Hurricane Ian, a massive and powerful Category 4 storm, made landfall on the gulf coast of Florida on Wednesday. With unprecedented storm surge of 12 to 18 feet and winds around 150 miles per hour, Hurricane Ian is among the most powerful storms to ever hit the region. It’s also extraordinarily large, with a 150-mile radius wreaking havoc across much of the state. The latest estimates on property damage are hovering around $30 billion, with deaths and injuries still unknown. 

As flooding and heavy rainfall continue in the Orlando area and move toward northeast Florida, concerns about the already struggling homeowners insurance market are well founded. A crisis decades in the making, Florida homeowners insurance has taken a massive hit this year, even before any named storms made landfall, much less one the size and scope of Ian.

Many of the problems stem from overzealous litigation; Florida accounts for 79 percent of all homeowners insurance lawsuits in the United States despite comprising only 9 percent of the policies in the country. Five insurers have failed this year alone, with a whopping 14 others fleeing the state and dropping 400,000 policies in the process. All of this occurred even before a massive, devastating storm had a chance to decimate insurance company balance sheets.

Many Floridians have turned to the so-called “insurer of last resort”: the state-backed Citizens Property Insurance Corporation. Their policies have ballooned from approximately 475,000 in June 2020 to more than 1 million just two years later. For homeowners across the state, Citizens may be the only insurer offering coverage on their property.

Citizens is currently estimating nearly $4 billion in losses from Hurricane Ian. CEO Barry Gilway asserted in July that the company has $13.6 billion in reserves to cover claims. However, there are additional complicating factors at play. In August, insurance ratings agency Demotech was on track to downgrade more than a dozen private insurers—a move that would negate their ability to fulfill federally backed mortgage requirements. In an unprecedented move, the Florida Office of Insurance Regulation established a “temporary reinsurance arrangement through Citizens Property Insurance Corporation (Citizens) in the event of disruptive financial rating downgrades from Demotech, Inc.” This means that some private insurers will likely come to call on the Citizens reserves, which are already set to be slashed 30 percent from their own policyholders’ claims.

Florida’s homeowners insurance market was hanging on by a thread before Hurricane Ian, and in the coming weeks will face tremendous financial pressure as claims begin rolling in. Should Citizens be completely pushed to the brink, taxpayers could be on the hook with assessments coming down on multiple types of insurance policies in the state—an extreme worst-case-scenario type of event with serious financial and political implications.

If Citizens and the state of Florida can weather the damages from Hurricane Ian, perhaps the severity will be enough to push lawmakers to solve this man-made crisis and once and for all end the litigious practices that have forced insurers to flee the state and caused policies to cost nearly three times the national average. If not, sooner or later, the market will completely collapse. 

Image Credit: Jovannig