Hurricane Ian could smash Florida’s fragile property insurance market

“If insurance companies needed a year without a storm, this would be it,” said state Sen. Jeff Brandes, a Pinellas County Republican and extremely loud critic of the Legislature’s failure to fix a major problem it’s known about for years.

Even before the impending storm, industry analysts were predicting the demise of the state’s insurance industry. If they have to pay out claims that exhaust their existing resources and force them to dip into more costly reinsurance, things could get dicey, he said.

“The property insurance industry was going to lose $1 billion pre-storm,” Brandes said Tuesday. “And no one is coming into Florida until the Legislature fixes it. .. You can only blame the rising cost of insurance on the Legislature.”

Kevin McCarty, the previous commissioner of the state Office of Insurance Regulation, said a storm like Ian would “have a major impact on an already destabilized market.”

The failure of the insurance market would place even more of a burden on the state-run, taxpayer-subsidized Citizens Property Insurance Corp., which has grown from 700,000 policies to more than 1 million in the past year. Its rates are about 50% of the private insurance market for Tampa Bay, Brandes said.

Even after a special session in March to provide some stopgap measures to cushion insurers against potentially high catastrophic damage payouts, companies continue to declare insolvency and ask for rate increases.

And they will continue to do so unless the Legislature takes action to stop what most agree are opportunistic trial lawyers from making up insurance claims to create a payday for themselves, Brandes warned.

“These companies are dying without storms because of manufactured claims you can’t price,” Brandes said.

Six companies have now gone out of business since 2017 without responding to a hurricane, and four more are in the process of liquidation, according to Bankrate, a consumer financial services company. The Office of Insurance Regulation has another dozen on its watch list, and Demotech, the independent insurance rating company, has its eyes on 16, Brandes said.

“Homeowners insurance options in Florida have become more and more limited, and consumers are facing dire consequences,” Tasha Carter, Florida’s Insurance Consumer Advocate, told Bankrate.

Logan McFaddin, vice president of state government relations at the American Property Casualty Insurance Association, told Bankrate the state’s insurance market is “in crisis as insurers grapple with out-of-control litigation costs and billions in losses from recent natural disasters.”

Florida already has the highest insurance premiums in the nation, which Charlie Crist, the Democrat running for governor, placed squarely on Gov. Ron DeSantis’ shoulders.

“Gov. DeSantis let these insurance companies double Floridians’ rates and they’re still going belly up when homeowners need them most,” Crist said in a statement Monday. “You pay and pay and pay, and the insurance company isn’t there for you in the end anyway.”

Brandes did some back-of-the napkin math on the scale of Ian’s impact on the property insurance industry in Hillsborough, Pinellas and Pasco counties if the storm makes landfall there. Citizens Insurance carries about 25% of Tampa Bay homeowners in those counties, Brandes said.

He said 200,000 claims would not be out of the range of probability. The average claim for Irma in 2017 was around $45,000. Add 5% for inflation and that comes to $50,000 per claim.

“That comes out to $10 billion just for Citizens,” he estimated.

Add in all the other insured properties, and it comes out to a $40 billion storm just for the Tampa Bay area, he said.

And if Citizens exhausts its $13.5 billion account to pay out claims, homeowners throughout Florida can expect to see assessments go up on their own insurance policies under a state law that allows it to assess non-customers to pay out claims.

But at a news conference Tuesday, DeSantis downplayed any concerns about the industry meeting its responsibilities for insurance claims.

“We have a catastrophic fund that’s flush, and the $2 billion [that the Legislature added to the Hurricane Catastrophic Fund] is an added layer of protection,” he said.

He then said that a lot of the damage is going to be from flooding and storm surge. Citizens and most private property insurance companies insure primarily for wind damage.

“We are looking at a lot of flood claims. I’m not saying there is not going to be wind damage. It’s a hurricane so you’re likely to see that,” said DeSantis. Flood insurance is a federal program funded by premiums but can also tap into taxpayer dollars if claims exceed the money available for them.

The danger with Tampa Bay is that the water has no place to go, DeSantis said, noting that the region has close to 1 million residents enrolled in the national flood insurance program, and 15,000 with private flood insurance.

A storm of Ian’s magnitude making landfall in Tampa Bay would be catastrophic.

A report from the Boston-based catastrophe modeling firm Karen Clark and Co. concluded in 2015 that Tampa Bay is the most vulnerable place in the U.S. to storm surge flooding from a hurricane and stands to lose $175 billion in damage from flooding alone.

Without elaborating, DeSantis said he would help the ailing property insurance industry.

“Of course, there’s more that I want to do in terms of the wind insurance, and that is something we are going to address,” DeSantis said. “But at the end of the day we’ve got to make sure folks are taken care of and so we will do that, whatever we need to do.”

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