For the next 90 days or so, Florida property owners are little more than sitting ducks, helpless to the whims of a merciless Mother Nature and the storms she’s capable of spooling up. And there’s nothing Governor Ron DeSantis or anyone else can do to fix the state’s property insurance crisis in time to make a difference.
In the realm of politics, the very notion of helplessness is abhorrent to elected officials and the voters who put them in office. We elect lawmakers to “take action,” to solve problems and overcome obstacles. Having passed a series of new reforms in the past year aimed at fixing the state’s precarious property insurance market, Florida’s elected leaders have essentially done all they can do—for the time being. But those fixes won’t deliver measurable relief in the near term. With the next scheduled legislative opportunity to course-correct the ship not coming until the spring of 2024, that means it’s now Mother Nature’s turn to make her move.
At this point, the ultimate factor that could bring property insurance relief to Florida is completely out of human hands. A major storm—or worse, multiple storms—hitting Florida in 2023 would not only cause untold property damage but could also trigger a cascading series of financial consequences with the potential to thrash Florida’s otherwise healthy economy. On the flip side, if the state dodges the proverbial bullet this year, experts say it will provide much-needed breathing room for everyone, and provide another shot at even more comprehensive reforms next year, particularly in the reinsurance market, which could stabilize premiums and even entice more insurance carriers to enter (or re-enter) the Florida market.
But don’t hold your breath. Florida residents – elected officials included – are now in a game of chance governed by atmospheric pressure and ocean temperatures – and the dice are loaded in favor of Mother Nature. What she decides to do in the coming months will set the course for Florida’s future – for better or worse – for years to come.
How did we get to the point where we’re literally helpless?
Actually, we’ve been here before. Florida’s Council of 100, a rotating group of 100 distinguished business leaders in existence since 1961, sounded a very similar-sounding alarm back in 2010. In fact, pretty much everything the Council of 100 warned about thirteen years ago, is still true today:
The Situation
We escaped the 2009 hurricane season, but Florida is still one storm away from severe financial risk. Consider, in a state with more than $2.1 trillion in property exposure…
- State-run Citizens Property Insurance Corporation (CPIC) has become Florida’s largest residential property insurer — an insurer that is more than $9 billion undercapitalized and which charges its 1 million policyholders rates that are not actuarially sound.
- Key financial rating agencies are watching Florida, looking to downgrade the ratings of insurance companies, as they recently have with State Farm and Allstate affiliates.
- As that happens, millions of homeowners may have insurance policies that do not qualify for their mortgages to be sold.
- Already owing nearly $5 billion to be repaid in hidden taxes, or insurance assessments, since 2005, Floridians might have to pay average annual hidden taxes of $1,440 or more for several years if a major storm or series of storms hit.
- Despite a 15% rate increase, State Farm, Florida’s largest private property insurer, has announced that it still must shed 125,000 of its 810,000 residential insurance policies statewide, just to stem its financial deterioration, and Florida’s Office of Insurance Regulation has acknowledged that there aren’t enough other private companies in Florida to appropriately fill the void.
- Additionally, Nationwide Insurance said in October that it is dropping 60,000 homeowners policies.
The bottom line — one major hurricane hit and Florida would still likely have to turn to the Federal government for assistance or face severe financial crisis.
If one didn’t know any better, the 13-year-old passages above could have been written this summer. The numbers have gotten bigger, but the problems remain the same. And it’s largely because we live on a geographic peninsula that juts out into the middle of the hurricane-prone Gulf of Mexico, Caribbean Sea, and Atlantic Ocean. Living in Florida during the annual hurricane season is a bit like standing on the end of a long dock in the middle of a lake during a thunderstorm, hoping we don’t get struck by lightning. It’s bound to happen, and it’s part of the price we pay for the other benefits of living in Florida. After all, there’s a lot of living to be done in between hurricanes, and many of us prefer to do it near the beach.
DeSantis may claim credit for the state’s better-than-average economy, but he didn’t sign sunshiny beaches into law. The fact of the matter is that the state has been going through a period of unprecedented population growth, fueling commercial and residential property development. Over the previous 20-year span, the Sunshine State leapfrogged New York and became the third most populous state in the nation. And here’s another factoid to chew on: Florida’s total real estate value is now estimated at $3.62 trillion, with a “T,” enough to rank second in the nation, ahead of both New York and Texas.
There’s a lot of money tied up in Florida real estate, much of it parked right on the vulnerable coast (looking at you, Miami), in the middle of the world’s busiest hurricane highway. So of course there are going to be consequences.
