Will Florida Hurricanes Be Insurable in the 2030s?

The future insurability of Florida hurricanes is in question because of storm severity, the state’s storm-exposed coastal topography and development patterns, and Florida’s high-cost legal environment. These factors combine to make coverage for hurricane risks in Florida the most expensive in the country. Even with recent legislative changes to address the state’s legal environment, there is concern that the pace of increases in premiums for property and flood coverage in Florida will become unsustainable in the next decade.

Five hurricanes have caused devastating damage in Florida over the last 30 years. The top five storms—Hurricanes Ian, Irma, Andrew, Michael, and Wilma—have collectively caused over $290 billion of loss.  Numerous lesser but still serious hurricanes, including Charley, Matthew, Michael, Ivan, Frances, and Jeanne, added more than $100 billion of additional loss during the same period.

While final cost figures are not yet available for Hurricane Ian, estimates from the National Oceanic and Atmospheric Administration (NOAA) rank the storm as Florida’s most expensive hurricane ever (all figures include both insured and uninsured loss and have been adjusted to 2023 dollars):

•    Hurricane Ian (2022): $114 billion (est.).

•    Hurricane Irma (2017): $61 billion.

•    Hurricane Andrew (1992): $58 billion.

•    Hurricane Michael (2018): $30 billion.

•    Hurricane Wilma (2005): $29 billion.

It is noteworthy that, even after adjusting for inflation, three of the four costliest Florida hurricanes in the last 30 years—Ian, Irma, and Michael—all occurred in the last five calendar years. And in more than one of those years, there was additional damage from a second Florida hurricane, such as Hurricane Nicole in 2022. 

Global Trends and Florida’s Heightened Risk

The trend of more costly hurricane losses is not unique to Florida. Swiss Re recently reported that, globally, hurricanes and other natural disasters in 2022 caused insured losses that were 154% of the 10-year natural catastrophe average, after adjusting for inflation. One might infer that 2022 was just an outlier, but the truth is more alarming. Looking at data for the last 30 years, Swiss Re estimates that the cost of natural catastrophe losses is rising 5-7% per year.

There is some scientific debate about whether and to what extent climate change is driving more severe hurricanes. Some scientists point to increasing ocean and atmospheric temperatures and conclude that the warmer temperatures are fueling the formation of more damaging hurricanes—with higher winds, more powerful storm surges, and greater rainfall. While scientific consensus is elusive, the trend toward more intense storms appears undeniable. Swiss Re recently noted a 60% higher occurrence of Category 3-5 hurricanes globally over the last 25 years compared to the long-term average.

Flooding is the most expensive component of hurricane losses, a particularly acute risk for Florida given its topography. Florida has 1,350 miles of coastline, second only to Alaska, and much of it sits at modest elevations particularly susceptible to ocean or river flooding.

Coastal-heavy development patterns further aggravate Florida’s risk profile. Almost 80% of the state’s insured property value is in coastal counties, and Florida’s low-lying coastal cities are its biggest cities. Several of Florida’s most developed population and commercial centers are located adjacent to shallow bays that are sure to magnify flooding from storm surge during a hurricane. Examples include Tampa, Miami, and Jacksonville. And wind- and flood-exposed coastal Florida is where the state is growing and building.

Property Insurance in Florida

Florida’s property insurance market was troubled long before Hurricane Ian made landfall. Florida homeowners pay the highest premiums in the country: nearly three times the national average, according to the Insurance Information Institute. And premiums are climbing at a rate of about 30% per year versus about 9% on average in the rest of the country.

Florida’s hurricanes are far from the only factor driving up premiums. Even though there were no major storms in 2020 or 2021, the state’s insurance industry reported net underwriting losses exceeding $1 billion each year. One reason often offered to explain the woes of the Florida property insurance market is the frequency and cost of litigation. When it comes to property insurance, Florida is easily America’s most litigious state. While Florida only accounts for 9%, on average, of U.S. homeowners claims, it generates an astounding 70% of the coverage lawsuits under homeowners policies.

