Q&A – Florida’s Property Insurance Market is a Mess. What Happens if We Get Hit by a Hurricane?
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Today’s Entry: Brian, I’m among the many recently jettisoned to Citizens Insurance. The insult to injury of being forced back on to our “last resort” insurance option is that this is the second time its happened. The first was back in 2009 during the recession. What’s most frustrating is that we’ve never filed a claim. Aside from this being a case of the more things change the more they stay the same – I just heard you say another Florida insurer is going out of business. It seems to me our insurance market is once again in crisis and that’s without a hurricane hitting South Florida. What happens if we are faced with a significant storm this year which would require high levels of claims?
Bottom Line: I hear you and understand. Like you, over a decade ago, I was relegated to Citizens as well. From 2007 to 2014 Citizens was my only option as was the case for many Floridians. At the peak of the previous property insurance crisis, Citizens held nearly 1.5 million policies in 2012. Over the next few years, which were hurricane free years for Florida, Florida’s property insurance market righted itself with numerous new insurers moving into our state and aiding in bringing Citizen’s policy count to the lowest levels since its creation in 2002 at around 400,000 policies in 2016. Then we had the cycle of “perfect storms”.
2016 brought Tropical Storm Colin, which hit Florida’s Gulf Coast, Hurricane Hermine which struck the panhandle, Tropical Storm Julia which made landfall at Jensen Beach. None of those events were catastrophic from a damage standpoint, but they began to spur numerous claims...and then 2017 happened. First it was Tropical Storm Emily which made landfall in central Florida but spawned tornadoes and flooding in 31 counties – including in South Florida. A short time later it was Irma, which not only was one of the strongest hurricanes to strike Florida, but given it path, caused meaningful damage in three-quarters of the state. This was the mass claim event in Florida which proved to be the first major catalyst into our current crisis. Subsequent hurricane seasons – punctuated by Hurricane Michael which devastated the panhandle, poured gas on the fire.
Florida’s property insurance market has three huge problems, high claims in recent years, rapidly rising reinsurance costs for Florida’s insurers and the worst property insurance litigation environment in the country. If it were just about the claims and reinsurance challenges – it appears Florida’s insurance market would be strained based on recent cycles – but stable. It’s largely litigation problems based on claims that have turned our insurance market into one that’s led to huge losses. Florida accounts for about 8% of the property insurance policies in the country but currently about 77% of the lawsuits against property insurance companies. Without any additional detail – that's clearly an imbalance that’s not sustainable. But it’s actually even worse than it already sounds. Insurance industry reporting shows litigation against Florida insurers rose an average of 37% in January. There obviously haven’t been any mass claim events in Florida recently, but there is a huge push by certain Florida attorneys to attempt to get homeowners to sue their insurance companies. And South Florida continues to be at the epicenter of the rising lawsuits. Growth of lawsuits most recently rose highest in Miami-Dade, followed by Broward with Hillsborough 3rd and Palm Beach County seeing the fourth biggest increase in property insurance lawsuits.
While property insurance reforms have passed in recent state sessions, they obviously haven’t been at all effective in stemming the property insurance crisis. And what does this crisis look like from the insurer’s perspective? Despite the steady increase in insurance premiums in recent years, the total financial performance of Florida property insurers has been a net loss of $4 billion over the last three years. Obviously, that’s not sustainable either which is why we’ve now lost five Florida property insurance companies in just the last two years with Florida’s eighth largest insurer – St Johns – with 160,000 policies - being the latest to be forced into liquidation by the state on Friday. In comparing Florida’s property insurance crisis, to the previous one, a key tell is how many homeowners are forced onto Citizens. Citizens currently projects they’ll once again surpass a million policies at some point this year. This means Florida’s property insurance market will approach the previous housing crisis/Great Recession levels this year. To your question – if we were faced with an active hurricane season spawning widespread claims in Florida – it’d likely become worse from a coverage perspective.
One meaningful positive change since the previous crisis is the required solvency of and regulation of Florida property insurance companies. In other words, as a policy holder, if you are faced with a claim situation, you can have confidence it’ll be paid out. But beyond that – it's clear that significant litigation reform is needed in Florida. In the meantime – for you and all others being forced to Citizens - here’s what you can expect in terms of higher costs. Citizens is petitioning the state for 7.3% increases for single-family homes and 10.8% increases for condos. Those proposed increases will kick in for policies resetting starting in August if approved by the state – which is almost certain to be the case. This mess is but one more reason we should hope for a storm free hurricane season in Florida and beyond.