A home surrounded by flood waters from Hurricane Idalia on August 30, 2023 in Tarpon Springs, Florida. Credit - Joe Raedle—Getty Images
In Florida, it won’t just be those with homes and businesses hit directly by Hurricane Idalia who might be stuck picking up the pieces. Thanks to a broken home insurance market, a particularly bad hurricane could spread financial fallout throughout the state, leaving residents from Pensacola to Key West stuck paying repair bills for years.
Beset by hurricanes made more severe and more frequent by climate change, as well as rampant fraud and tides of frivolous lawsuits, dozens of insurers in the state have closed up shop or stopped selling new home insurance policies in the state in recent years. (Farmers became the most recent big insurer to pull out of the state last month). Residents have increasingly turned to Citizens Property Insurance Corporation, a public entity established by the Florida government as the state’s so-called “insurer of last resort” for people unable to find affordable rates from private insurers. For more and more residents, though, Citizens is becoming the first and only option, especially for those with coastal homes at particular risk from hurricanes. In 2019, Citizens had about 400,000 home insurance policies on its books; today, it has more than 1.3 million, about twice as many as the state’s next-largest insurer.
With so many homeowners using Citizens policies, each hurricane season becomes a roll of the dice for almost every Floridians’ pocketbook. When a normal insurance company takes big losses, it goes bankrupt. But if hurricane winds destroy too many homes covered by Citizens policies and the insurer faces bigger bills than it can afford to pay, the public company won’t go belly up. Instead, such an event can trigger what is known as an assessment, wherein state law mandates that Citizens imposes fees on private insurance policies across the state in order to cover its payouts. And it’s not just property insurance-policy holders that may have to pull out the checkbook. If you live in Florida and have auto insurance, but can’t afford to own a home, you can still be stuck contributing to funds that pay for homeowners to rebuild after a big storm. “We have one of the highest populations of fixed-income senior citizens in the country,” says Mark Friedlander, a spokesperson for the Insurance Information Institute, a trade group. “We have many low-income households that are literally living paycheck to paycheck. They can't afford this.”
That situation last occurred after the 2004-05 hurricane season, when 10 hurricanes left Florida residents paying off Citizens’ $1.7 billion tab though 2015. Currently, the insurer has about $4.8 billion in the bank, and there’s a chance that Idalia could break that budget, though that’s less likely now that the brunt of the storm has missed Florida’s most populated areas like Tampa. But there are still many months left in the Atlantic hurricane season, and a lot of warm water offshore that can serve as fuel for powerful storms. “We probably only need one or two more [hurricanes] to make landfall [this season] before Citizens has to do an assessment,” says Charles Nyce, a professor of risk management and insurance at Florida State University. “When you have 1.3 million policyholders, that $4.8 billion is going to go very quickly.”
There’s no easy solution. Laws passed in the Florida legislature last year have cut down on some of the fraud and excessive legal filings that had been choking the state’s private insurers, and Citizens is trying to offload some of its bloated policy roster to the private market.
But other forces are still pushing in the wrong direction. One reason Citizens is flooded with policies is because it’s legally barred from raising rates fast enough to stay in line with the private market. Private insurance rates in Florida have climbed sharply in recent years; Citizens rates are generally about 40% lower, according to the Insurance Information Institute, and the state government recently rejected a request from Citizens’ management to impose a 12.1% rate hike. That could keep prices lower for policyholders, but ultimately cost more residents in the longer term. As Freidlander puts it: “It’s a recipe for a hurricane tax that would be applied to all Florida consumers.”
Write to Alejandro de la Garza at firstname.lastname@example.org.