Florida Insurance Warning Issued Around Major Hurricane

A disastrous hurricane season this year could challenge Florida's vulnerable property insurance market, reversing efforts to stabilize it and potentially leading to further increases in premiums for homeowners in the state, experts told Newsweek.

After years of skyrocketing premiums, "the Florida insurance industry is in its best financial position in nearly a decade," Mark Friedlander, director of the Insurance Information Institute (Triple-I), told Newsweek. "In the first quarter of 2024, the industry posted a net income profit of nearly $266 million and a net underwriting gain of almost $160 million. The Florida industry has not generated a profitable underwriting result since 2015," he added.

This is mainly due to recent efforts by Florida legislators to introduce new insurers in the state and depopulate Citizens, the Sunshine State's insurer of last resort. But what would happen should this year's hurricane season bring devastation across the state and hit homeowners hard?

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The National Oceanic and Atmospheric Administration (NOAA) outlook on the 2024 Atlantic hurricane season said there is an 85 percent chance of an above-normal season this year. NOAA forecast an estimated 17 to 25 named storms, of which eight to 13 are expected to become hurricanes. Between four and seven could be Category 3, 4 or 5 hurricanes—the most devastating.

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Friedlander said that Florida residential insurers currently have adequate reinsurance coverage for the 2024 Atlantic hurricane season, "which ensures they will not deplete their reserves to pay storm claims."

Charles Nyce is department chair and a Dr. William T. Hold associate professor of risk management and insurance at Florida State University. He told Newsweek that Citizens is in a strong position this year—while the Florida Hurricane Catastrophe Fund (Cat Fund), the state's trust fund providing reimbursements to insurers for parts of their hurricane losses, is in a more shaky one.

"Both Citizens and the Cat Fund published in February 2024 the likelihood of assessments—losses being greater than current funds on hand—for the upcoming storm year," Nyce said.

"For Citizens, they had roughly $5 billion in capital, plus reinsurance, plus some Cat bonds, so they are unlikely to have to do an assessment this year. It would take something near a 1-in-100-years event before Citizens would 'run out of money'," Nyce added.

While concerns have focused on Citizens, Nyce said that the Cat Fund is actually in a much weaker position than Florida's insurer of last resort.

"If a larger storm—1-in-20-years or 1-in-25-years event—hits Florida, the Cat Fund would owe about $17 billion to insurers in Florida. They have about $6 billion in claims paying ability right now, so they would need to issue bonds on the municipal bond market and use the proceeds from those bonds to pay for claims," Nyce said. "They can then do an assessment to pay back the bonds."

Nyce added that "this is far more likely than Citizens having to do it. The Cat Fund did this after the 2004-2005 storms as well."

"They can assess all property casualty insurance policies sold in Florida except medical malpractice and workers' compensation, like Citizens," he said.

An assessment from Cat Fund could impact all Floridians who have purchased property casualty insurance policies. "The average person would see an assessment on their homeowners policy, their auto policy, and their umbrella policy. The average business would see an assessment on their property policy and their liability policies," Nyce said.

"It spreads the cost across Floridians and into the future. If it happens a lot, it could curtail future growth in Florida. It has not happened frequently yet; it has only happened once, in the 2004-2005 storms, where seven named storms made landfall causing more than $35 billion in losses at that time," Nyce said.

Neither Citizens nor the Cat Fund can, as Florida Governor Ron DeSantis once suggested, go insolvent. After the storms of 2004-2005, Citizens increased premiums between 1 and 2 percent to cover for the losses and pay off bonds. Newsweek emailed the Cat Fund for comment by email on Wednesday morning.

Friedlander, despite the optimism toward Florida's property insurance market, said that "potentially, a very active hurricane season in Florida could lead to insurers having to purchase additional reinsurance cover beyond what they already have."

Citizens has already purchased $3.56 billion in reinsurance earlier this month to shield itself before the hurricane season. This ensures it has "the financial resources to pay claims following a 1-in-83-year hurricane without having to levy an assessment on most Florida insurance consumers."