DISATSER INSURANCEFlorida’s Home Insurance Crisis Isn’t Going Away
It’s hard to make money selling home insurance in Florida. For one thing, the state is very vulnerable to hurricanes, and those hurricanes are getting stronger thanks to climate change. A legal loophole has made the state a hotbed for fraudulent litigation over insurance claims, and companies lose even more money fighting those lawsuits. And reinsurers are charging insurance companies much higher fees owing to climate change-driven disaster losses.
It’s hard to make money selling home insurance in Florida. For one thing, the state is very vulnerable to hurricanes, and those hurricanes are getting stronger thanks to climate change. That means that insurance companies often have to pay out billions of dollars to rebuild homes after big storms. For another, a legal loophole has made the state a hotbed for fraudulent litigation over insurance claims, and companies lose even more money fighting those lawsuits. Furthermore, these companies have to buy their own insurance from multinational corporations called reinsurers — and reinsurers are charging a lot more money these days, due in part to the increasing severity of hurricane damage.
This difficult environment has made Florida one of the most expensive states in the country for property insurance, with prices about four times as high as the national average. Despite sky-high prices, however, most insurers still can’t turn a profit. The financial pain for the industry got a lot worse last year thanks to Hurricane Ian, which slammed into the city of Fort Myers as a Category 4 storm and caused at least $60 billion in insured losses — more than any U.S. disaster since Hurricane Katrina in 2005.
That’s been too much for some companies to bear. At least eight Florida carriers have gone bankrupt in the past two years. And just last week two major national insurers, AAA and Farmers, announced that they would trim their business in the state, pulling back from risky areas. The moves may jeopardize as many as 100,000 policies in the state. That’s around 2 percent of the entire state’s market.
“It is pretty rare to have this many insurers leaving a state at a similar time,” said Matthew Palazola, an insurance analyst at Bloomberg Intelligence who studies the Florida market. “Any of these companies leaving probably wouldn’t be hugely significant normally, but it’s more significant with the tide of leaving we’ve seen.”
These departures have forced more Floridians to buy insurance from a state-backed program called Citizens. The program is meant to be an “insurer of last resort” for people who can’t get coverage elsewhere, but it’s ballooned to record size this year as more private companies leave the state. By the end of the year it may have 1.7 million customers. In some areas like hurricane-prone Miami, more than two-thirds of homeowners depend on it.
