The property insurance market was melting down. Then Hurricane Ian flooded Southwest Florida.

Florida's insurance market was in meltdown mode for two years before Hurricane Ian swamped Southwest Florida as a catastrophic Category 4 storm with 155-mph winds and record storm surge.

Fraudulent roof replacement schemes and rampant litigation were the source of this scourge, industry analysts say, depleting insurance companies of their capital and causing them to raise rates, drop policies or fold altogether.

Six insurers have been declared insolvent so far this year, even with three relatively calm hurricane seasons. Annual insurance rates in the Sunshine State are three times the national average at $4,231, said Mark Friedlander, spokesman for the Insurance Information Institute (III).

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Which raises the question: What now?

In Ian's aftermath — as parts of the Gulf Coast including Naples, Fort Myers Beach and Sanibel were underwater before the storm's eyewall reached the peninsula — industry analysts say more companies are expected to falter. In July, the Florida Office of Insurance Regulation placed 27 companies on a watch list over concerns they were not financially stable.

"It's very possible that some of these insurers could fail because of Hurricane Ian," Friedlander said.

A former state insurance official adds that last week's catastrophic storm may well cost everyone a lot more to properly insure their properties going forward.

"In Florida, for a variety of reasons, our rates have not matched the risk," said Lisa Miller, a former Florida deputy insurance commissioner. "This storm is going to expose that mismatch."

First up: Tallying the damage from Ian and deciding who will pay

Ian is predicted to become among the costliest storms to make landfall in the U.S. By comparison, Hurricane Katrina caused the most insured damage with $89.7 billion in 2021 dollars; Ida left $36 billion in damage; Superstorm Sandy caused $35.1 billion in losses; and both Harvey and Irma left $33 billion in insured losses, according to data from the III.

A major Wall Street firm, Fitch Ratings, said Hurricane Ian-related losses, which will mostly be tallied in Florida, will land somewhere between $25 billion and $40 billion. How much of that bill will be paid by Floridians is not clear yet.

Asked about the potential damage costs, DeSantis on Thursday pointed to federal backstops such as the national flood insurance program and U.S. Federal Emergency Management Agency assistance programs. He also noted that home insurance policies cover damage from powerful winds, but losses due to floodwaters are generally covered by the national program.

"There's a lot of folks that have a homeowner's policy. And sometimes they're told that that could also be for flood and those are just different policies. The homeowners' is from the wind, direct storm damage; the flood insurance obviously from rising waters," the governor said.

Later that day, President Joe Biden vowed the federal government would cover the total cost of clearing debris and rescue efforts, as well as the pay the price tag for rebuilding public facilities such as schools and state fire stations.

The feds, Biden said, would help cover insurance gaps for damaged homes, up to $37,900, as well as up to another $37,900 for "lost property."

"My message to the people of Florida and to the country is: At times like this, America comes together," Biden said. "We're going to pull together as one team, as one America."

Post-Ian Florida will face a deepened, exacerbated insurance crisis

As news reports and social media posts have shown, wind isn't the only hazard Florida homeowners face. About 13% of homeowners in Florida have flood insurance, so many will most likely have to rely on FEMA grants, which won't cover the full cost of the damage, Friedlander said.

If the reserves of Citizens Property Insurance Co. are wiped out, the state-run "insurer of last resort" that currently has more than 1 million policies, Florida residents could face multiyear surcharges on their homeowners' insurance or auto policies, Friedlander added.

Plus, many of Florida's undercapitalized insurers depend on reinsurance to ensure they pay out claims, but much of those costs are passed onto consumers, others pointed out..

Had Ian not made landfall in Florida, analysts still doubt the measures passed during the special session to address the property insurance would have eventually righted the ship.

"Even without Ian, we did not expect the legislation to stabilize the market," Friedlander said, noting that lawmakers said the changes could take up to two years to have an effect. "Now that we have perhaps one of the top hurricane losses in U.S. history impacting Florida, the market is just going to get worse."

State Sen. Jeff Brandes, R-St. Petersburg, said Florida's property insurance market was in "a state of collapse."

"We can't be the most hurricane-prone state and the most litigious state in the country and expect rates to go down," Brandes said. "Hurricanes are an act of God, but the litigation is the failure to act by the Florida Legislature."

