Florida’s insurance crisis requires new solution
Article Courtesy of The Sun Sentinel
By Douglas A. Kahn
October 23, 2022
Florida’s homeowner insurance marketplace has
collapsed — and that was before Hurricane Ian. In 2022, seven Florida
homeowner insurance companies went into insolvency or withdrew from the
state, with twelve property and casualty companies overall in
Prior insurance cycles in the wake of
catastrophic hurricanes show that Florida homeowner and
property insurance premiums will rise another 25%-50%, or
more, in the coming year without a restructuring of the
marketplace. These costs are unsustainable for homeowners,
condominium associations and businesses, who paid premium
increases of up to 50% in the past year (many coastal
properties saw 100% increases). In many cases, insurance
will become unavailable.
Florida’s response to insuring the risk of hurricanes when
the private market fails was to create the state owned,
not-for-profit Citizens Property Insurance Corporation,
which provides lower cost homeowners, property and hurricane
insurance. Citizens’ current policy count is 1,047,000, more
than doubling in the past year as Floridians flocked to
Citizens after insurer insolvencies and rate hikes.
Hurricane Ian will push Citizens policy count toward 2
million, an unsustainable risk for the state.
A financial catastrophe underlies Citizens’ structure: If it
does not have enough premiums in reserve and reinsurance to
pay claims, then Florida’s individual citizens will be
levied a surcharge on their insurance policies to pay for
losses. This “tax” will be levied whether your property
suffered damage or not. If another major hurricane like Ian
or Andrew hits Miami-Dade, Broward or Palm Beach counties,
the state’s real estate market and economy will collapse.
Florida’s reactive approach to hurricane
insurance stands in contrast to California’s proactive
approach insuring the risk of earthquakes. California
created the California Earthquake Authority (CEA), a
non-governmental organization that sells earthquake
insurance policies through participating insurers.
Men walk past destroyed homes and debris as they
survey damage to other properties, two days after the passage of
Hurricane Ian, in Fort Myers Beach, on Sept. 30, 2022. Florida's
home insurance market was already on shaky ground. It now faces an
even mightier struggle after the damage caused by the hurricane.
The CEA has 25 participating insurers who provide homeowners,
condominium, mobile homes and renters insurance with earthquake
coverage. By spreading the risk amongst 25 insurers, California has
assured its citizens that affordable earthquake insurance is available —
and assured insurance companies that by taking a small portion of the
risk in the state, no single carrier should fail due to a catastrophic
earthquake. Further, should a catastrophic earthquake occur, because the
CEA is not a direct insurer, the remainder of the state’s citizens
cannot be levied a surcharge or tax for claims they did not incur.
When Citizens’ policy count rises too high, the company goes through a
process called depopulation. In this process, Citizens freely hands off
its customers, in lots up to 50,000, to other insurance carriers, along
with financial incentives. In the early stages, the depopulation process
appears to work as Citizens sheds policyholders and risk. However,
history has shown that most companies that take policyholders from
Citizens are the first to fail after the next major hurricane.
Generally, these are newly formed companies that are undercapitalized
and unable to meet the deluge of claims after a major hurricane — the
same sort of companies going into insolvency now.
Florida needs to reorganize its homeowner and property insurance
marketplace. The California Earthquake Authority presents a more
sustainable marketplace model, one that can be emulated in Florida.
Interestingly, insurance companies that participate in the CEA include
Allstate, Farmers, Liberty Mutual, Nationwide and State Farm. All of
these companies withdrew from writing new homeowners and hurricane
insurance in Florida in the wake of the 2004 and 2005 hurricane seasons
(most continue to insure previously written policies on renewal).
In order to bring the nation’s largest insurance companies back into the
Florida market, there needs to be a carrot and stick approach: The
nation’s largest insurance companies are also the leading writers of
auto insurance in Florida. It’s their cash cow in the sunshine state.
Florida’s elected officials and regulators must make it clear that
unless insurance companies offer new homeowners insurance with hurricane
coverage, they cannot be allowed to write personal auto insurance in the
A new round of Citizens’ depopulation that includes the nation’s largest
insurance companies will be a tremendous win for Floridians and a
stabilizing factor in our economy. Initially capping the number of
policies an insurer takes off of Citizens’ books at 50,000 and
incentivizing 25 well-capitalized carriers to participate will fully
depopulate Citizens and eliminate the risk for the state. By spreading
only a sliver of the risk to each insurer, who in turn spread
policyholders throughout the state, the impact of any large hurricane is
Florida cannot continue, through Citizens, to be the state’s primary
property insurer. The risk of economic collapse is too great.
Restructuring the Florida insurance market is imperative to the economic
health of our state and its citizens.