Thanks to Ian, we&apos;re all going to pay more for insurance next year [South Florida Sun-Sentinel]

Hurricane Ian didn't break Florida's property insurance market.

Insurers have the capacity to pay claims from the storm, which struck Southwest Florida last month as a Category 4 hurricane that destroyed hundreds of structures and killed more than 100 people.

Losses estimated by domestic insurers have been readjusted this week to levels lower than originally estimated and experts say those losses will remain well within companies' abilities to pay claims. They'll be doing so out of their surpluses and reinsurance they were able to secure before this year's hurricane season.

That's the good news.

The bad news is that numerous insurance experts predict that the state legislature will need to take more action to shore up the industry before the 2023 hurricane season, possibly by pledging more public funding to ensure companies can maintain required funding levels.

Ian is still expected to be one of the nation's costliest storms ever and will increase costs of reinsurance -- that is insurance that insurers buy -- before the next two rounds of reinsurance renewals on Jan. 1 and June 1.

And those higher costs will be absorbed by homeowners across the state next year, regardless of whether they were unfortunate enough to live in Ian's path or in a part of the state that emerged relatively unscathed, as South Florida and the Panhandle did.

"Everyone is going to have to pay some increase," says Paul Handerhan, president of the Federal Association for Insurance Reform, a consumer-focused watchdog group that advocates for legislative changes that it sees as necessary to keep insurance available and affordable in the state.

How much more we'll be paying next year remains to be seen. But it will be yet another punch in the pocketbook for homeowners who have seen their insurance premiums roughly double over the past five years to about three times the national average. Average annual premiums this year topped $4,000 in five Florida counties, including Broward, Palm Beach, Miami-Dade and Monroe, state data shows.

Projected losses less than feared

Estimates for Ian's insured losses are wide ranging, from a low of $30 billion to more than $75 billion.

Stonybrook Capital recently said that Ian could cost $75 billion or more, making it the third-most expensive insured event in U.S. history, behind only the terrorist attacks of Sept. 11, 2001 and 2005 s Hurricane Katrina. Catastrophe modeling firm Karen Clark & Co. projects insured losses of $63 billion, except for flood losses covered by the National Flood Insurance Program.

Analytics firm RMS projects insured losses will land somewhere between $53 billion and $74 billion, excluding NFIP-covered flood losses, companies' loss adjustment expenses, auto and marine losses and inevitable costs of litigation.

Several domestic insurers, including publicly traded Heritage Property & Casualty, Universal Property & Casualty, and Homeowners Choice, have released statements projecting that their losses won't exceed their abilities to cover them out of of their surpluses and available reinsurance.

Stacey Giulianti, chief legal officer at Boca Raton-based Florida Peninsula Insurance, says insurers have reduced loss estimates after two weeks of damage inspections along Ian's path.

One reason is that despite Ian's deadly storm surge, its actual hurricane-strength wind field had a much tighter radius than other recent storms, Giulianti said.

After destroying structures in Fort Myers Beach, Cape Coral and low-lying parts of western Fort Myers, the storm's winds rapidly weakened as moved over sparsely populated agricultural and preserve land.

"Virtually every carrier has slashed their projected ultimate losses by a huge percentage," Giulianti said. "Reinsurance will cover this storm easily for domestic carriers with plenty of room to spare should a late season cyclone threaten the peninsula. Except for the first 24 hours after landfall, we have seen claim reports drop dramatically and have had essentially zero telephone wait times in our claims department.

"This storm is unlikely to knock out any conservative insurance carriers that have sophisticated reinsurance towers and ample surplus."

State-owned Citizens Property Insurance Corp., the insurer of last resort, has revised its Oct. 5 projection for total number of claims from more than 225,000 to 100,000. "We initially estimated that damage and claims numbers would be far greater outside of the three-county area of Lee, Charlotte and Sarasota counties than we are seeing at this point," spokesman Michael Peltier said.