Lawmaker, industry analysts call for further insurance reforms

Brandes said lawmakers should be focused on addressing one-way attorney fees to disincentivize lawsuits, curbing the use of "assignment of benefits" by roofing companies, and allowing actual cash value for roof replacements.

Another issue affecting the private market is that as Citizens balloons, it's limited by law in how much it can raise rates, putting further strain on competition in the marketplace.

"Until the action is taken to disincentivize trial attorneys from filing mass volumes of lawsuits, the market is not going to stabilize," Friedlander said. "There's no roadmap toward stability until an action like that is taken."

Miller agreed with the elimination of the assignment of benefits contracts, which she called a "weapon." Reforms in 2019 to eliminate the practice haven't worked.

"I've been in the insurance industry for 40 years," she said. "We don't need them to settle a claim. It's an impediment to getting a claim resolved because it ties the hand of the insurance company."

Lawmakers also have to change tort laws to reduce the litigation, Miller said, citing a Florida insurance commissioner letter from April 2021 stating that Florida witnesses 80% of the nation's insurance lawsuits but fewer than 10% of its insurance claims.

"That is the most compelling statistic," she said.

Finally, Miller said insurance coverages in the state need to change. Basic policies should only cover "actual cash value" — meaning the value of what was lost — versus replacement cost, the total cost to replace that item.

"In Florida, it's automatic replacement cost," Miller said. "I can't really buy down and save money."

Replacement cost should be an additional expense if the consumer "wants a richer policy," she said. "We're doing it in reverse. We're doing it backwards."

Attorney who has litigated insurance claims for consumers pushes back

A lawyer who has represented homeowners in lawsuits against insurance companies said it's non-paying insurers who are the cause of the crisis in Florida.

"The insurance companies blame the attorneys, but what if they paid the claims out as they should have?" said Nicole Shacket, supervising attorney for the Insurance Litigation Group. "Instead of paying a defense attorney to fight it, and ending up spending two or three times more than what they would have had to pay had they just paid the homeowner in the first place for the claim."

Shacket, who has been doing insurance work for the past decade, said many homeowners who sue insurance companies are people who had have never filed a prior claim. In those cases, she said, the consumers have paid many thousands of dollars over many years for coverage and are just seeking to be reimbursed for damage that is supposed to be covered by the policy.

"Then they have a claim and the insurance companies just deny, deny, deny," said Shacket, who said she has litigated hundreds of cases. "Deny and defend. That's what they do."

Shacket also said the changes to the assignment of benefits laws "have been horrible for consumers."

Before the changes, a homeowner without deep pockets could agree to have insurance company pay the workers doing the repairs directly. Now, she said, people who don't have the thousands of dollars handy to meet deductibles are at a dead end.

The next notch-up in the insurance crunch for consumers is at hand, Shacket added. She said insurance companies will demand that people replace roofs or appliances like water heaters as a precondition to coverage.

"So now all these people who have nothing wrong with their homes … they are going to be strapped. How are they going to pay for a new roof?" she said. "It's horrible what is happening. The insurance companies caused it all."

And post-Ian, Shacket predicts, those who have suffered damage are going to find themselves caught in a tug-of-war between the companies that sold them flood insurance and the ones that sold them wind policies.

The latter will point to a watermark, Shacket said, and refuse to pay for any damage to the dwelling below that stain. The homeowner, she said, will be caught helplessly in the middle between the two financial firms.

"The fight will be over who should be paying for damage, between the flood policy and the wind policy," Shacket said.

Consumers also need to be first line of defense against fraud

Miller also cautioned that it's up to consumers to be the first line of defense against the kind of fraud that has so decimated the industry.

She said homeowners are being approached by individuals purporting to conduct roof inspections in connection with insurance companies. "There's nothing illegal about that. It's just very clever," she said. "And it's a hustle … and the hustle is real in Florida."

Once the inspector gets on the roof, they intentionally damage it or claim you need a new roof. The contract that will accompany that advice will require the property owner to pay the difference between the price tag on that new roof and what the insurance company will reimburse.

The gap could put homeowners on the hook for tens of thousands of dollars in unreimbursed cost.

That heartburn, and financial ruination, can be avoided if consumers follow a simple piece of advice, she said.

"Don't answer the door," Miller advised. "Don't answer the front door."

Hannah Morse covers consumer issues for The Palm Beach Post. Drop a line at [email protected], call 561-820-4833 or follow her on Twitter @mannahhorse.