Is one storm really gonna knock us out?
It won’t help, that’s for sure. Experts say a very powerful storm delivering a direct hit on Tampa or Miami in the next few years will cause unprecedented economic damage that would completely drain Florida’s existing financial resources, forcing the state to rely heavily on the federal government for help. The biggest hit would come from the state’s own liabilities through Citizens Insurance.
Already swollen far beyond where it was ever intended, Citizens is sitting on a pile of high-risk properties, mostly concentrated along the Atlantic coast in South Florida.
“There’s no doubt that Citizens Insurance and the Florida taxpayers are at much greater risk today than they were just two years ago,” says Lisa Miller, a former deputy insurance commissioner for Florida, who now advises business clients on the complexities of Florida’s public policy landscape. “And if Citizens runs out of money to pay claims, as it did during the spate of 8 hurricanes during the 2004-2005 season, the rest of Florida’s policyholders across almost all insurance lines, including automobile & surplus lines, will pay a special assessment on top of their private market policy premium.”
You’ve been warned. Even if you don’t own a home, but you have auto insurance in Florida, expect to get socked with a higher insurance bill at some point in the future. And don’t take solace in Miller’s example of the 2004-2005 season and think we can survive a few hurricanes this year.
“If the catastrophe hits Tampa or Miami I fear the worst,” Miller says. “As I have often said, there won’t be enough money in our coffers to recover, and federal aid will be needed more than ever to cover the insurance claim shortfalls on top of what FEMA and other federal agencies will spend for their non-insurance assistance programs.”
In fairness, though, state officials haven’t been sitting on their hands. They’ve taken several steps in recent years – and aggressively so this year – to reduce frivolous claims and lawsuits against insurance companies, boost existing programs like My Safe Florida Home, aimed at hardening buildings up front to reduce repair costs on the back end, and they have addressed major concerns with Citizens Insurance, the nearly always insolvent state-backed albatross currently protecting 1.35 million policyholders at taxpayer expense.
In fact, Demotech, the rating agency that grades Florida insurance carriers, says that Florida’s reforms over the last two years have made a big difference. Just last year, Demotech angered insurers and state officials when they sent letters to sixteen property insurers doing business in the state warning they were facing a potential downgrade that could end up costing them – and policyholders – more money.
Despite the ire directed toward Demotech for the ill-timed letters, which came at the peak of the insurance crisis last year, Demotech wasn’t wrong – six companies ended up ceasing operations in Florida or declared insolvency in 2022.
But today, Demotech President and Co-Founder Joe Petrelli says that the legislative reforms are making a noticeable impact, and Demotech’s ratings reflect as much.
“The cumulative impact of the legislative changes of May, 2022, December, 2022, and March, 2023 sessions are transformational,” Petrelli says. “The impact will moderate future rate increases despite anticipated increases in reinsurance costs.”
But experts agree that the legislature can and should do more, particularly in the realm of reinsurance, which is what property insurers rely on to cover their own exposure in the event a hurricane wipes out too many of their insured properties for them to cover the replacement costs.
“Up to half of a homeowner’s insurance premium goes toward paying reinsurance,” Miller explained to The Capitolist. “While the legislature provided long-term relief, it did nothing in this year’s session to provide meaningful short-term rate relief.
While any new legislative efforts would take months, and the impact even longer, Miller wants to see lawmakers create a temporary fix that will bridge the gap between insurers and reinsurers, called the Florida Insurance Rate Reduction Mechanism (FIRRM).
She says FIRRM would provide a temporary, low-cost backup for insurance companies, similar to the existing Florida Hurricane Catastrophe Fund (Cat Fund) that would help stabilize the reinsurance market. The plan allows insurance companies to opt-in for coverage that only kicks-in for losses ranging from $500 million to $3 billion. Because FIRRM wouldn’t aim for profit, it could offer rates about half as expensive as those of private reinsurers, she explains, potentially saving Florida homeowners close to $2 billion a year on insurance costs.
Of course, even if lawmakers passed FIRRM yesterday, it would have little effect on the state’s immediate circumstances as we watch the weather and hope the worst stuff misses wide right.
If we get lucky, and the hurricane season is miraculously mild, Florida’s property insurance market may be okay in the near term. But as we’ve seen from decades-old news stories, Florida has always been, and always will always be an insurance market that is at the mercy of Mother Nature. In closing, we’ll leave you with this.