Its projected loss estimate remans at $2.3 billion to $2.6 billion "until we can base it on actual losses," Peltier said. If losses remain at those levels, CItizens won't have to recover any shortfall from its own policyholders or from insurance consumers statewide with levies or special assessments.

Florida's Hurricane Catastrophe Fund, which provides reinsurance that companies can tap after exhausting their privately funded reinsurance, could be forced to pay between $10 billion and $12 billion of its $17 billion claims-paying capacity, says Locke Burt, chairman and CEO of Ormond Beach-based Security First Insurance Co.

That would have to be replenished but can be done so over several years, through the fund's purchase of long-term bonds and ability to levy surcharges on private-market policies.

Flood losses from Ian's storm surge were estimated by CoreLogic at between $8 billion and $18 billion for residential and commercial properties. Uninsured flood loss is estimated to be between $10 billion and $17 billion. But those losses won't impact Florida property and casualty insurers because flood insurance is covered by the National Flood Insurance Program and private carriers.

Reinsurance will be harder to get

Even before Ian hit, Florida insurers struggled to buy enough reinsurance to guarantee their ability to pay claims after two major storms, including a 1-in-130-year hurricane that has never before happened. The closest was the Great Miami Hurricane of 1926 that caused the equivalent of $235 billion in damages and killed 372 people.

Six insurers went insolvent this year, in part because they didn't have enough capital to secure reinsurance levels required by state insurance regulators and Demotech, an Ohio-based agency that assigns financial strength ratings for federal loan guarantors Fannie Mae and Freddie Mac. Those loan guarantors require properties in their portfolios to maintain "A" strength ratings.

Reinsurers are typically based overseas, in places like Bermuda, and are unregulated by states or the federal government. That means they can sell as much or as little coverage as they want, factor in whatever risks they fear, and charge anything they want for the coverage. Lately, with severe weather events becoming more frequent and more destructive, Florida insurers have been losing money and reinsurers have been willing to sell less coverage and demanding more money for it, Handerhan said.

Reinsurers' appetite for Florida risk is likely to shrink even further after Ian, largely because Florida's army of plaintiffs attorneys makes catastrophe risk modeling impossible, industry experts say.

While just 9% of the nation's homeowner insurance claims are generated by Floridians, 79% of all lawsuits against homeowner insurers originate here, the Florida Office of Insurance Regulation has reported, using data from the National Association of Insurance Commissioners.

High litigation rates after major storms like 2017 s Irma, a slow-moving storm that caused damage throughout the state, and 2018 s Michael, which hit the Panhandle with Category 5 strength, created greater losses than reinsurers initially estimated.

Stonybrook Global's $75 billion loss estimate, which it says was derived by averaging projections from major catastrophe risk modeling firms, assumed that litigation would increase actual loss costs by another 20%.

The firm estimated that Ian will wipe out a year's earnings for global reinsurers and result in double digit operating losses for domestic companies.

Looking forward

The biggest risk facing property and casualty insurers in Florida will come well after Ian's debris is hauled away and rebuilding efforts have commenced: How many insurers will be financially healthy enough to secure needed reinsurance for next year's spring storm and summer hurricane seasons?

Like this year, some companies might not be able to raise the needed capital to satisfy Demotech and the Office of Insurance Regulation and will likely go insolvent, Handerhan predicted.

"It's going to be a huge problem. If they can't get reinsurance, you could see more insolvencies," he said.

Companies strong enough to make the buys will pay more. Last year, most insurers paid 50% more to renew their reinsurance policies, "nearly double other coastal states because of litigation cost risk," said Mark Friedlander, communications director for the Insurance Information Institute, a nonprofit funded by major national insurers.

Another special session?

Friedlander says the Florida home insurance market is in crisis "because of manmade issues, not natural catastrophes." He adds, "Roof replacement claim schemes and excessive litigation have led to the market's deterioration."

Calls are growing for another special legislative session to finish what lawmakers failed to accomplish during the most recent special session in the spring.

