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How the Landscape of Private Insurance Will Change in Florida

Earlier this year, on September 28, 2022, Hurricane Ian made landfall near Cayo Costa in southwestern Florida, wreaking havoc on the lives and property of residents. Hailed as the fifth-strongest hurricane on record to hit the U.S., the Category 4 storm left a trail of destruction in its wake, transforming beautiful little beach towns into what felt like a war zone.


According to experts, this catastrophic event could cause up to $70 billion in damage. It also looks like Hurricane Ian could result in the highest amount of privately incurred losses to insurance companies caused by any storm, except maybe Katrina. Many believe that the losses incurred may almost be on par with Katrina, making it one of the most expensive storms to hit the U.S. in terms of insured damages.


Citizens Property Insurance Corp, Florida’s stated-backed insurer, is anticipating more than 250,000 claims in the aftermath of this disaster. In fact, officials report that more than $207 million have already been paid out by insurance companies. These numbers are making many worries about the future of the entire insurance industry in Florida, which, in turn, could negatively impact the state’s housing market, a cornerstone of its economy. State leaders also expect the interest rates to increase significantly in the future.


We’ll be taking a look at whether insurance companies can survive the aftereffects of Hurricane Ian, how the private insurance landscape will change, and the impact this might have on Florida’s economy in the future.


The Future of Private Insurance Companies in Florida


There are two types of damage when we’re talking about the aftereffects of hurricanes—flood and wind damage. Most of the damage caused by flooding is covered by Federal programs, like the National Flood Insurance Program, and does not really affect private insurers as much.


On the other hand, the responsibility of covering wind damage falls on insurers. In the event of a powerful storm, like Hurricane Ian, which caused significant damage and destruction to property, it’s very clear that insurers are going to be overwhelmed by the sheer number of claims. This could have far-reaching consequences for the future of the entire insurance market in Florida, potentially resulting in a total upheaval of the entire state’s economy.


So, what now? Could Hurricane Ian be the storm that topples the entirety of Florida’s insurance market? To answer this question, you need to look at the history of the insurance market in the state and how it’s been set up.


The History of Florida’s Insurance Market


Back in August of 1992, when Hurricane Andrew hit Miami-Dade County, it destroyed tens and thousands of homes and caused billions of dollars in damage. In addition, the state’s insurance market found itself in a precarious situation—several private insurance carriers went bankrupt, and many insurers realized that there is an inherent level of risk in Florida. After all, the state has so much coastline, and it is subject to more hurricanes than any other state in the U.S.


As a result, the Florida insurance market began to shrink, and lawmakers had to step in to do damage control. They created an infrastructure that can act as a public backstop for private insurers; as a part of this initiative, they first created what we now know as Citizens Property Insurance Corp, a last-resort public insurance company that people can turn to if they can’t find private insurance. They also created the CAT fund, which also acts as a financial backstop for insurance companies. These two institutions together were meant to hold the state’s otherwise unstable insurance system together when the next storm occurred.


Lawmakers tried to find a quick fix to this problem because they understood that without the insurance industry, the real estate market would collapse.


Fortunately, even after Hurricane Andrew, a significant number of private insurers were still operating in Florida. Insurers realized that their current premiums did not bring in enough money to cover the full risk, but they also couldn’t increase the premium because that would make insurance unaffordable for most people.


So instead, they kept premiums low but invested heavily in reinsurance.


What Is Reinsurance?


Reinsurance is basically insurance for insurance companies. If you’re an insurance company located in Florida or anywhere else in the world and are worried about not having enough money to pay back all your claims when the time comes, you can rely on global reinsurance companies to have your back.


This worked wonders for both Florida’s insurance and real estate markets. Post-Hurricane Andrew, there was a massive boom in homebuilding along the state’s coast.


So, What Changed Post-Hurricane Ian?


Though Citizens and reinsurance succeeded in holding the insurance system together, they were more like slapping a band-aid on a serious injury instead of treating it. The overreliance on global reinsurance companies has made the Florida insurance market vulnerable, and if these companies decide that it’s not worth the risk, the current insurance system will collapse, and public-backed insurers might have to carry the burden, which comes with complications of its own.


Before we move on, it’s important to note that if the insurance market collapses, you also can’t get a mortgage, which, for most people, means they can’t buy a house. With Florida relying heavily on real estate, tourism, and construction for its economy, this could prove catastrophic.


What Now?


To protect Florida’s economy, policymakers need to ensure that reinsurance and insurance companies stay in the state. One way to do this is by making the state less litigious, making life easier for the insurance sector but harder for homeowners unhappy with their insurance providers.


Though lawmakers have been trying to pass bills to cut back on lawsuits, it hasn’t made much of a difference. If they fail, insurance might become unaffordable, which in turn means you can’t get mortgages. This will further result in property values going down, and fewer people will want to build homes in Florida, which means the state will lose revenue from property taxes and tourism—a real worst-case scenario.


Of course, this scenario will not come to pass immediately. In the next 12 months, after we get a clear picture of what the claims are like, how reinsurers are responding, and how fast Florida lawmakers are working to rectify things, we’ll know where Florida’s insurance market and the entire economy are heading.


If you’re looking for a public adjuster who specializes in home insurance claims brought on by natural disasters such as floods and storms in Florida, Santos Public Adjusters is ready to help you. Contact us today!

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