Milton threatens to upend Florida’s shaky homeowners insurance market

By Andy Sullivan, Matt Tracy and Michelle Conlin

(Reuters) – Hurricane Milton threatens to dent Florida’s property insurance market, pushing prices higher and threatening coverage in a storm-prone region that already has the highest insurance costs in the country.

The massive storm, which analysts estimate could cause $60 billion to $100 billion in insured losses, is headed for a state that has been bypassed by national insurers, leaving residents scrambling for coverage in a market where commercial providers are failing or regularly refuses to pay damages.

“There are additional risks that, based on the fundamental principles of insurance, should not be present,” said Martin Weiss, founder of independent research firm Weiss Ratings. “Your insurance company should be your backup plan.”

In addition, Floridians could also face additional fees if the state’s insurer runs out of money to pay claims.

US meteorologists describe Milton as a “catastrophic” major hurricane, with maximum winds of 160 mph (260 km/h). It is expected to make landfall in the Tampa Bay area around 2:00 a.m. EDT (0600 GMT) Thursday. The low-lying region, home to 3.1 million people, is still cleaning up from Hurricane Helene last month.

Forecasts suggest the damage could be on par with 2005’s Hurricane Katrina, the costliest natural disaster in US history, which caused $100 billion in insured losses when it flooded New Orleans.

Over the past few years, Florida has been one of the most visible fronts of a nationwide homeowner insurance crisis, which is driving U.S. premiums to rise an average of 31% between 2021 and 2023, according to research by Benjamin Keys of the University of Pennsylvania and Philip Mulder of the University of Wisconsin.

Analysts point to an increase in inflation and an increase in extreme weather events linked to rising global temperatures. Climate change is fueling stronger and more destructive storms.

HIGH RISK CONDITION

These factors are all at play in Florida, which led the nation in population growth in 2021 despite low-lying topography that makes it vulnerable to sea-level rise and hurricanes. Florida zip codes account for 78 of the 80 riskiest areas in the country, according to Weather Source, an environmental risk consultancy.

Some insurers pulled out after Hurricane Andrew in 1992, leaving the market to smaller companies that often lack the resources to absorb significant losses.

About 41 insurers in Florida have filed for bankruptcy or otherwise failed since 2003, while only 37 have failed in the rest of the country during that time, according to public records. Those who remain in business may be tight-fisted; Weiss Ratings found that six of the state’s largest providers rejected nearly 50 percent of their claims in 2023, an unusually high number.

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The state established a nonprofit, Citizens Property Insurance Corp, in 2002 to provide coverage to homeowners who can’t find it through the private sector. With 1.2 million policies in force, it is now the largest provider in the state.

Unlike private companies, Citizens won’t run out of money to cover claims, as it has the power to charge policyholders an extra 15% if it runs out of cash.

If that doesn’t cover the bill, a 10 percent surcharge can be added for anyone in the state who has any kind of insurance policy — from boats to pets to vehicles — whether or not they get coverage through Citizens.

Citizens said in July it had $14.4 billion on hand to cover any losses. “We will always be able to pay damages,” spokesman Michael Peltier said Tuesday.

Collectively, the market saddled Florida homeowners with average insurance costs of $4,060 last year, nearly $1,000 higher than any other state, according to Keys data. These figures do not include the cost of flood insurance, which is usually purchased separately.

Average premiums rose 57% between 2019 and 2023, steeper growth than anywhere else.

REDUCTION OF REAR COVERS

Karyn Roeling, president of Seibert Insurance in Tampa, said those rising costs have led some of her clients to reduce coverage or opt out.

While banks require people who have mortgages on their homes to have insurance, it is not mandatory for those who do not owe money on their property.

About one in 13 homeowners in the United States is uninsured, according to the Consumer Federation of America, and black, Hispanic and Native American households are more likely to lack coverage.

State officials and industry trade groups say the market has stabilized over the past year, thanks to legal reforms that reduce what they call frivolous lawsuits and questionable claims.

Citizens has been able to reduce its exposure by transferring hundreds of thousands of policies to private providers, according to state data.

A damaging hurricane could scare away private insurers who have begun to return to the Florida market.

“Prices are going to keep going up and up, insurers could go bankrupt and citizens will be on the hook for a lot more of the slack,” said Sam Boyd, a Sotheby’s real estate adviser in Melbourne, Florida.

But others note that real estate prices have continued to rise despite the state’s exposure to extreme weather, and doubt that Milton will undo Florida’s appeal.

“In a few months, once the weather gets nice, people will start coming down, out of sight,” said Bruce Loren, a Palm Beach attorney who specializes in luxury real estate.

(Reporting by Andy Sullivan and Michael Tracy in Washington and Michelle Conlin in New York; Additional reporting by Kat Stafford in Detroit; Editing by Scott Malone and Matthew Lewis)