Then, lawmakers enacted a number of attempted fixes, including creation of a special $2 billion optional reinsurance fund backed by the state's general fund. Insurers were also allowed to offer depreciated roof value coverage instead of full replacement value coverage. Insurers say they've lost millions because standard homeowner policies require full roof replacements if more than 25% of a roof is damaged.

The generous coverage incentivizes roofing contractors to "find" damage and sue insurers for the cost of full roof replacements, insurers say.

Another special insurance session could include legislation finally killing Florida's unique one-way attorney fee statute that insurers blame for the state's disproportionately high litigation rates.

The statute removes most of the risk of suing insurers by requiring insurers to pay all plaintiffs attorney fees if a lawsuit produces a settlement for any amount of money over an insurer's initial offer, but does not require the plaintiff to pay the insurers' fee if the insurer wins.

Citing similar reforms enacted recently in Texas, proponents say numbers of predatory lawsuits in Florida would drop sharply if plaintiffs had to consider out-of-pocket losses before suing.

Such a reform would likely restore profitability to many insurance companies, boost confidence of investors, and increase reinsurers' willingness to underwrite Florida storm risks.

But Handerhan said killing the one-way attorney fee statute would also hurt homeowners' abilities to get their damages repaired because they would have to pay their attorneys out of their ultimate claim settlement, potentially leaving them unable to pay for their repairs.

Amy Boggs, insurance section chair for Florida Justice Association, a trade organization for plaintiffs attorneys, said in an email that litigation rates have already declined 30% as a result of reforms enacted since 2019.

"However, there have been zero improvements in the insurance marketplace for consumers, nor a lowering of insurance rates after those reforms." The association, she wrote, "does not see that further litigation reform will do anything to improve the environment for Florida's homeowners" and could instead put them in an even worse situation when their insurance company decides to 'underpay, delay and deny' payment of meritorious claims."

Yet some insurers say they are already hearing attorneys say they plan to file suit to challenge findings that losses were caused by storm-surge flooding rather than by hurricane winds.

On the Fox Weather Channel recently, attorney Andrew Lieb described that strategy, saying, "The question becomes, Did the flood happen because your roof was ripped off and that was a wind issue and not a flood issue? Or did it come from a surge and that's a flood issue?'"

In her email, Boggs said, "We already see finger pointing by insurance companies on wind versus flood due to Hurricane Ian."

FAIR: Two important fixes needed

Handerhan said FAIR would like to see a special session focus on two remedies.

One would eliminate annual rate-increase caps that were put in place for Citizens policies in 2008 by then-Gov. Charlie Crist. At the time, the caps were intended to protect Citizens customers from insurance cost increases. But as private-market companies have been forced to increase their rates far beyond the Citizens cap, Citizens has become a much-cheaper alternative and an unfair competitor, proponents of eliminating the cap say.

The other needed reform, Handerhan said, will be to make more state-backed reinsurance available to ensure private-market carriers can survive until recent legislative reforms take effect in two or three years.

One way to make more reinsurance available would be to lower the amount of hurricane losses companies would have to endure before becoming eligible for reinsurance through the state Hurricane Catastrophe Fund. FAIR has argued for such a change over the past three years, saying it would keep costs down by allowing insurers to buy less private-market reinsurance.

Another way the state should fund more reinsurance would be to create a larger version of the Reinsurance to Assist Policyholders (RAP) fund that made $2 billion from the state's general fund available to insurers that had trouble finding enough reinsurance on the private market. How much money should be committed depends on how much would be needed, he said.

Flush with cash right now, the state can afford to create a larger reinsurance fund to ensure that the industry and the real estate market survives the next storm season, Handerhan said.

John Rollins, former chief risk officer at Citizens and current director of ventures at Texas-based Evans Insurance Group, said he expects Florida's brightest minds will hash out solutions before the start of the 2023 hurricane season.

"Unlike in most states, our insurance leaders also live, work, and employ people here, and we have the best talent on the planet to deal with this challenge," Rollins said. "Likewise, I think our public sector is well stocked with expertise. As with an approaching hurricane, it's not time to panic, it's time to prepare."

Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or by email at [email protected].