Florida’s insurer of last resort, Citizens, is likely on track to break its policyholder number record, according to insurance market sources. Citizens already had more than a million policyholders before category four Hurricane Ian churned through the state late last month, despite no major hurricane hit since 2018’s Michael.
- Citizens already had more than a million policyholders
- The Insurance Information Institute has predicted that the state’s insurer could average 30,000 to 40,000 new customers
- Insurers in Florida are currently barred from non-renewing or canceling policies
- The insurer of last resort said that it expects to see at least 225,000 claims arising from Hurricane Ian
- The sunshine state’s insurance market makes up 79% of nationwide homeowners’ litigation, but only 9% of US homeowners’ claims
Now, it could see policyholder numbers balloon to well over 1.5 million, and some have predicted it could potentially hit two million.
“Citizens is now going to probably get to two million policies because of [insurance companies] non-renewing here,” Kenneth Tolson, Crawford global president, network solutions. “You’re going to see more companies shedding policies [and these] moving to Citizens.”
Because of significant exposure growth, the impact of social inflation, and climate change complications, Florida’s insurance market could struggle to respond to a repeat of a Category 5 hurricane, such as Hurricane Andrew – which hit southwest Florida in 1992.
Catastrophe risk modeling firm AIR Worldwide estimates that if Hurricane Andrew were to recur today the expected total industry insured losses (based on today’s exposures) would be approximately $56 billion in the United States, with nearly 95% of the losses coming from properties in Florida.
If a similar Category 5 Andrew-like hurricane were to strike just south of Miami and just 8 miles north of Andrew’s landfall in the city of Homestead, AIR estimates that total insured losses would exceed $138 billion, with losses in Florida exceeding $127 billion.
Andrew killed dozens and caused an estimated $15.5 billion in total insured losses, according to Property Claims Services (PCS), and resulted in the insolvency of 11 insurance companies.
The costliest natural disaster in U.S. history at the time, Andrew changed forever how (re)insurers approach hurricane risk management, spurring the growth of the emerging catastrophe modeling industry and ultimately prompting the development of insurance-linked securities.
Litigation costs could add between $10 billion and $20 billion to insured losses from Hurricane Ian, according to the Insurance Information Institute.
“Based on the past history of lawsuits following Florida hurricanes and the state’s very litigious environment, we expect a large volume of lawsuits to be filed in the wake of Hurricane Ian,” Mark Friedlander, Triple-I corporate communications director told Insurance Business.
Trial attorneys are “already on the ground” and soliciting business in some of the hardest hit areas, Friedlander said.
Most lawsuits are expected to involve the distinction between flood and windstorm losses, with Ian having brought record storm surge and flooding to parts of Southwest Florida.
This year has seen the failure of six Floridian insurance carriers, and this was prior to category four Ian making landfall in the state in late September.
Early industry estimates have suggested that Ian has the potential to drive insured losses of upwards of $50 billion.
Onshore property insured losses could be between $42 billion and $57 billion, Verisk Extreme Event Solutions has forecast.
CoreLogic, meanwhile, has pegged potential industry costs at between $28 billion and $47 billion. At the lower end of the upper scale, DBRS Morningstar has put the event’s potential insured loss price tag at between $25 billion and $40 billion.
Policyholders now have two years from the hurricane’s landfall to file claims under the statute of limitations.
Florida accounts for 79% of all US homeowners’ claims litigation despite only representing 9% of total claims, according to figures shared by the Florida governor’s office.
The Insurance Information Institute (Triple-I) has predicted that the state’s insurer could average 30,000 to 40,000 new customers every month following Ian’s impact.
At this rate, it would surpass its all-time high policy count, of just over 1.48 million, in 2023. The past record was set, according to Citizens, in November 2011, with exposure of $517.4 billion at the peak.
Insurers in Florida are currently barred from non-renewing or canceling policies until November 28, under an emergency order issued by the state’s Insurance Commissioner David Altmaier.
Between September 28, 2022, and November 28, 2022, no insurer or other entity regulated under the Florida Insurance Code shall cancel or non-renew, or issue a notice of cancelation or non-renewal of a policy or contract of insurance covering a property or risk in Florida, except at the written request or written concurrence of the policyholderthe order, issued late September, set out
This means that any rush towards Citizens is unlikely to be seen until the end of November.
However, with the failure of multiple insurers – including six so far this year, with Fed Nat the latest to have been placed into receivership – Citizens policyholder numbers had already been on the up prior to Ian.
From July 2021 to July 2022, its policy count had climbed from 641,000 to above 900,000, and this went on to breach the one million mark in the following months.
A historic low of 419,475 in November 2019, when exposure was $107.4 billion.
“Our last estimate pre-Hurricane Ian was that we would approach 1.2 million policies by the end of the year,” a spokesperson for the organization confirmed.
The insurer of last resort said that it expects to see at least 225,000 claims arising from Hurricane Ian, with current estimated losses ranging from $2.3 billion to $2.6 billion.
Florida was already facing up to an insurance crisis before Ian hit, with premiums some of the most expensive across the US.
Florida homeowners can expect to spend an average of $4,231 on their property insurance premium, more than three times the US average of $1,544, based on Triple-I analysis.
One factor that the insurance industry has argued is driving up premium costs for Floridians is the litigious environment. The sunshine state’s insurance market makes up 79% of nationwide homeowners’ litigation, but only 9% of US homeowners’ claims, according to data from the Florida governor’s office.
The state’s legislature moved to combat its spiraling insurance costs and capacity challenge in a special session in July, though critics have argued it has further to go.
Under the statute of limitations, homeowners have three years to bring claims from the date a hurricane hits.
Prior to Hurricane Ian, 27 domestic insurance companies in the state were on its insurance regulator’s “watch list” due to their financial status, Triple-I has said.
We don’t expect a complete collapse of the Florida domestic market but it would not surprise us if several smaller regional insurers fail in the wake of Ian due to the expense pressures of a high volume of windstorm claims combined with excessive litigationTriple-I corporate communications director Mark Friedlander
This will increase the volatility of the state’s private property insurance market.
While the wind was the main driver of loss in 1992, the number of new, high-valued buildings near the coast suggests that storm surge losses may play an increasing role in a repeat of this event.
Cost inflation since 1992 has been substantial, with replacement costs in Florida estimated to have increased between two times and 2.5 times since 1992, based on historical construction cost indices.
The 25% roof replacement rule – set in 2007, mandated that if 25% or more of a roof is ‘repaired, replaced or recovered’ in any 12-month period, then the entire roofing system or roof section must be brought up to the latest building code – contributed to a significant increase in claims frequency and severity.
The roof damage sustained during the storm attracted many roofing contractors, who handed over their exaggerated claims to be pursued by attorneys.
However, a new law passed by the Florida legislature in May 2022 changed the 25% roof replacement rule to exempt roofs built, repaired, or replaced in compliance with the 2007 Florida Building Code, or any subsequent editions of the Florida Building Code.by Yana Keller