https:\/\/www.eenews.net\/articles\/fla-insurance-crisis-deepens-as-rates-soar-companies-fall\/<\/a><\/span><\/p>\nThe aftermath of Hurricane Michael is seen in Mexico Beach, Fla., a week after the storm hit in October 2018. Joe Raedle\/Getty Images<\/p>\n
Long known as the nation\u2019s most hurricane-prone state, Florida has achieved a new status that is aggravating hurricane anxieties and threatening real-estate values.<\/p>\n
Florida has the worst property-insurance market.<\/p>\n
Four Florida insurance companies have declared bankruptcy since April, and others are canceling or not renewing policies. Hundreds of thousands of people have been forced to buy property coverage through the state-created insurer of last resort, Citizens Property Insurance Corp.<\/p>\n
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\n\u201cEvery day, there\u2019s another company that seems to be going insolvent,\u201d Citizens CEO Barry Gilway said at a recent public meeting.<\/p>\n
The number of Citizens policies recently passed 1 million for the first time since early 2014 and could reach nearly 2 million by the end of 2023, according to a Citizens projection.<\/p>\n
Two years ago, Citizens insured just over 510,000 Florida properties.<\/p>\n
Gilway called the policy growth \u201cincomprehensible.\u201d<\/p>\n
Floridians now have the highest property-insurance rates in the nation, according to the industry-funded Insurance Information Institute. The average premium is $4,231 \u2014 nearly triple the U.S. average of $1,544.<\/p>\n
\u201cIt\u2019s reached a point where Floridians cannot find affordable coverage for their homes,\u201d Institute spokesperson Mark Friedlander said. \u201cIt is going to eventually catch up with our booming real estate market and bring down values of property.\u201d<\/p>\n
At the same time, from October through June, nearly 160,000 Floridians dropped the flood insurance policies they bought from the Federal Emergency Management Agency as it raised rates on some homeowners. Flood insurance is separate from homeowners\u2019 coverage.<\/p>\n
The instability in the homeowners\u2019 market is the result of a unique mix of circumstances including costly litigation against insurers and the exposure of Florida insurance companies to storm damage in nearby states.<\/p>\n
Florida has not had a major hurricane since 2018. But since then, many Florida-based insurers expanded to cover properties in Louisiana, which has faced tens of billions in losses from Hurricane Laura in 2020 and Hurricane Ida in 2021. Insurers were hammered.<\/p>\n
In late May, the Florida legislature met in a special session to address the insurance crisis and it enacted two laws aimed at strengthening industry finances in part by controlling costs arising from lawsuits filed by policyholders who challenge claims settlements.<\/p>\n
But since then, three Florida insurers have gone bankrupt, affecting 170,000 policies, and others have announced they are withdrawing from Florida \u2014 a process that involves not renewing policies as they expire. A fourth insurer, Avatar Property & Casualty Insurance Co., went bankrupt in April.<\/p>\n
\u201cThe crisis continues to escalate because strong enough actions have not been taken in the legislature,\u201d Friedlander said.<\/p>\n
Kyle Ulrich, president of the Florida Association of Insurance Agents, said the legislature enacted \u201cmeaningful and consequential tort reform\u201d though it would take years for the changes to help the insurance industry.<\/p>\n
\u201cThe impacts don\u2019t happen overnight,\u201d Ulrich said.<\/p>\n
In July, Citizens insurance added 63,000 new policies \u2014 the largest single-month increase since July 2006, when insurance companies were reeling from a series of hurricanes that devastated Florida in the two previous years.<\/p>\n
But more significant than the number of Citizens policies is its financial exposure, measured by the total value of the property it insures.<\/p>\n
While the number of Citizens-insured properties has doubled since September 2020, the value of the insured properties has nearly tripled to $360 billion from $133 billion, Citizens records show. The growth has been concentrated in hurricane-prone southeastern Florida, which has some of the state\u2019s highest property values.<\/p>\n
\u201cOne major hurricane event or a series of hurricane events like Louisiana had in the past few years could easily wipe out Citizens\u2019 reserves to pay claims,\u201d Friedlander said.<\/p>\n
The growth is raising concerns that Citizens will use its little-understood authority to impose special assessments on every insurance policy in the state except for medical and malpractice coverage if it runs out of money to pay claims. Citizens can assess its own policyholders a charge equal to 45 percent of their premium.<\/p>\n
\u201cI don\u2019t know how many of these million policyholders understand that. They could literally get a bill this year,\u201d said Florida State University insurance expert Charles Nyce.<\/p>\n
Citizens has imposed assessments only once since its creation in 2002. That occurred after five major hurricanes hit Florida in 2004 and 2005.<\/p>\n
Gilway, the Citizens CEO, said at a July meeting that Citizens has $13.6 billion in reserves to pay insurance claims.<\/p>\n
\u201cCitizens is in a phenomenal financial position, and we\u2019re prepared for whatever comes,\u201d Gilway said.<\/p>\n
At the same meeting, Gilway projected that the number of Citizens policies would increase to 1.2 million by the end of 2022 and 1.55 million by the end of 2023. The policy count could be as high as 1.9 million at the end of 2023.<\/p>\n
\u201cThe bigger their policy base, the less that [reserve] covers,\u201d Nyce said.<\/p>\n
Nyce also fears that Citizens is not equipped to handle hundreds of thousands of claims that a major storm would generate.<\/p>\n
\u201cIt would be hard for Citizens to properly service the 1 million policyholders they have,\u201d Nyce said. \u201cWhen they go from 400,000 policies to 1 million, do they have the resources? It\u2019s a very difficult labor market.\u201d<\/p>\n
Although Florida lawmakers and Citizens officials want to rebuild the state\u2019s insurance industry, they will have to overcome barriers such as Citizens\u2019 favorable insurance premiums.<\/p>\n
State law prohibits Citizens from increasing its average rates by more than 11 percent in a year.<\/p>\n
Earlier this year, Citizens sought a 10.7 percent rate increase. But the Florida Office of Insurance Regulation approved an average increase of 7.4 percent.<\/p>\n
At the same time, private-sector insurers have received rate increases of 30 percent to 50 percent.<\/p>\n
The result is that Citizens has become the state\u2019s largest property insurer by a wide margin, and many of its policyholders are paying rates far less costly than what they would pay an insurance company.<\/p>\n
\u201cCitizens is selling insurance at a loss. There\u2019s no better way to say it,\u201d Friedlander of the insurance institute said.<\/p>\n
The discounted rates have compounded the difficulties for insurance companies, said Ulrich of the insurance agents group.<\/p>\n
\u201cThere are companies that would like to write business, but you simply can\u2019t do it when the Citizens premium is 30 to 40 percent less than what the voluntary market charges,\u201d Ulrich said.<\/p>\n
The state legislature is likely to consider increasing Citizens\u2019 annual rate cap when lawmakers convene for their regulation session in March, Ulrich said, though he doubts they would take such action.<\/p>\n
\u201cNow, with over 1 million constituents insured in Citizens, there probably won\u2019t be an appetite to do that because of how many constituents would be affected,\u201d Ulrich said.<\/p>\n
Even if private coverage became available, many Citizens policyholders would resist returning to the commercial market because Citizens claims payments are guaranteed, Ulrich said.<\/p>\n
\u201cThere are going to be a large number of Citizens policyholders who are going to say, \u2018I don\u2019t want to leave, I don\u2019t have to leave,’\u201d Ulrich said.
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