Hurricane season officially starts Thursday. But no matter how many storms hit Florida this year, the state's residents are already struggling as they try to get homeowners' insurance.
National insurers have very little presence in Florida. Big insurance companies dominate more than half the market in the rest of the country. But in Florida, State Farm has about 7% of the market, according to the Insurance Information Institute, an industry trade group. No other major insurer has as much as 2%.
Meanwhile, the regional and local insurers left to provide coverage are in bad shape. Just more than half of insurers based in Florida are on the state insurance regulator's watch list due to their financial health. Six were forced to liquidate last year, another one earlier this year. And to try to stay solvent, the remaining insurers are charging rates nearly four times as high as the national average. Homeowners in the state pay private insurers about $6,000 a year, compared to a national average of $1,700.
The insurance industry insists that the state's risk from hurricanes is only part of the problem, and points to a legal system it says promoted litigation abuse and excess claims.
"This is a man-made crisis," said Mark Friedlander, spokesperson for the Insurance Information Institute, who is based in Florida. The insurance industry pushed for and won a number of reforms meant to curb what it saw as abuse, but so far it hasn't changed the outlook for insurers, partly because of a flood of nearly 300,000 lawsuits the III said was filed just before the law took effect.
"That will muddy the marketplace for years to come," said Friedlander. "That volume of lawsuits will drive more of these regional companies out of business. The laws have changed. The market conditions have not changed. It's still a mess."
Florida's location and low elevation makes It particularly susceptible to hurricane damage. The Atlantic hurricane season is projected to be about normal this year, according to the National Oceanic and Atmospheric Administration, with a 30% chance of an above normal season, and a 30% chance of fewer hurricanes than normal.
Last year was a bad year. Hurricane Ian last fall caused $114 billion in inflation adjusted damage, according to NOAA, making it the most expensive storm to ever hit the state, and the third most expensive in US history after 2005's Katrina and 2017's Harvey.
But for the most part Florida has gotten off fairly easy in recent years, with no hurricanes making landfall in the state from 2019 through 2021.
Much of the damage caused by hurricanes comes in the form of flood damage, which is covered not by private insurers but by the National Flood Insurance Program, a federal agency. But wind damage to homes and roofs are covered under homeowners' insurance policies.
Trial lawyers push back
Trial lawyers dispute that frivolous or fraudulent lawsuits are the cause of the problem, blaming lack of proper regulation on the insurance industry by the state.
"We've seen reform after reform. Insurance companies have been allowed to plunder profits from the state in the form of excessive payouts to executives and sister companies and by shortchanging policyholders," said Stephen Cain, president elect of the trade group representing Florida trial lawyers. "The homeowner's insurance crisis is a regulatory failure. Had the market been properly regulated through the good years, when there were no hurricanes, the abusive and undercapitalized companies would not have been let loose on the homeowners of Florida while their executives plundered the profits."
Even Friedlander said it is possible that the new limits on lawsuits will leave some homeowners unable to collect on legitimate claims. But he said to the extent that happens, "it's because of the abuse that has gone on for so many years."
Citizens Property Insurance Corp.
The state does provide an alternative to the private sector — the 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.
The only way someone qualifies for insurance from Citizens is if the lowest quote they get from a private insurer is more than 20% greater than the Citizens' quote. Its average policy is far below the private market — about $3,700. But that's a statewide average.
In areas with high hurricane risks, such as the Atlantic coast in South Florida, the countywide averages for a Citizens' policy range from $5,100 to $6,800. Still, in those counties it has a dominant share of the market: about 42% in Miami-Dade and 30% in Broward just to the north, along with 36% in Monroe County, which includes the Florida Keys.
And with affordable insurance from private insurers becoming tougher and tougher to find, more and more Florida homeowners are turning to Citizens. It now has 1.3 million policies, about 16% of the market, and it's growing at a rate of about 3,000 policies a month. The number of policies is up nearly 50% from this time last year. And that itself poses a huge risk for the market.
The board of Citizens admits that the premiums it charges are not sufficient to cover the risk it has assumed. If one or more major hurricanes come ashore in South Florida's Atlantic Coast, it could quickly wipe out Citizens' reserves and force it to impose emergency assessments on not only its policyholders, but other insurance customers across the state. That could mean an additional 45% for current Citizens policyholders, according to III. Even those who don't have Citizens policies could be hit by a 2% assessment on all their insurance premiums, both home and car, if the financial setback is great enough.
Even without those assessments, Citizens is asking for a 14% rate increase to take effect later this year, which will be considered by Florida' insurance regulator next week. And other insurers are seeking steep increases as well.
A major reason is that reinsurance companies, the companies that insurance firms turn to in order to cover some of their risks, are hiking their premiums by 30% to 40%, according to Matthew Carletti, an insurance industry analyst for JMP Securities.
"If you are a reinsurer, you have lost money for the last five years," said Carletti. "They've had enough."
Carletti said that while Florida's recent legislation should help the market, it won't be enough to roll back premiums, especially with the concerns about rising risk caused by climate change and more powerful hurricanes to come. There's also the inflation driving up the cost to repair or rebuild homes, both from increased labor costs to higher prices for materials.
"The reforms at a minimum should result in less increases than would otherwise be the case in Florida," he said. "But prices and premium are going up across the country."
