Faced with huge claims and legal costs from climate-related disasters, insurers may pull out of Florida or charge extremely high rates
The devastation caused by Hurricane Ian poses a major threat to Florida’s already turbulent insurance and real estate markets.
Analysts say the excessive cost of the storm could cause insurers to either avoid Florida properties altogether or charge homeowners sky-high premiums.
The category four hurricane that was one of the most powerful ever to land in Floridawas also the US’ second largest hurricane loss event on record following Hurricane Katrina in 2005.
Privately insured damages are in Florida estimated at $46-67 billion, without flood insurance. The hurricane not only damaged homes and infrastructure, but also destroyed orange farms in the largest producing state.
The US media reports Ian destroyed the financial security of many retirees who invested their life savings in Florida real estate lost in the hurricane.
On average, Floridians already pay the highest home insurance premiums in the United States $4,321 per year – three times higher than that national average.
This is due to high hurricane risk, as well as “a man-made crisis caused by rampant roof replacement fraud and runaway litigation,” Mark Friedlander, communications director for the Insurance Information Institute, told Climate Home News.
Insurance premium renewals in Florida increased by a third on average this year, Friedlander said. Ian’s destruction is expected to increase those premiums by up to half over the next year.
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Flood damage is not covered by standard home insurance. TThe majority is covered by the federal flood insurance. Homeowners could suffer $10 billion to $17 billion in flood damage that is not covered by their insurance policies Research company CoreLogic. That’s $500-800 per Florida resident.
Ian dealt a severe blow to Florida’s insurance market, which was already unstable and struggling financially.
Many of Florida’s insurers rely heavily on reinsurers, companies that insure insurance companies against claims in excess of their cash reserves.
Several property insurers have said they expect reinsurers to shoulder most of the burden. Allstate said it expects to recover 45% of its $671 million in losses come from reinsurance and Progressive said so $1.2 billion of the $1.4 billion losses are absorbed by reinsurers.
A Report by the rating agency Moody’s warned reinsurers would suffer heavy losses from Ian. Reinsurer Swiss Re anticipates insurance claims of USD 1.3 billion and forecasts a Third quarter net loss of $500 million because of the damage caused by Ian.
Another reinsurer Everest Re said on Wednesday that it expects Ian to report $600 million in pre-tax losses in the third quarter.
Given the magnitude of the losses, primary insurers will share a significant portion of the claims burden with reinsurers, Moody’s report says.
In addition to covering claims from Hurricane Ian, Friedlander said the insurance industry is expected to face “an excessive amount of litigation,” with legal costs, including attorneys’ fees, ranging from $10 billion to $20 billion.
“Many reinsurers have indicated that because of the state’s contentious environment, they may stop offering coverage to Florida insurers or charge extremely high renewal rates,” he said. Bankers Insurance Group and Lexington Insurance Company, two regional companies, said before the hurricane they were withdrawing from the market and Six Florida property insurers have filed for bankruptcy this year.
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US Treasury Secretary Janet Yellen referenced Ian’s influence this week when she started an assessment how worsening extreme weather conditions affect insurance costs. “The recent impact of Hurricane Ian in Florida demonstrates the critical nature of this work and the need for a better understanding of insurance market vulnerabilities in the United States,” said Yellen.
The Treasury Department said it would request zip code-level pricing and policy data from US insurance companies.
The data would provide the Insurance Department with “consistent, granular and comparable insurance data needed to assess the potential for major disruptions to personal insurance coverage in regions of the country that are particularly vulnerable to the impacts of climate change,” the Treasury Department said in a statement .
