A Florida Policy Project report urges policy reforms to stabilize the state’s property insurance market, threatened by hurricane risks, high premiums, and insurer exits, recommending infrastructure improvements, updated building codes, low-income grants, stress tests, and risk-adjusted rates.

A Florida Policy Project report published in April outlines policy recommendations to stabilize the market and protect homeowners as Florida’s property insurance market continues to face challenges exacerbated by hurricane risks and rising costs.

Since 2000, Florida has experienced 36 presidential disaster declarations and 57 billion-dollar disasters, with hurricanes inflicting extensive damage and significant economic losses. Hurricane Ian alone resulted in $65 billion in insured losses in 2022. These storms not only destroy properties but also disrupt businesses and deter tourists, costing the state billions. Concurrently, Florida’s insurance premiums rank among the highest in the nation, having surged by 16 percent from 2021 to 2022 and by 45 percent over the past five years. The market’s instability has been exacerbated by the departure of major insurers and the insolvency of ten companies since 2019, leaving the market dominated by smaller, less capitalized firms.

“These disasters impose widespread economic costs on households and businesses. They cause substantial property damage that must be repaired, as well as many non-property costs,” the report states. “Insurance is a critical tool to protect residents from such devastating financial losses. These disasters, however, also threaten standard insurance models, making insurance more expensive and, in the extreme, less available.”

Concurrently, Florida’s insurance premiums rank among the highest in the nation, having surged by 16 percent from 2021 to 2022 and by 45 percent over the past five years. The market’s instability has been exacerbated by the departure of major insurers and the insolvency of ten companies since 2019, leaving the market dominated by smaller, less capitalized firms.

“Florida’s market is once again unstable. This is due largely to growing climate risk and continued development in high-risk areas, as well as higher rebuilding costs from recent inflation and supply chain disruptions, all of which has driven up costs for insurers,” the report’s Executive Summary says. “Insurers have exited the state and those remaining have raised prices commensurate with the higher risk they face.”

To mitigate further market instabilities, the report advocates for investments in risk reduction. Key recommendations include enhancing infrastructure to withstand storms, updating building codes to incorporate resilient construction standards, providing grants to help low-income households fortify their homes, and educating builders on best practices.

The report also suggests unified stress tests to assess the combined impact of severe events on the state’s insurance programs: Citizens Property Insurance Corporation, the Florida Hurricane Catastrophe Fund (FHCF), and the Florida Insurance Guaranty Association (FIGA). According to findings, stress test implementation would provide a clearer picture of the state’s financial exposure and help mitigate potential vulnerabilities.

“Unfortunately, to date there is no unifying stress test that gives policymakers comprehensive data about the impact of extreme events or seasons on the entire property insurance system of
Florida,” reads the report. “A more holistic evaluation of financial risk to the state across the three programs is warranted along with a forward-looking analysis of potential assessment risk to consumers.”

For Citizens Property Insurance, Florida’s largest provider of policies, the report recommends adjusting rates to better reflect actual risks and continuing efforts to move policies back to the private market (Citizen’s has engaged in a depopulation program since last year). For FHCF, it suggests adjusting retention levels and recalibrating rates to ensure financial stability. Moreover, enhanced monitoring of insurers’ financial health and robust debt financing mechanisms are proposed for FIGA to prevent insolvencies and manage large-scale claims.

“Underscoring the other market problems is that the state’s three insurance programs — Citizens, FHCF and FIGA—are all managed financially independently, when their losses are indeed correlated. Thiis creates an unmanaged fiscal risk for the state, which would be unable to pay all claims if the three programs could not obtain.”