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Hurricane Ian may make Florida’s property insurance market even worse : NPR


A man stands in front of his destroyed home following Hurricane Ian in Matlacha, Florida on October 3, 2022.

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A man stands in front of his destroyed home following Hurricane Ian in Matlacha, Florida on October 3, 2022.

Image of RICARDO ARDUENGO / Ricardo Arduengo / AFP / Getty

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

Florida homeowners pay the highest premiums in the country: nearly three times the national average, according to the Insurance Information Institute, an industry group. And Floridians’ premiums are growing much faster – about 33% per year – than the typical American’s annual increase of 9%.

But in Florida, hurricanes aren’t the only factor driving up costs. Experts say massive litigation and rising reinsurance costs are other factors.

Six insurers have declared defaults this year. Others have dropped customers or stopped writing new policies. As a result, the number of policyholders of the ultimate state-backed insurance company, Citizens Property Insurance, has increased.

Now, as Floridians seek to recover from the estimate Tens of billions of dollars in damage caused by a Category 4 hurricane, some worry that Ian could be the last straw for private insurers further, driving up costs and bringing the insurance market to a standstill. Florida’s precarious approach to disaster.

“The simple truth is that you can’t be the most hurricane-prone and most violent state, and expect lower property insurance rates,” said state senator Jeff Brandes, whose county includes part of Pinellas County in the Tampa Bay region, said to avoid the worst of Ian.

Although no hurricanes will make landfall in Florida in 2020 or 2021, the state’s insurance industry reported net underwriting losses in excess of $1 billion annually. Even before Ian, 2022 has been predicted to be the same.

The average homeowners insurance premium has been up to $4,000 per year in five different Florida counties, primarily in the Miami and Palm Beach areas, According to a state report from July. In Monroe County, home of the Florida Keys, the average premium is $6,700. Nationwide, home insurance average cost about $1,600 per year.

“We had a crisis three years ago. But we’re in a wholesale crash at the moment,” Brandes said.

Florida accounts for most of the country’s insurance cases

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

According to the state insurance regulatory agencyNearly 80% of homeowner insurance cases in the US come from Florida. In contrast, the state accounted for only 9% of all landlord claims.

Experts say a number of different Florida-only factors have combined to create such a litigious environment, including separate rules for attorneys’ fees and lax regulation of “transfer” agreements. concessions” to the policyholders.

Lawsuits often stem from this: A contractor contacts a homeowner about potential damages, possibly to their roof. The homeowner signs a so-called assignment of interest agreement, which allows the contractor to process the insurance claim. The insurance company can then deny the claim or dispute the amount, and then the contractor can file a lawsuit against them – sometimes even without the policyholder knowing.

Attorney fees can reduce the size of the claim. In 2019, Association III estimates that excessive litigation has cost Floridians $1.6 billion in damages.. The number of lawsuits has grown even higher in the past two years.

Insurers operating in Florida say they have been forced to raise prices to cover the cost of handling the lawsuits. “We are all paying for that frivolous lawsuit,” said Lisa Miller, a former Florida insurance commissioner who now works as an insurance industry consultant in Tallahassee.

A member of the City of Miami Florida’s Search and Rescue Team 2 inspects a home for victims of Hurricane Ian in Fort Myers Beach, Florida on October 3, 2022.

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A member of the City of Miami Florida’s Search and Rescue Team 2 inspects a home for victims of Hurricane Ian in Fort Myers Beach, Florida on October 3, 2022.

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More expensive storms have also helped raise rates

Hurricanes in Florida have become more expensive in recent years. That’s partly due to the climate changesmaybe intensify the storms and cause more rain and floods.

From Florida population growth is another factor. No state in the eastern United States has grown as rapidly as Florida. And its fastest-growing metro areas include Orlando, Tampa and Cape Coral-Fort Myers – all areas affected by Ian.

Today, Florida’s private insurance market consists mainly of small regional companies, or the Florida branches of national insurers.

Smaller companies cannot build the same types of capital reserves as large companies. As a result, they often rely on their own form of insurance – known as reinsurance – to pay claims during major costly events.

But as the storms became more and more destructive, reinsurance costs have increased significantly. Some reinsurers are pulling out of Florida. Others are raising rates – reinsurance costs for Florida insurers have increased by as much as 50% this year, according to a report.

Those costs will be passed on to consumers, says Miller. Between 35% and 50% of a homeowner’s premium will be included in the cost of reinsurance.

Citizens, state-backed insurance companies, recently over 1 million contract owners – more than double its policy count two years ago – as private insurers raise costs or drop customers.

Because Citizens is state-backed, the ability to raise rates is limited and often significantly cheaper than competitors. Private insurers say that makes it difficult to compete, especially in stormy postcodes, where only a handful of insurers offer policies.

Hurricane Ian could drive many insurers out of the Florida market

Even as damage estimates rise, officials have expressed confidence that insurers will be able to pay out Hurricane Ian claims.

It is too early to know the exact price of the claims. An analytics firm estimates that wind and storm surge damage will range from $28 to $47 billion. Another estimate of total losses for private insurers gives the total as high as about 63 billion dollars.

It’s possible the state could receive a total of millions of claims for all types of insurance, including flood insurance, said Miller, an insurance industry consultant. (Most Florida homes affected by Ian don’t have flood insurance, and there’s the potential for a legal dispute over whether the damage was caused by wind or flooding.)

The worry is that such a hefty payout from just one hurricane could be the last straw for companies already struggling to cope with other challenges in doing business in Florida.

Brandes, the state legislator, said if rates continue to rise to 30% or more, as they have done in many Floridians in recent years, some Florida homeowners may have to pay more for the mortgage. their mortgage.

“You’re going to price the middle class out of homeownership. That’s not sustainable,” says Brandes, who said his own home insurance costs have risen about 60% in the past two years. “It’s the Achilles heel of our real estate market across the state.”

The state legislature held a special session in May in which lawmakers passed the bill. solve some roof problems and attorney fees. Afterward, some Democrats complain that the bill is not enough to provide immediate relief to homeowners.

The May session “treats the flu as the property market gets stage 4 cancer,” said Brandes, a Republican, adding that he hoped another session could be convened. before January.

“This is the perfect opportunity to make some really tough decisions,” he said. “You’re going to have to do some things that haven’t been done before, but have to be on the table to save this market in the future.”

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