The Florida property and casualty insurance market was already under stress.Ian could make it worse

A man stands in front of a house destroyed in the aftermath of Hurricane Ian on October 3 in Matlacha, Florida.

Ricardo Arduengo/AFP/Getty Images

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A man stands in front of a house destroyed in the aftermath of Hurricane Ian on October 3 in Matlacha, Florida.

Ricardo Arduengo/AFP/Getty Images

Even before Hurricane Ian made landfall in Florida last week, the state’s property insurance market was already in a state of disaster of its own.

Florida homeowners pay the highest premiums in the country. Almost three times the national average. According to the Insurance Information Institute,Industry group. Also, Florida residents’ premiums are rising much faster (about 33% annually) than the average American’s 9% annual increase.

But in Florida, hurricanes aren’t the only factor driving up costs. Rampant litigation and soaring reinsurance costs are other factors, experts say.

Six insurance companies have declared bankruptcy this year alone. Others quit customers or stopped creating new policies.

Now, people in Florida are trying to recover from their estimates. As category 4 storms cause tens of billions of dollars in damage, fears Ian will be the last blow for more private insurers, driving up costs and pushing Florida’s volatile insurance market closer to catastrophe Some people do.

Senator Jeff Brandes from the constituency serving part of Pinellas County in the Tampa Bay area said: Ian’s worst averted.

While no hurricane has landed in Florida in 2020 or 2021, the state’s insurance industry Reports over $1 billion in net underwriting losses annuallyEven before Ian, 2022 was already predicted to be the same.

The average homeowner premium is over $4,000 a year in five different Florida counties, primarily in the Miami and Palm Beach areas. According to a state report in JulyIn Monroe County, home of the Florida Keys, the average premium is $6,700.Nationwide, home insurance Costs an average of about $1,600 per year.

“We were in a crisis three years ago, but now we are in a massive collapse,” said Brandes.

Florida accounts for most of the nation’s insurance lawsuits

A major part of Florida’s problem is insurance litigation. “What we have been facing in Florida for many years is a man-made crisis that has nothing to do with hurricanes,” said III spokesperson Mark Friedlander. In an interview with NPR this week“We have a real problem here.”

According to state insurance regulatorsnearly 80% of all homeowner insurance claims in the US come from Florida. In contrast, the state accounts for only 9% of all homeowner claims.

Experts say a combination of factors unique to Florida, including unique rules on attorney fees and lax regulation of “transfer of interest” agreements for policyholders, have created such a litigation environment.

Lawsuits often begin like this: A contractor will contact the homeowner about possible roof damage. The homeowner signs what is called an assignment of benefits contract that allows the contractor to process the insurance claim. The insurance company can deny the claim or dispute the amount, and the contractor can sue the insurance company without the policyholder’s knowledge.

Attorney fees can reduce the size of a disputed claim. 2019, III estimates that excess litigation has cost Florida policyholders a total of $1.6 billion.The number of lawsuits has further increased over the past two years.

Insurance companies operating in Florida say they have been forced to raise premiums to cover legal costs. “We’re all paying the price for that frivolous lawsuit,” said Lisa Miller, former Florida Insurance Commission Vice Chair who now works as an insurance industry consultant in Tallahassee.

Members of the Miami City Florida Task Force 2 search and rescue team following Hurricane Ian on October 3, 2022 in Fort Myers Beach, Florida.

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Members of the Miami City Florida Task Force 2 search and rescue team following Hurricane Ian on October 3, 2022 in Fort Myers Beach, Florida.

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More expensive storms also contributed to higher interest rates

Florida hurricanes have been costly in recent is partly due to to climate change,can intensify hurricanes, causing more rain and flooding.

Florida’s Population growth is another factor. No state in the eastern United States is growing as fast as Florida. Also, some of the fastest growing metropolitan areas include Orlando, Tampa and Cape Coral-Fort Myers, all influenced by Ian.

These days, Florida’s private insurance market is primarily made up of small regional companies, or Florida affiliates of national insurance companies.

Small businesses cannot build the same kind of capital reserves as large corporations. As a result, they often rely on a proprietary form of insurance known as reinsurance to pay claims in the event of expensive losses.

But as the storm became more and more devastating, Significant increase in reinsurance costs. Some reinsurers are pulling out of FloridaOther insurers are raising rates — reinsurance costs for Florida insurers have risen by as much as 50% this year. According to reports.

These costs are passed on to consumers, Miller said. His 35% to 50% of the homeowner’s premium goes toward reinsurance costs.

Citizens, a state-backed insurer, recently Exceeded the mark of 1 million policyholders — more than double the number of policies from two years ago — as a result of private insurers raising costs or losing customers.

Because Citizens are backed by the state, they are limited in their ability to raise their rates and are often significantly cheaper than their competitors. Private insurers say this makes competition difficult. Especially in storm-prone zip codes where only a handful of insurance companies offer insurance.

Hurricane Ian could push more insurers out of the Florida market

Even with rising damage estimates, officials have expressed confidence that insurers will be able to pay claims for Hurricane Ian.

It is too early to know exactly how much a claim will cost. One analytics firm estimates that: Wind and storm surge losses from $28 billion to $47 billionAnother estimate of total losses for private insurers states that total losses are Up to about $63 billion.

According to Miller, an insurance industry consultant, states could have a total of 1 million claims across all types of insurance, including flood insurance. (Most of Ian’s affected Florida homes don’t have flood insurance, and legal disputes are likely to arise as to whether the damage was caused by the wind or the flood.)

The fear is that such a huge payout from just one storm could be the final blow for companies already struggling to cope with other challenges of doing business in Florida. That’s it.

Some Florida homeowners will pay more for insurance than mortgages if interest rates continue to rise by 30% or more, as many Floridans have in recent years, according to Florida legislator Brandes. There is a possibility that it will happen.

Brandes said his home insurance premiums have risen by about 60% over the past two years. “It’s the Achilles heel of the statewide real estate market.”

The state legislature held a special session in May and legislators passed the bill. address some of the roof and legal fees issues. after that, Some Democrats complained The bill wasn’t enough to provide immediate relief to homeowners.

Brandes, a Republican, said May’s session “treated the flu when the property insurance market had stage 4 cancer,” and hoped another session would be held by January. He added that there are

“This is a great time to make some really tough decisions,” he said. “We have to do some things that have historically not been considered, but we need to look at them to save this market going forward.”

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