The recipe for Florida's insurance success

Florida is a high-risk insurance state when it comes to hurricanes. In 1993, the Florida legislature created the Florida Hurricane Catastrophe Fund (FHCF) to serve as an additional source of reinsurance capacity for Florida insurers. Florida also has a state-run insurer, Citizens Property Insurance Corporation (Citizens), which is the insurer of last resort for individuals who can't get insurance. Florida had invested $11.3 billion in FHCF and $7 billion in Citizens going into the 2022 hurricane season. Even with this $18.3 billion investment, Florida homeowners were still paying about $6,000 in annual premiums, which are about 4 times higher than the national average of $1,700.

Reinsurance is insurance bought by insurance companies. Insurance is the management and assessment of risk. In areas where there is a significant risk of hurricanes, such as in Florida and Louisiana, insurers buy more reinsurance protection. In Florida, reinsurance takes up almost 2/3 of the average local insurance company's premium In 2022, Hurricane Ian struck resulting in $114 billion in inflation-adjusted losses, making it the third-costliest tropical storm in the US. Florida placed 6 insurers in receivership due to insolvencies in 2022, and several more in 2023. Worsening catastrophe claims were driving up Florida reinsurance costs by approximately 65%, which drove up home insurance premiums to a full-blown insurance crisis.

Industry experts analyzed Florida's insurance crisis and determined it was more a man-made litigation crisis as Florida had 79% of the nation's insurance- related litigation even though it only has 9% of the nation's homeowner claims. The experts determined that "Florida has a legal system that invites litigation" where insurers are (1) required to pay exorbitant legal fees ("oneway attorney fees") of policy holders if they win, and (2) unnecessary expensive work of contractors under "assignmentof- benefits agreements" ("AOB's") where homeowners signed over their claims to contractors. Laws repealing these practices were enacted in the late 2022 Special Session and resulted in a significant drop in legal fees and fraudulent contractor claims since 2023.

Florida then moved to significantly beef up Citizens Reinsurance Plan by designing a complex strategy using layers of coverage to address Florida's growing risk. For 2025 Citizens established a "risk transfer tower" with coverage extending up to $12.9 billion, with Citizens at risk for the first $2.6 billion of losses—the second layer has FHCF liable for $3.6 billion and reinsurance $400 million—above these layers there is a combined coverage of $4.2 billion from reinsurance and capital markets using catastrophe bonds. If a massive, rare event happens with losses above $10.8 billion covered by the above layers, then policyholders might face extra charges totaling $560 million. In summary, Florida is at risk for $6.2 billion to keep insurance costs reasonable.

Steve Gardes is a Certified Public Accountant (CPA) and Certified Valuation Analyst (CVA) with over 40 years of public accounting experience.