Milton will force all Floridians to pay more for insurance

By Thomas Frank, Avery Ellfeldt, Anne C. Mulkern | 10/10/2024 06:18 AM EDT

The claims that insurers pay for damage from hurricanes Helene and Milton could prompt companies to raise rates that are already the highest in the U.S.

A person walks through windy and rainy conditions on a deserted street in downtown Tampa, Florida, during the approach of Hurricane Milton.

Ron Rook, who said he was looking for people in need of help or debris to clear, walks through windy and rainy conditions on a deserted street in downtown Tampa, Florida, during the approach of Hurricane Milton on Wednesday. Rebecca Blackwell/AP

Not everyone in Florida was hit by Hurricane Milton.

But everyone in Florida will likely pay for it through surcharges imposed on their insurance policies and potentially higher premiums for property coverage.

The double whammy of Hurricanes Helene and Milton exposes both the weakness of Florida’s property insurance market and its reliance on emergency charges and funds to pay claims from catastrophic disasters.

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“There is a lot of pressure on the property insurance market in Florida, even without Helene and Milton. So when you add Helene and Milton to the mix, it really exacerbates a challenged market,” said Lori Medders, an expert on Florida insurance and professor at Appalachian State University in North Carolina.

Milton hit Florida’s west coast Wednesday night, bringing intense winds and floods to a wide swath of the state. The unusually strong hurricane came just two weeks after Helene devastated some of the same communities.

Before Milton hit, analysts predicted widespread damages. Moody’s RMS Event Response said Tuesday that the storm could threaten $1.1 trillion of commercial real estate in Florida, with about 235,000 structures in the direct path of the hurricane.

A separate analysis Monday said Milton’s storm surge could imperil 500,000 single-family and multifamily homes in the Tampa Bay and Sarasota areas on Florida’s Gulf Coast. The estimate by CoreLogic, a property information and data analytics firm, put the homes’ reconstruction cost at $123 billion.

Residents throughout Florida could be on the hook for those damages due to two unique circumstances.

Florida has a special state fund — the only one in the U.S. — that pays insurance claims after catastrophic hurricanes, acting as a reinsurer.

The Florida Hurricane Catastrophe Fund has about $7 billion in reserves — and the authority to impose emergency assessments on insurance companies if it needs more money. Insurers can pass the assessments on to policyholders.

If the fund exhausts its reserves, it would tap into $3.2 billion of private-sector reinsurance that “would likely be repaid by levying emergency assessments,” according to a fund report in May.

Extensive wind damage from Helene and Milton will trigger insurance claims that “could strain FCHF’s reserves,” senior Moody’s Ratings analyst Denise Rappmund said Wednesday.

A separate state-supported program directly insures 1.3 million properties and also can impose assessments and levy surcharges directly on insurance policies. The assessments and surcharges are effectively a state-created subsidy that enable the program’s policyholders to pay below-market premiums.

The program, which is run by Citizens Property Insurance Corp., has become Florida’s largest insurer by a wide margin, writing 15 percent of the state’s property insurance policies. More than 800,000 people have joined Citizens since 2019 after being unable to buy coverage from a private insurer.

Citizens says it can pay about $14 billion in claims before it needs to impose surcharges and assessments, according to a September report.

But it insures $533 billion worth of property statewide, according to another report.

“Citizens is sitting on some of the riskiest policies in Florida,” said Ishita Sen, an assistant professor at Harvard University who researches insurance markets. “There is definitely a worry of whether or not they are going to be able to withstand the number of claims. It really depends on how strong Milton turns out to be.”

Citizens’ massive growth means that Milton will put additional strain on the catastrophe fund, since Citizens “gets a substantial amount of its reinsurance” through the fund, Medders said.

Under an intricate plan disclosed by Citizens in September, the program will pay the first $6 billion in claims from its own reserves. When those are exhausted, it would take $4.6 billion from the catastrophe fund.

The catastrophe fund is under “tremendous pressure vicariously by way of Citizens,” Medders said.

“The way the state has set it up,” Medders added, means that assessments on insurance companies are “a necessary part of the system.”

Insolvency risk

Florida created the catastrophe fund in 1993 after Hurricane Andrew demolished southeastern Florida, prompting large national insurers to pull out of the state and forcing at least 11 insurers into insolvency.

The fund, which like the Citizens program amounts to a policyholder subsidy, says it “has generated significant premium savings for Florida policyholders” by helping primary insurers pay for excessive claims.

Florida’s insurance industry has never fully recovered from Andrew, a Category 5 storm that caused more than $15 billion in insured losses and led the state legislature to create the catastrophe fund.

The withdrawal of well-capitalized national insurance companies led to an influx of small, local insurance companies that are highly exposed to Milton — and likely do not have enough capital reserved to cover potential losses from the catastrophe.

A significant number of those insurers became insolvent after heavy losses caused by Hurricane Irma in 2017 and Hurricane Ian in 2022.

“In the aftermath of something as big [as Milton], and especially that there are two back-to-back hurricanes, you worry about the extent to which they are going to be able to pay back policyholders once claims happen and how quickly they would be able to sort of pay out claims,” Sen said.

Mark Friedlander, a spokesperson for the industry-funded Insurance Information Institute, said Florida property insurers are “well-positioned to act as financial first responders” to people whose homes are damaged by Milton.

“The market is in its best financial condition in many years,” Friedlander said, citing new Florida laws that make it harder for policyholders to sue their insurance companies if they think a claims payment is too low. He called Helene a “moderate loss event,” saying much of the damage resulted from flooding, which homeowners’ insurance policies do not cover.

But on Tuesday before Milton hit, Friedlander predicted that the hurricane would “most likely be a much larger windstorm loss event than the last three landfalling Florida hurricanes combined.”

The claims that insurers pay for damage from Hurricanes Helene and Milton could prompt companies to raise rates that are already the highest in the U.S.

“It really depends on how the impact of the storm is,” Florida Chief Financial Officer Jimmy Patronis told “Fox Business News” when asked if Milton would cause insurance premiums to spike. “You’re looking at somewhere north of 10 [billion], maybe 20 billion worth of insured losses.”

When insurers in Florida become insolvent, an entity called the Florida Insurance Guaranty Association pays the unpaid claims — up to $300,000 per policyholder. Most states have similar associations, which are funded by the insurance companies operating in the state.

The Florida association would pay claims if insurers become insolvent after Helene and Milton — another cost that would be passed onto policyholders.

“Once there is an insolvency and you figure out we need to, let’s say, pay a billion dollars of claims for the policies of the insurer that failed, that $1 billion would be sourced from the remaining insurance companies,” Harvard’s Sen said.

The association has imposed assessments every year since 2021.