Introduction
The Florida insurance market is in turmoil, and both real estate investors and homeowners are feeling the heat. From 2021 to 2023, the average insurance policy increased by 37%. At the same time,12 private market insurance carriers went bankrupt and were forced to pull out of the Florida market entirely. For many private market insurers, the profit model no longer makes sense for Florida due to the outsized risk of damage. This instability raises concerns not just about rising premiums, but also about whether insurers that still operate in the state can cover claims in the event of a catastrophic loss.
“The Florida Legislature, in so many areas of public policy, has no vision for where they want to go…they don’t have plans.”
-Former state Sen. Jeff Brandes, a St. Petersburg Republican who pushed for insurance reforms to the market before being term-limited out of office in 2022. He now runs the Florida Policy Project, a think tank.
The Growing Threat of Intensifying Storms
Florida’s increasing vulnerability to hurricanes is a major factor in this insurance crisis. 100-year-old storms are becoming more frequent, and hurricanes are increasing in intensity, reaching higher mph in a much shorter time, with storms accelerating from a category 1 to a category 4 or 5 faster than ever before.
- Hurricane Idalia in 2023: Grew from a category 1 storm at 75 mph to a category 5 with over 130 mph winds within 24 hours, making it the strongest storm Florida faced in over 125 years.
- Hurricane Ian in 2022: Ranked as the third-costliest weather disaster globally, this Category 5 hurricane highlighted the danger of escalating storms to the state.
- With experts predicting 4-7 major hurricanes (Category 3 or higher) for the 2024 season, Florida’s disproportionate exposure to hurricane risk is expected to worsen.
Experts are predicting at a 90% probability that 4-7 major hurricanes (winds of 111 mph or greater) will occur during the 2024 season, due to persistent above average atmospheric and oceanic conditions. Due to recent catastrophic events, combined with predictions from climate scientists, Florida’s disproportionate exposure to catastrophic damage will accelerate as severe hurricanes increase in intensity and frequency.
The State’s Response: Citizens Insurance and Its Risks
Citizens Property Insurance Corporation, Florida’s state-backed insurer of last resort, is absorbing more policies than ever. Direct premiums surged by 59% from 2022 to 2023. The state created the original programs known as Citizens today, as a direct response to Hurricane Andrew, a 100-year-old storm that occurred in 1992, to help keep private insurers in the market after the storm’s devastation. However, Citizens has expressed concern that it is not collecting sufficient revenue for the risk it is taking on. If a catastrophic storm hits, the program risks running into a deficit that could potentially trigger a massive financial crisis in the Florida real estate market.
Although a state backed reinsurance program and a guaranty association program exist to pay the claims of insolvent insurers from the admitted market (including Citizens), if any of these three-state program go into deficit, they would leverage the bond market to raise the cash needed as a last resort to pay claims and repay the debt through state assessments on property insurance policies.
The Danger of a Debt Clash
Florida’s insurance safety net includes a state-backed reinsurance program and a guaranty association. These programs aim to cover claims from insolvent insurers. However, if all three state programs (Citizens, the reinsurance fund, and the guaranty association) face deficits simultaneously, they might need to issue bonds to raise funds, which could lead to:
- Increased insurance costs due to post-storm assessments
- A potential reduction in investor interest in Florida
- Rising insurance costs in an already unaffordable market
- A financial shortfall in paying out claims
Temporary Fixes and Long-Term Challenges
In response to the crisis, Florida introduced a measure in 2023 that limited litigation costs for insurers. This move helped stabilize the market, with 18 of the top 22 private insurers reporting profits for the first time in seven years and 9 new insurers entering the market.
However, many of these new entrants are subsidiaries of larger national organizations operating on a higher-risk basis specifically for Florida, which drives up costs even further. This public policy initiative was a last stitch effort made in 1998 by the State of Florida to keep major national companies from pulling out of the market entirely. For example, New Orleans, a city that is below sea level and should have sky-high insurance rates, is covered by nationwide companies. The average policy in New Orleans is $2,800., which is a sharp contrast to the average policy in Florida.
The Path Forward: Policy Changes and Incentives
Some representatives have suggested reducing premiums for homeowners through tax incentives as a short-term solution, which only reinforces long-term risk for Florida’s economy. Addressing the insurance crisis requires both immediate and long-term solutions:
- Expanding the Florida Hurricane Catastrophe Fund (FHCF): Former state legislator Carl Zimmermann suggests increasing the FHCF’s size by increasing the assessment small percentage on every property policy sold. This expansion could reassure private insurers and encourage them to stay in the Florida market.
- Recalibrating Insurance Rates: Adjusting the FHCF’s reinsurance layer to reflect actual risk and recalibrate rates could make Florida more attractive to private insurers, lowering costs for homeowners.
- Climate Resiliency Incentive Programs: Programs like the My Safe Florida Home Program, which provides grants for home upgrades, could be expanded. In fact, the program was so popular that it ran out of funding only two weeks after it launched in the beginning of July 2024, indicating strong demand for such initiatives.
- Creating Opportunities for Adoption: Promoting the Fortified standard by the Insurance Institute for Business and Home Safety (IBHS) could enhance building resilience for new builds and re-roofs, which could directly reduce premiums rates. Builders and contractors could benefit from education opportunities to uphold IBHS standards during construction. Additionally, a risk-adjusted approach to land use, new building code upgrades, and grants that reduce building upgrades can further reinforce climate resiliency in commercial and residential buildings.
Conclusion: A Need for Resilience and Reform
Florida’s insurance market faces unprecedented challenges. Without significant policy changes and a focus on building climate resilience, the state risks further price increases and financial instability. We have the power to change public policy to create a more affordable and climate resilient future for Florida. In fact, many legislators agree that it’s necessary to change policy to stop the dramatic rise in insurance costs and to incentive owners to create climate resilient buildings. We possess the power to reinforce buildings for climate resiliency, build hurricane proof communities, and decrease the likelihood of future extreme catastrophes by reducing carbon emissions. Through expanding incentives, adjusting public policy, and promoting building resiliency programs, Florida can mitigate these risks and build a more sustainable future.