Insurers say that litigation on this scale adds over $2 billion of defense expenses to the cost of Florida property insurance annually. Critics add that Florida’s generous laws on attorneys’ fee recoveries mean that, when the insurance company loses, it may pay far more than the amount of the claim, further ballooning legal expenses that add to premiums.

Most national insurance companies have avoided the Florida homeowners insurance market for years, mainly ceding the field to smaller local companies that rely on reinsurance to write coverage in the state. After major storms, as claims mount and reinsurance becomes less available, smaller insurers may not have the capacity to renew policies or, in some cases, to pay claims. Since 2020, about a dozen insurers have been declared insolvent or have withdrawn from the state. As other insurers go broke or withdraw from the market, state-backed insurer Citizens Property Insurance Corp. has in recent years morphed from an insurer of last resort to one of the largest property insurers in the state.

In addition to generous attorneys’ fee award rules, critics point to Florida laws allowing assignment of benefits (AOB) as fueling Florida’s insurance litigation crisis. Reportedly, the law allows contractors to replace an insured’s roof or do other repairs in return for a signed AOB. The signed AOB allows the contractor, without further permission or involvement of the homeowner, to sue the homeowner’s insurer for extensive damages and demand attorneys’ fees. It has been reported that over 100,000 such claims are filed in the Florida courts per year, even in years with no major storms.

Legislative Steps to Address Litigation

At the end of 2022, Florida took several legislative steps to address its insurance litigation environment, enacting laws that:

•     Prohibit AOBs under property policies issued on or after Jan. 1, 2023.

•     Prohibit routine attorneys’ fee awards to property insurance claimants.

•    Require a court finding of breach of contract before a suit alleging bad faith in claims settlement can be brought against an insurer.

It is too early to tell if these efforts will help normalize premiums in the state’s property insurance market, but there is no denying the problem. In supporting the AOB reform bill, Gov. Ron DeSantis acknowledged that Florida’s AOB system had “become a racket in recent years.” Also noting the need for reform, Former Florida Senator Jeff Brandes observed that “the simple truth is that you can’t be the most hurricane-prone state and the most litigious state and expect lower property insurance rates.” 

Further aggravating the cost of insuring against hurricane risk is the fact that ordinary homeowners insurance does not cover flood loss. Flood coverage for homeowners requires a separate policy and premium, and the premiums are sufficiently hefty that only about 19% of Florida homeowners have purchased it. This often results in significant uninsured flood losses after a hurricane, losses borne by people who may not have the resources to replace their homes.

In December 2022, Florida enacted legislation that requires homeowners insured for wind and other all-risks by Citizens Property to also purchase flood insurance or switch their homeowners coverage to a private insurer. It remains to be seen whether this legislation will help reduce the flood insurance gap or just serve as a strong incentive for homeowners to find a private insurance alternative to Citizens Property for their homeowners coverage. The flood insurance gap may remain a major challenge for Florida, as it is for other flood-prone states.

While the situation is less extreme in the commercial insurance marketplace, Florida’s high hurricane risk profile and difficult litigation environment have driven high premiums and high percentage deductibles for years. Wind and flood coverages for Florida coastal locations have become so expensive that small businesses and corporate policyholders sometimes need to accept lower sub-limits than they would prefer. Significant storms like Hurricane Ian only make the situation worse, as reinsurers further reduce capacity and increase premiums after such storms, resulting in less availability and higher prices for the commercial policyholder.

In the current circumstances, the cost of commercial coverage for Florida coastal locations is forcing many policyholders to essentially become co-insurers of their Florida wind and flood risks.  Some homeowners and commercial policyholders are beginning to ask whether coastal Florida hurricane risks will be too expensive to insure in the 2030s.

Preserving the Insurability of Hurricanes

To preserve the insurability of hurricanes in Florida, three public policy steps seem worthy of immediate consideration. First, prioritize infrastructure initiatives that add greater flood protection where possible in heavily developed coastal areas. Second, make aggressive changes to Florida’s building codes to require flood-resilient construction in flood-prone areas. Finally, continuously monitor the litigation environment to make sure the system is working to uphold valid claims while not unnecessarily adding to the heavy premium burden on the state’s policyholders. The solutions are difficult but achievable if significant action is taken now.