The scale of the destruction from Hurricane Ian threatens to undermine Florida's insurance and real estate markets as residents file a record number of claims.
Privately insured losses from Ian are expected to reach $65 billion, not including flood insurance, according to an estimate by RMS. It is in line with other forecasts and puts Ian, which slammed into Florida two weeks ago, close to 2005's HurricaneKatrina, the most expensive disaster in US history.
It is twice the toll of insured losses from Hurricane Andrew in 1992, which was the most expensive storm to hit Florida and bankrupted some insurance companies.
Climate change is making hurricanes and other disasters more destructive and pushing up the cost of home insurance until it's out of reach for many people, according to data. Insurers are pulling back from markets in states like Louisiana and California because of storms and flooding.
It is not possible to build in high-risk areas indefinitely and expect it to be insurable at an affordable rate.
Climate change is taking a toll on modern American life. Most people can't buy a home if they don't have a mortgage. New development can slow or even stop if fewer buyers are present.
The private insurance market is needed to have a mortgage market. Will working- and middle-class homeownership be viable in Florida in the future?
The Florida coast has been defined by houses on the beach. Florida's insurance market was as carefully manufactured as the coastal subdivisions that Ian destroyed.
It's just as vulnerable.
After Hurricane Andrew destroyed tens of thousands of homes in Miami in 1992, the state strengthened building codes and set up a series of quasi-public entities to do what the private market wouldn't: insure Florida homes against wind damage from future hurricanes.
The vast majority of flood coverage in Florida is sold by the federal government.
Citizens is a state mandated company meant to cover homeowners who can't find private insurance. The surcharge is added to the private insurance bills of homeowners around the state if Citizens needs more money to pay claims.
Most national insurance companies stopped writing policies in Florida since Andrew. They were replaced by a network of smaller insurers. Their small size is one of the things that distinguishes them from other insurers.
In most insurance markets, companies try to keep their cash reserves large enough to cover all or most of the claims they face. Insurers in Florida don't build up large surpluses, which allows them to keep rates low.
Instead of relying on their own surpluses, when a storm hits, Florida insurers depend heavily on what are called reinsurers: Companies, many of which are based in Europe or the Caribbean, whose business is selling insurance to insurance companies.
The problem with that arrangement is that reinsurers negotiate with Florida insurers every year. If they decide the risks are too high, they can raise their rates as much or as little as they want.
If you want to have reasonable rates for consumers, you need to keep reinsurers happy.
Reinsurers are becoming increasingly unhappy due to Florida.
There are many complaints about the ease with which insurance companies can be sued. In the United States, Florida accounted for 7 percent of homeowners' claims last year, but it saw 76 percent of homeowners' lawsuits against insurers.
Home construction is still going on in coastal areas. The agency that limited home building in vulnerable areas was closed in 2011. The population of Lee County grew by 25% between 2010 and 2020.
The problems have been going on for a long time, according to the president of U.S. property and casualty. He said the system would be tested by Hurricane Ian.
The state's insurance companies wanted more coverage than the reinsurers were willing to give. The government-mandated insurance plan was only able to buy half as much as it wanted at a price it was willing to pay. Reinsurers raised prices by as much as 50 percent because of the high cost of the coverage.
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In the last few years, an insurance agent in Miami has been having difficulty finding homeowners' coverage for his clients. If people couldn't find insurance, they had to pay $20,000 a year or more.
He said that Hurricane Ian would make the situation worse.
Coverage is capped at $1 million in Miami and the Florida Keys, and $700,000 in other parts of the state. Many of the homes in those areas are worth more than that.
In the aftermath of Hurricane Andrew, Florida's insurance market was more vulnerable to shock than it is now due to the heavy reliance on reinsurance, according to John Rollins, the chief risk officer for Citizens.
He said that it would be difficult to get a new policy. I am not an alarmist but I am very worried.
Nobody knows how the storm will affect Florida's insurance and housing markets.
The caps could be increased by the state. Even though Citizens is on track to become the state's largest insurance company, it would be contrary to Florida's long-stated goal of keeping enroll low so that the plan remains an insurer of last resort.
Expansion of the Florida Hurricane Catastrophe Fund is one of the options the state could consider. A maximum of $17 billion can be paid out by the fund in a single year. Ian could deplete the fund, according to some experts.
The officials could allow more money to be made available. A fee on insurance customers across the state would be unpleasant for a state that doesn't tax.
The office of the governor didn't reply to the request. The office of the insurance commissioner in Florida closely and consistently monitors the financial condition and operational results of insurers to protect consumers.
Regardless of what happens to Florida's insurance market, experts say the sunshine and azure waters of the state will not be affected. There are people who want to live there. How will they pay for it?
Benjamin Keys, an economist and real estate professor at the University of Pennsylvania's Wharton School, has studied the effects of climate change on Florida real estate.
Homeownership could be preserved by the ultra wealthy, who can afford to buy homes without a mortgage. The market could shift to rental properties if buildings owned by trusts or other deep-pocketed companies are included.
The power is currently in the hands of executives in places like London, Munich and Zurich, who will make decisions over the next few months.
Just south of Mexico Beach on the Florida Panhandle, Debbe is a real estate agent. She now pays almost $3,000 a year for insurance on her home, which is not far from the water.
Home that are more than 20 years old will not be covered by her insurer. Some companies refuse to cover beach houses with wood pilings more than a decade old.
Most of her clientele are people buying second homes or vacation rentals. She said that some of her clients are seeing premiums go up by 50 percent or more.
What would happen to the local housing market if prospective home buyers became more difficult to find insurance?
The woman didn't hesitate. She said that they wouldn't have one.