In the aftermath of Hurricane Ian, images of the widespread devastation of homes in southwest Florida caused by a relentless storm surge has political leaders and insurance industry advocates clamoring for a major overhaul of the state’s property insurance market to deal with the catastrophic impact of flooding.
In Miami-Dade County, the situation is more dire as climate change, sea-level rise and runaway development has exacerbated the dangers of coastal and inland flooding, even in the absence of a hurricane threat, say experts.
“You have king tide flooding on sunny days,” Mark Friedlander, director of communications for the Insurance Information Institute (III), told the Biscayne Times. “Your home could flood in an afternoon summer storm. It’s not just hurricanes.”
( insurancejournal.com)
King Tides cause flooding in Miami-Dade as routinely as an afternoon thunderstorm.
According to the Federal Emergency Management Association, Miami-Dade County has experienced 54 floods between 1996 and 2019, and roughly 50% of single-family homes, townhouses and condo buildings are in federally designated flood zones. Yet only 18% of Florida homeowners have flood insurance, although the III says most policyholders are in Miami-Dade.
State Sen. Shevrin Jones said the state Legislature must act during the upcoming session in March to institute reforms that curtail the tsunami of insurance claim lawsuits filed annually, and convince more Floridians that securing their properties with property and flood insurance is a necessity.
“We have put off property insurance reform for way too long,” Jones, a Democrat representing portions of North Miami-Dade, told the Biscayne Times. “We could have done more during the last session. Instead, we spent more time dealing with culture war than preparing for times like this. Legislators, insurance companies and the trial attorneys have to come together and figure out the best way we can get homeowners and the state of Florida out of this catastrophe we are in right now.”
Underinsured & Unprotected
The high cost of flood insurance is a major reason many homeowners don’t buy it unless they’re forced to, Friedlander said. Banks require homebuyers to obtain flood insurance if they are in a FEMA flood zone as a condition of obtaining a mortgage. But once a mortgage is paid off or if a homeowner acquires a property with cash, they typically don’t buy flood insurance because it’s an expensive protection, Friedlander said.
In southwest Florida, he says there are widespread cases of homeowners who dropped their flood insurance because they had paid off their mortgages.
“It is an unfortunate situation because storm surge was a major part of the damage caused by Hurricane Ian,” said Friedlander. “If you don’t have flood insurance, you are not financially protected.”
However, homeowners have few options when it comes to obtaining flood insurance. Typical property insurance covers losses caused by wind damage, not rising waters. Most homeowners get flood coverage through FEMA’s National Flood Insurance Program, which is roughly $20.5 billion in debt to the U.S. Treasury and can borrow about $10 billion more to pay claims.
The problem with having a federal flood insurance policy is that it caps damages for a building loss at $250,000, says Luis Gazitua, sales director for Coral Gables-based Jag Insurance Group.
“Those who do have it are underinsured,” he said. “It’s not enough to cover the cost of rebuilding a home destroyed by a storm surge or a flood event.”
While homeowners can purchase flood policies from private carriers that offer more coverage, says Gazitua, there are few insurers willing to protect homes deemed high-risk for a flooding event.
“If more people bought flood insurance, we could spread the risk out,” he said. “It would put us in a better situation from an insurance standpoint.”
The entire state should be designated as a flood zone, Gazitua added.
“It has to change,” he said. “When you live in a peninsula surrounded by water, you are in a flood zone.”
Shrinking Options
Changing people’s way of thinking is only one step on the path to shoring up Florida’s property insurance market, which is on the verge of collapse. Major insurance providers like The Travelers Companies, Nationwide Mutual Insurance Company and Allstate have pulled out of Florida because it’s gotten so expensive to pay out claims. Consumers must rely on Florida-only property insurance companies and the state-run insurer of last resort, Citizens Property Insurance Corp.
Six private insurers became insolvent in the past year, Friedlander and Gazitua note.
As a result, Citizens has become the go-to property insurer in Florida with 1.4 million customers, a base that is 53% larger than the number of customers who have policies with Universal Property & Casualty Insurance Company, Florida’s largest private insurance company, says Friedlander.
“Citizens has grown very rapidly due to the instability of the private market,” he said. “And because Citizens has a restriction on the rates it can charge, what customers are paying does not match the risk the company is underwriting.”
If a deadly storm like Hurricane Ian were to hit Miami-Dade, it could potentially wipe out all of Citizens’ reserves.
“If the reserves are depleted, every consumer in Florida would be paying to replenish the reserves through surcharges,” Friedlander said. “If you have an auto insurance policy, you would get hit with a surcharge to replenish Citizens.”
Democratic State Sen. Jason Pizzo, who represents North Miami, Miami Shores, El Portal and Biscayne Park, proposes encouraging or requiring Florida property insurers to show proof they have enough capital to cover the risk they are taking on.
“I would like to see better metric guidelines for how insurers’ risks are assessed,” he said. “Or also putting some restrictions on the amount of risk an insurance company can have relative to the amount of capital they have available.”
The Cost of Litigation
For big insurance companies like Travelers, Nationwide and Allstate to do business in Florida again, experts say the Legislature must reform the property insurance market to diminish the number of insurance claims lawsuits.
“We have a lawsuit problem that has to change,” Gazitua said. “That is why Allstate and Nationwide are in 49 other states, but not in Florida. They are not comfortable with how the claims litigation process is set up.”
“Florida leads the nation in the volume of litigation claims filed against property insurance companies,” Fredlander said. “There were 107,000 lawsuits filed last year. That accounted for 81% of property claims lawsuits in the U.S.”
Hurricane Ian’s devastation will exceed $60 billion in total losses, the second highest in history behind the total losses suffered during Hurricane Katrina, says Friedlander.
“Of that $60 billion, we project $10 to $20 billion will be litigation related,” he said. “A lot of the losses will be for flood and a property insurance policy won’t cover it. There will be a lot of contention over whether it was a windstorm loss or a flood loss.”
It’s a problem that directly correlates with the instability of the private property insurance companies in Florida. In addition to the six companies that went belly up, another 27 are on the insurance regulators watchlist.
Sen. Pizzo asserts that curbing exorbitant legal fees isn’t the only answer.
“I am not discounting the fraud and the lawyer fees,” he said. “We need to do everything we can on that front. But every time there is a proposed remedy for bringing rates down, the industry will claim it will take 18 to 24 months before there is any substantive improvement on price.”
At a press conference last month, Florida Gov. Ron DeSantis said it’s possible he and state legislators would start tackling the state’s property insurance crisis during a special session that will focus on dealing with property tax issues in communities hardest hit by Hurricane Ian.
While Jones agrees that curbing insurance litigation should be a top priority, he says property insurers bear responsibility when companies bail on homeowners by canceling their policies without justification.
“There were a few insurance companies that dropped people before the hurricane hit,” he said. “We need to hold insurers accountable for doing that. We can’t leave people without coverage.”
Like Jones, Pizzo also criticized the Republican-led legislature for focusing on a “bunch of unnecessary culture war issues.” He also points to a lack of action on property insurance in more than 20-years.
“Now they complain about property insurance being so out of control,” he said. “If you control both chambers and the executive branch, can you explain why we got here? It’s because they have been focused on BS.”