for customers at all the other insurers in the state.

Flood damage not covered by homeowner policies

One way Florida homeowners are no different from those in other states is that damage from flood waters is not covered by homeowners’ insurance. Those claims must be filed with the National Flood Insurance Program, a federal insurer operated by FEMA.

Florida has far more homes covered by the NFIP than any other state — nearly two out of three such policies written nationwide, said the III’s Friedlander. But that still represents only about 13% of the homes in Florida.

Most homeowners get flood insurance only if they live in a designated flood plain and their mortgage lender requires it, so few residents get it unless they are required to do so.

There are growing concerns that the excessive rain and big storm surge from Ian could cause flooding in many areas that are not designated flood plains.

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