Florida Insurance Market Braces for Hurricane Season

A very active Atlantic hurricane season this year, as forecast by the National Oceanic and Atmospheric Administration (NOAA), could further destabilize Florida's vulnerable insurance market, experts told Newsweek.

The state has already seen its home insurance premiums rise by 102 percent in the past three years, according to the Insurance Information Institute, or Triple I, due to a combination of excessive litigation, widespread fraud, and the increased risk of more frequent and more severe extreme weather events.

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The situation was made worse by the withdrawal of several private insurers who either cut policies or even left the state entirely to avoid paying damage claims higher than the profits they can make. While Florida authorities have been trying to stop the ongoing crisis and stabilize insurance premiums, many homeowners have been left scrambling to get coverage and having to rely on the state's insurer of last resort, Citizens.

"A destructive hurricane season could upend insurance markets in vulnerable states including Florida, Texas and Louisiana," Benjamin Collier, a risk management and insurance professor at the Fox School of Business at Temple University, told Newsweek.

"Increasing climate risks and inflation are raising the cost of insurance," he explained. "Homeowners in higher risk areas are experiencing dramatic premium increases and more frequently denied coverage. A destructive hurricane season would exacerbate these trends."

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Earlier this month, NOAA published its outlook on the 2024 Atlantic hurricane season, which starts on June 1 and lasts until November 30. It predicted an 85 percent chance of an above-normal season, forecasting a range of 17 to 25 total named storms, of which eight to 13 are expected to become hurricanes. Between four and seven of these could be major hurricanes—category 3, 4, or even 5, the highest category possible.

This particularly active season is expected to be the result of a combination of factors, including near-record warm ocean temperatures in the Atlantic Ocean and the development of La Niña conditions in the Pacific Ocean.

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"All indications are that this is going to be a particularly active Atlantic hurricane season," Steve Bowen, chief science officer with Gallagher Re, told Newsweek. "Obviously, when we're talking about the potential for hurricanes, major hurricanes in the Atlantic Ocean, that increases the potential of there being more landfalls in the U.S., which, of course, would translate into potentially higher loss costs."

While a very active meteorological season does not necessarily translate or guarantee a high volume of landfalls in the U.S. and, conversely, significant impacts to life and property, "we are certainly facing very favorable environmental conditions, which would typically translate to a very active season and we need to be paying very close attention," Bowen said.

"Anywhere from Texas all the way up into the Northeast, you have to be paying attention to this. It only takes one event to make a truly busy, active, costly, damaging, destructive year."

Across the country, and especially in the states more traditionally vulnerable to extreme weather events, private insurers are responding to the growing risk posed by climate change by dramatically increasing premiums, cutting coverage or leaving states entirely.

"Part of the challenge is that insurers believe that prices should increase much faster than some state insurance regulators will allow," Collier said. "But another issue is uncertainty—climate risks are increasing but it is impossible to say by exactly how much. Property losses are growing quickly, leading some insurers to question if they have underestimated severe climate risks."

A destructive hurricane season would contribute to a view that climate risks are growing faster than insurers thought, Collier said.

"When insurers cannot measure a severe risk precisely, they have a common playbook: dramatically raise premiums, ration coverage to high-risk customers, or exit the market entirely," he said. "We have seen this before in insurance markets for terrorism, cyber, and earthquake risks, and it is playing out in the home insurance market today."

Penny Liao, an economist and researcher at Resources for the Future, agreed that hurricanes this year could potentially destabilize insurance markets that are already vulnerable, "especially if they hit highly populated areas in Florida, Texas, and Louisiana," she told Newsweek.

"The Florida market currently consists of many small and local insurers that are not well capitalized and rely heavily on reinsurance," Liao said. "If insured losses end up being very high, we might see insurer insolvencies and withdrawals, as well as higher premiums in the following years due to the increase in reinsurance costs."

Large hurricane losses might also trigger additional assessments from state-backed programs such as the Florida Hurricane Catastrophe Fund and the Florida Insurance Guaranty Association on policyholders, Liao said, "which will add to insurance costs down the line."

Are you a Florida homeowner concerned about how this year's hurricane season might affect your insurance premiums? Contact g.carbonaro@newsweek.com

Correction, 6/3/24 8:20 a.m. ET: This article identified Triple I as the Insurance Information Institution, it was corrected to say Insurance Information Institute.