The R Street Institute’s Caroline Melear, fellow on the Finance, Insurance and Trade policy team, appeared on “Mornings with Maria” on Fox Business to discuss Hurricane Ian, the National Flood Insurance Program and how recovery in the state will impact the ongoing Florida property insurance and litigation crisis.

(Read more of Melear’s analysis on Florida’s homeowner’s insurance market here.)


Maria Bartiromo, Host, Mornings with Maria: Joining me right now is R Street Institute Fellow Caroline Melear. Caroline, great to have you. Thanks very much for being here. Your reaction to what Madison is reporting and the recovery efforts right now in Florida.

Caroline Melear, Fellow, R Street Institute: Hi, Maria. Good morning. Thank you so much for having me. Yes, it’s just an unbelievable tragedy, a massive storm. My husband and I, we live in West Palm Beach. So, we’re on the other side of the coast. And, even we saw some of the effects of the storm. It’s just a testament to how big and ferocious it was. And so, what R Street Institute is looking at now is some of the implications for the homeowners insurance industry in the state.

Bartiromo: I mean, long before the storm, the property insurance system was already in trouble in Florida. Analysts are now predicting home values in some of the highest risk areas could plunge as much as 50 percent, markets factoring in flood and storm costs from disasters like Ian. What’s your take on the insurance aid?

Melear: Sure. I think some of those estimates are a little dramatic, and these things are hard to figure out this early on, certainly. But, yes. We have had a homeowners’ insurance crisis in the state before the hurricane, and that’s largely based on litigation issues. So, we have a very overzealous litigation landscape in the state of Florida that is causing Florida to represent 79 percent of all homeowners’ insurance litigation claims, despite only comprising nine percent of the homeowners’ insurance policies in the country. And, these are frivolous lawsuits, and they’re causing insurers to flee the state because they can’t afford to operate profitably. We had over a dozen insurers flee the state before – this year alone before the hurricane even hit.

So, it’s a massive issue. We’re seeing downstream effects where homeowners are having trouble finding insurance to cover their properties. We’re paying three times the national average for homeowners insurance in the state of Florida.

Bartiromo: Wow.

Melear: So, it’s a massive problem, and it’s not related to storms and these lawsuits. Again, I’d like to reiterate, these are largely frivolous lawsuits. They are – you’ve got contractors that are going door to door insisting that they can get – homeowners can get free roofs. So, homeowners are victims of this whole situation –

Bartiromo: Yes.

Melear: –with downstream effects.

Bartiromo: Very disturbing.

Melear: That’s really detrimental. Yes.

Bartiromo: Yep, for sure. Dagen, jump in.

Dagen McDowell, Analyst, Fox Business: But, this state, Florida, itself some years ago set up an insurance pool and insurer of last resort, that with these insolvencies, six insurance company insolvencies in the last year or so. So, homeowners that lost their policies have wound up in a pool that is supported by the State of Florida. But, Caroline, the bigger picture is, that’s traditional property insurance is the flood insurance. So, in the last year or so, the percentage of homes covered by flood policies is down from five years ago. So, people who don’t have flood insurance, whose homes were damaged by floods from this storm, will require a bailout from the federal government.

Melear: Yes. That’s unfortunately probably going to be the case. And, I can also say it on Citizens, the state-backed insurer, that’s actually who my homeowners insurance is there, because we could not find anyone else who would cover our home. And, by the way, we don’t live in a – we’re not on the coast. We’re not in a floodplain. So, it’s become a huge problem.

We’ve seen over – we’ve got over a million policies now in that state-backed system.

And, yes, the flood insurance piece is a separate issue, but it’s going to be quite a problem especially in Central Florida where we’re woefully underinsured on flood. And, residents there, they never thought that they would be hit with a catastrophic flood. And, there might even be residents who aren’t aware they’re going to go and file their homeowners insurance claims and realize that, hey, yes, the wind is covered, the rain is covered, but that six or eight inches or three feet of flooding in your home, that’s not going to be covered, and it’s going to be very, very devastated.

McDowell: The issue–

Bartiromo: Wow. It sure is.

McDowell: –I’m trying to – Caroline, the issue I’m trying to illustrate those also, you have this property insurance fund, the insurer of last resort, that’s a state issue. So, if people choose–

Melear: Correct.

McDowell: –to live in Florida, all Floridians are essentially helping out one another, but with flood insurance since the 60s has been subsidized by federal taxpayers. So, people who–

Melear: Correct.

McDowell: –don’t live in flood-prone areas in Florida are paying to insure, in part, those people who are. And now, it goes even further that people – even people who live flood-prone areas in Florida chose not to get insurance. And now, it’s going to fall on people outside of Florida to bail those individuals out, and it’s going to be a political issue as well.

Melear: Yes, that’s right. So, the flood insurance is largely through the National Flood Insurance Program, which as you said, that is a federal program, of course. And, there are private flood insurers, but they’re smaller. That’s something that our organization has worked on. We are trying to grow the private market for flood insurance and introduce some competition into the marketplace there. But, yes, I mean, that is – a major part of the problem is we’re going to see even more reliance on government through the NFIP, through Citizens. So, – and we want to get away from those sorts of things. So, yes, the National Flood Insurance Program, we’ve advocated for all sorts of reforms there.

And, yes, the risk and the issues are going to be spread out across the entire country. But, still, for homeowners who don’t currently hold flood insurance policies, that’s going to be an entirely separate issue when they go and –

McDowell: Right.

Melear: –and are trying to rebuild–

Bartiromo: Yes.

Melear: –their homes and they–

Bartiromo: Caroline, thank you.

Melear: –don’t have any insurance. Thank you so much.

Bartiromo: Thanks very much, Caroline.

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