Florida faces its second major hurricane, with predictions of record-breaking storm surges and flooding. Private flood insurance premiums in the state have almost tripled over the last five years, according to BestWire.
Hurricane Helene primarily caused inland flooding and storm surges in late September. Hurricane Milton is now expected to hit Florida’s central west coast this week.
A new report from Morningstar DBRS predicts that Hurricane Milton will lead to insured losses nearing $100 bn. This could reverse the stabilization of reinsurance prices observed during mid-year renewals, pushing them back on an upward path.
The insured loss estimates include damages covered by the National Flood Insurance Program (NFIP), as private insurers typically don’t cover flood damage.
The report noted that while reinsurers and property & casualty insurance companies will likely see their combined ratios increase, solvency levels should remain stable. Morningstar DBRS does not expect any credit rating pressures, assuming the rest of the Atlantic hurricane season remains relatively calm.
BMS Group’s Senior Meteorologist Andrew Siffert projects insurers could face losses between $10 bn and $100 bn, although forecasts remain uncertain.
Siffert notes that while he’s cautious about alarmism, this storm might warrant extra attention from insurers and reinsurers. He refers to Milton as a “gray swan” event, a rare but significant scenario the industry has long anticipated.
The region’s population has surged to 4.1 mn, and hasn’t faced hurricane-force winds above 85 mph in decades. The insurance industry hasn’t encountered an event of this magnitude in such a populated area for years.
U.S. insurers wrote $1.37 bn in private flood premiums across the U.S., with $258.5 mn of that in Florida. This compares to $88.4 mn in 2019.
One scenario has Milton’s strongest winds hitting Tampa and St. Petersburg on Wednesday, causing record storm surges in Tampa Bay and Sarasota, just two weeks after Helene broke records in the same region. Evacuations are already in progress. If the storm lands south of Tampa, a “gray swan” event may be averted. The last major hurricane to hit Tampa Bay was in 1921, and a Category 1 storm struck in 1946.
Florida reported $122 mn in estimated insured losses from Hurricane Debby, with 59.6% of claims closed, according to the Office of Insurance Regulation (OIR).
Residential property insurers closed 62.1% of 12,814 Debby-related claims, more than double the 6,354 claims from other business lines, which make up the second-largest category.
Florida insurers closed 59.4% of claims from other lines, which include fire, marine, auto physical damage, crop insurance, and more. Commercial property saw lower closure rates, with 24.5% of 593 claims closed. Private flood claims closed at 14.5%, and none of the five business interruption claims had been resolved.
Hurricane Helene impacted over 100,000 buildings from Florida to West Virginia, according to ICEYE. However, private insured losses, primarily from storm surges and floods, remain in the single-digit bn range.
Florida property & casualty insurers had processed 48,341 claims, totaling $507.5 mn in estimated losses, according to the Florida Office of Insurance Regulation.
Karen Collins, Vice President of Property and Environmental at the American Property Casualty Insurance Association, noted that the National Flood Insurance Program’s take-up rate was under 1% in flood-affected areas outside of Florida after Helene.
However, Florida’s high-risk flood zones have a 35% take-up rate, based on FEMA data. Surprisingly, over 25% of NFIP claims come from people outside high-risk zones.
Floods are the most common natural disaster, but many homeowners outside designated flood zones lack coverage. This has contributed to a significant gap between Helene’s insured and economic losses.
Flood insurance rates may rise briefly after events like these but tend to drop back to pre-flood levels over time.
Collins emphasized that as the U.S. faces more frequent and severe natural disasters, including hurricanes and floods, a shift in mindset will be necessary to address preparedness and insurance gaps.
Hurricane Helene’s storm surge and flooding primarily affected four states: Florida, Georgia, North Carolina, and Tennessee.