Challenges plague Florida's insurance market in Hurricane Ian's aftermath

NEW YORK(Thomson Reuters Regulatory Intelligence) - Hurricane Ian is on track to become the second largest disaster for insurers in the United States with projected losses of over $60 billion, according to trade group Insurance Information Institute(III). The destruction threatens to leave a lasting impact on insurers in the region, premium rates and availability.

More than 100 lives have been lost in the storm that packed Category 4 winds of about 150 mph when making landfall and leaving a trail of destruction in southwest Florida. Ian regained strength to reach Category 1 hurricane status before making a second landfall in South Carolina. The projected loss from Ian only falls behind Hurricane Katrina which cost insurers about $89 billion in 2021 dollars, according to III. Authorities are pressing insurers to settle claims early.

“This may really be the death knell to property insurance and business interruption insurance in Florida. With climate change ... no one can predict for certain, but it could happen every year,” said Alex Roje, partner at law firm Lathrop GPM. “They [Insurers] can handle a big loss in a particular year and take that into account, but if it is year after year, it is not sustainable.”

Most large national underwriters do not have a substantial market share in Florida and have cut policies through non-renewals. State and local insurers that are in the market have suffered financial losses and diminished capital in recent years and remain vulnerable to large catastrophic events that could generate losses above reinsurance limits, said Brian Schneider, Senior Director at Fitch.

CITIZEN’S LOSS ESTIMATE LOWERED

Florida’s state-backed insurer, Citizens Property Insurance Corp, told Thomson Reuters on Thursday it now expects about 225,000 claims from Hurricane Ian that could cost about $2.3 billion to $2.6 billion, down from its preliminary estimate of $3.8 billion. Spokesperson Michael Peltier said the cut was made after more data had become available from the region. Citizens is considered the “insurer of last resort,” for people unable to obtain alternate coverage.

Peltier said Citizens has ample “claims-paying ability” to take care of the fallout of Ian, especially with the revised loss estimates. It could also manage another storm this year. “It all depends on the level of the next storm,” he added.

However, Fitch ratings warned that Hurricane Ian may strain Citizens by adding to the vulnerability of the insurance market during a future catastrophic event, even if the insurer has the capacity to absorb losses from this event.

Being state-sponsored, Citizens has additional tools such as the authority to issue debt to cover any instance of significant claims volume. However, increased reliance on the insurer is seen as an indicator of the poor health of the broader insurance marketplace in the state.

UNINSURED, UNDERINSURED TO GET FEDERAL ASSISTANCE

Florida’s home insurance market has crumbled as numerous companies have exited or gone out of business from a barrage of claims and laws criticized as encouraging litigation. Many of the state’s residents are also uninsured or underinsured. Homeowner’s insurance in the state costs nearly three times more than the nation’s annual average of about $1,500.

State and federal authorities have set up an “insurance village” in Charlotte County - near some of the worst impacted areas - where consumers can come to their insurers to review their coverage, file a claim and apply for federal government’s FEMA assistance if eligible.

Authorities are pressing insurers to settle claims early. The Florida Office of Insurance Regulation had asked that insurers begin daily reporting of catastrophe claims from Friday, September 30, through Friday, October 7, in addition to issuing a temporary moratorium on cancellations and non-renewals of policies in the region. The office also said it expected timely settlement of claims by insurers(LINK: here).

MORE COVERAGE DISPUTES EXPECTED

Post-hurricane insurance coverage disputes are typically related to liability over damage caused by wind, rain or flood since standard homeowners policies do not offer flood coverage. Given the magnitude of damage from Hurricane Ian, it might be difficult to differentiate causes; powerful Category 4 winds wreaked havoc, alongside a record storm surge as high as 12 feet and rainfall of as much as 21 inches.

Experts expect insurers to take a relatively strict view on claims settlements across their policyholder base due to the extent of damage caused by Ian, especially as carriers brace for larger claims due to inflationary pressure on rebuilding costs.

Most homeowners in Florida lack flood insurance, and many consumers wrongly believe flood damage is covered in their homeowners’ policy, regulators have warned. Lack of insurance or lower coverage limits could also result in additional disputes as consumers and business strive to maximize claims from insurers to recoup their losses.

LARGE AREAS UNDER EVACUATION ORDERS

Florida had placed mandatory evacuation orders on at least 12 counties, some of its most populous, in the hurricane’s path. Insured people in the region will be eligible for living expenses coverage even if no damage to property was sustained, as the storm’s intensity and path changed rapidly in the last 48 hours before landfall.

Some media reports have questions whether authorities in the state waited too long to issue evacuation mandates. The impact of the evacuation timing on insurer claims exposure remains unclear.

Regardless of the payout, experts expect the state to see a slower recovery compared to other catastrophic events in the past. Insurance renewals are expected to plummet when moratoriums on dropping coverage are lifted. More insurers could exit the market to flee risk or an inability to pay further claims after Ian, making insurance more unaffordable and inaccessible in the state.

“How do you rebuild when insurance is going to be perhaps prohibitively expensive?” said Roje.

(Reporting by Antonita Madonna in New York, Regulatory Intelligence)

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