Climate change is making Florida more susceptible to hurricanes and flooding. Here’s what you need to know about property and homeowners insurance.
(Bloomberg) — The US hurricane season officially kicks off next week, and no other place in the country is more vulnerable to storm-related damage than Florida, the fastest-growing state in the nation. Last year, Hurricane Ian battered the state, killing almost 150 people and costing insurers roughly $63 billion.
Florida has an outsize susceptibility to climate events, with damages equaling almost 4% of the state’s annual gross domestic product since 2017, said Andrew John Stevenson, senior ESG climate analyst at Bloomberg Intelligence. Last year, Hurricane Ian resulted in a more than 10% hit to the economy when totaling up all of the property destruction, infrastructure spending and power outages, he said.
With the climate crisis resulting in increasingly more dangerous storms, the residents of the Sunshine State are left with higher costs in the form of indirect and direct insurance payments.
Here are five ways that climate change is costing Floridians money right now—and in the future.1. You pay what are fast becoming the highest property insurance rates in the nation.The average annual property insurance payment in the state is $4,231, nearly triple the national rate of $1,544, according to the Insurance Information Institute, an industry association. That price is climbing rapidly. Property insurance rates were mid-range until 2020. Insurance rates jumped 27% in 2021, 33% in 2022, and are expected to rise at least 40% this year (maybe 50%), according to the institute, which would put the average price at $6,000.Florida’s Office of Insurance Regulation blames this on fraud not hurricanes, pointing out that Florida accounts for 9% property insurance claims in the nation, but more than 76% of property insurance lawsuits. For example, it is not uncommon for homeowners to claim storm damage to replace a roof just worn out by age. Florida lawmakers have passed recent changes to make such lawsuits more difficult but their effects are still unclear.
Hurricane Ian is also a factor. “If you look at the difference in the increase between last year and this year, that’s probably Ian,” said Mark Friedlander, a spokesman for the institute.
2. Your tax money is going to prop up the reinsurance market. In the last 13 months, seven of Florida’s 47 local property insurance businesses went under and another 24 are on the regulatory watch list. Part of what’s killing off these small firms is the price of reinsurance—that is, the insurance they have to buy to protect themselves in the event of a catastrophe that makes them pay a lot of claims all at once. Many big firms just don’t want to work in the state at any cost.
The insurance industry is bracing for another year of losses. Indeed, Warren Buffett’s Berkshire Hathaway Inc. has an “unbalanced” reinsurance exposure to Florida, according to Ajit Jain, who oversees the company’s insurance operations.
“What that means is if there’s a big hurricane in Florida, we’ll have a very substantial loss,” Jain said, speaking earlier this month at the company’s annual meeting.
To support what’s left of the struggling private market, Florida created a fund that basically acts as partial reinsurance for catastrophic hurricane losses. Florida’s given $3 billion of taxpayer money to reinsurance. Even so the new fund is limited — it doesn’t cover tornados or tropical storms.And insurance lobbyists have asked for a more robust program. So far lawmakers have resisted, but if more of those two dozen residential insurers fail, taxpayers will have to likely have to pony up more.3. The insurer of last resort isn’t cheap.Stevenson said that the property and casualty business in Florida has become two-tiered. There’s Florida’s Citizens Property Insurance Corp., the state-backed insurer of last resort, and everyone else.
Created by the state legislature in 2002, Citizens had a 16% market share last year, up from 4% as recently as 2019, Stevenson said. That makes it the largest home insurer in the state. Its growth is likely to continue, as more homeowners become unable to find sufficient coverage in the private market.
The business environment means climate risk remains “underpriced in the Sunshine State,” Stevenson said. Average premiums at Citizens are 44% below those charged by their private peers and almost 60% below the rate needed for premiums to be actuarily sound, he said, citing an analysis from Florida.
Cyndee Haydon, a real estate agent in Tampa, says she has sold six homes in the Tampa Bay area between $1.5 and $2.5 million so far this year. But after the sales, buyers got an ugly shock. None of them could get private insurance. All of them had to go through Citizens, and one of the buyers will pay a $19,000 bill for property insurance. Every year. (Citizens can’t offer insurance to homes worth more than $700,000 in Tampa, but they evaluate land and physical homes separately and all of these homes were within the valuation range to qualify.)
Because Citizens is limited on how much it can raise rates, it is very underfunded. This year Citizens is asking for a rate increase that would average 14% per primary residence—up to 50% for a second home.If there is a big hurricane that exceeds the amount Citizens has in reserves net reinsurance, everyone will pay: The law creating Citizens requires a state-wide multi-year surcharge on every residential property insurance policy in the state to make up the loss.4. You need a separate policy for flood protection. In some cases, the state will not let you skip it.A shocking number of Floridians are underinsured. They assume their regular policy protects them from winds and flood. But those almost always need to be purchased separately.A new state law is trying to fix that by demanding that anyone who gets new homeowners insurance with Citizens also get flood insurance. That policy will affect new policy holders in federally designated flood zones immediately, but all 1.2 million policy owners anywhere in the state by 2027.For a lot of people, that means a second expensive policy. Haydon, the real estate agent, owns a place on the shore in Tampa that is less than 2,000 square feet. She pays $7,000 annually for homeowners and then another $7,000 for flood. 5. You’re going to pay more to protect your car, too. Although property insurance is the liability that looms the largest, it is not the only insurance problem Floridians face. The average car insurance premium in Florida for full coverage—comprehensive and collision—is $3,121 annually, about 50% above the national average, according the Insurance Information Institute. And it’s going up quickly. Last year saw the largest year-over-year increase as it jumped $421 on average.Fraud is a factor here, too, but so is Florida’s high level of accidents and accident fatalities. “We have significant weather events year-round here in Florida, and weather does play a role in accidents,” said Friedlander. “So yes, the climate definitely plays a role in it.”
–With assistance from Max Reyes.
(Updates 17th paragraph to add details about insurance costs.)
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