The big reason Florida insurance companies are failing isn’t just hurricane risk – it’s fraud and lawsuits

(Shahid S. Hamid, Florida International University) Hurricane Ian’s widespread damage is another disaster for Florida’s already shaky insurance industry. Even though home insurance rates in Florida are nearly triple the national average, insurers have been losing money. Six have failed since January 2022. Now, insured losses from Ian are estimated to exceed US$40 billion

 

Image description

Hurricane risk might seem like the obvious problem, but there is a more insidious driver in this financial train wreck.

Finance professor Shahid Hamid, who directs the Laboratory for Insurance at Florida International University, explained how Florida’s insurance market got this bad – and how the state’s insurer of last resort, Citizens Property Insurance, now carrying more than 1 million policies, can weather the storm.

What’s making it so hard for Florida insurers to survive?

Florida’s insurance rates have almost doubled in the past five years, yet insurance companies are still losing money for three main reasons.

One is the rising hurricane risk. Hurricanes Matthew (2016), Irma (2017) and Michael (2018) were all destructive. But a lot of Florida’s hurricane damage is from water, which is covered by the National Flood Insurance Program, rather than by private property insurance.

Another reason is that reinsurance pricing is going up – that’s insurance for insurance companies to help when claims spike.

But the biggest single reason is the “assignment of benefits” problem, involving contractors after a storm. It’s partly fraud and partly taking advantage of loose regulation and court decisions that have affected insurance companies.

It generally looks like this: Contractors will knock on doors and say they can get the homeowner a new roof. The cost of a new roof is maybe $20,000-$30,000. So, the contractor inspects the roof. Often, there isn’t really that much damage. The contractor promises to take care of everything if the homeowner assigns over their insurance benefit. The contractors can then claim whatever they want from the insurance company without needing the homeowner’s consent.

If the insurance company determines the damage wasn’t actually covered, the contractor sues.

So insurance companies are stuck either fighting the lawsuit or settling. Either way, it’s costly.

Other lawsuits may involve homeowners who don’t have flood insurance. Only about 14% of Florida homeowners pay for flood insurance, which is mostly available through the federal National Flood Insurance Program. Some without flood insurance will file damage claims with their property insurance company, arguing that wind caused the problem.

How widespread of a problem are these lawsuits?

Overall, the numbers are pretty striking.

About 9% of homeowner property claims nationwide are filed in Florida, yet 79% of lawsuits related to property claims are filed there.

The legal cost in 2019 was over $3 billion for insurance companies just fighting these lawsuits, and that’s all going to be passed on to homeowners in higher costs.

Insurance companies had a more than $1 billion underwriting loss in 2020 and again in 2021. Even with premiums going up so much, they’re still losing money in Florida because of this. And that’s part of the reason so many companies are deciding to leave.

Assignment of benefits is likely more prevalent in Florida than most other states because there is more opportunity from all the roof damage from hurricanes. The state’s regulation is also relatively weak. This may eventually be fixed by the legislature, but that takes time and groups are lobbying against change. It took a long time to pass a law saying the attorney fee has to be capped.

How bad is the situation for insurers?

We’ve seen about a dozen companies be declared insolvent or leave since early 2020. At least six dropped out this year alone.

Thirty more are on the Florida Office of Insurance Regulation’s watch list. About 17 of those are likely to be or have been downgraded from A rating, meaning they’re no longer considered to be in good financial health.

Chart show increasing losses for Florida's domestic property insurers in the past five years
Based on a Florida Office of Insurance Regulation chart

The ratings downgrades have consequences for the real estate market. To get a loan from the federal mortgage lenders Freddie Mac and Fannie Mae, you have to have insurance. But if an insurance company is downgraded to below A, Freddie Mac and Fannie Mae won’t accept it. Florida established a $2 billion reinsurance fund in May 2022 that can help smaller insurance companies in situations like this. If they get downgraded, the reinsurance can act like co-signing the loan so the mortgage lenders will accept it.

But it’s a very fragile market.

Ian could be one of the costliest hurricanes in Florida history. I’ve seen estimates of $40 billion to $60 billion in losses. I wouldn’t be surprised if some of those companies on the watch list leave after this storm. That will put more pressure on Citizens Property Insurance, the state’s insurer of last resort.

Some headlines suggest that Florida’s insurer of last resort is also in trouble. Is it really at risk, and what would that mean for residents?

Citizens is not facing collapse, per se. The problem with Citizens is that its policy numbers typically swell after a crisis because as other insurers go out of business, their policies shift to Citizens. It sells off those policies to smaller companies, then another crisis comes along and its policy numbers rise again.

Three years ago, Citizens had half a million policies. Now, it has twice that. All these insurance companies that left in the last two years, their policies have been migrated to Citizens.

Ian will be costly, but Citizens is flush with cash right now because it had a lot of premium increases and built up its reserves.

A man stands besides a leaning house with debris from Hurricane Ian.

Citizens also has a lot of backstops.

It has the Florida Hurricane Catastrophe Fund, established in the 1990s after Hurricane Andrew. It’s like reinsurance, but it’s tax-exempt so it can build reserves faster. Once a trigger is reached, Citizens can go to the catastrophe fund and get reimbursed.

More importantly, if Citizens runs out of money, it has the authority to impose a surcharge on everyone’s policies – not just its own policies, but insurance policies across Florida. It can also impose surcharges on some other types of insurance, such as life insurance and auto insurance. After Hurricane Wilma in 2005, Citizens imposed a 1% surcharge on all homeowner policies.

Those surcharges can bail Citizens out to some degree. But if payouts are in the tens of billions of dollars in losses, it will probably also get a bailout from the state.

So, I’m not as worried for Citizens. Homeowners will need help, though, especially if they’re uninsured. I expect Congress will approve some special funding, as it did in the past for hurricanes like Katrina and Sandy, to provide financial aid for residents and communities.

Shahid S. Hamid, Professor of Finance, Florida International University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The Conversation

Tu opinión enriquece este artículo:

Café Tortoni en Buenos Aires (uno de los 10 más antiguos del mundo), ícono de la historia y la cultura de toda América

(Por Maurizio, Maqueda y Otero) ¿Ya lo has visitado?, ¡tienes que hacerlo! Según diversas listas y registros culturales, el Café Tortoni se ubica en el top 10 de los cafés más antiguos en funcionamiento en el mundo, junto a otros icónicos como el Café Florian en Venecia (1720), Café Procope en París (1686), o el Café Central en Viena (1876). 

Tiempo de lectura: 5 minutos 

Oportunidad inmobiliaria en evolución: cómo FCIC Management lidera el mercado con proyectos de flipping para inversores internacionales

(Por Maqueda y Taylor) El mercado inmobiliario del sur de Florida continúa posicionándose como uno de los destinos más codiciados por inversores de todo el mundo. A pesar de un entorno de mayor competencia y una oferta en expansión, firmas como FCIC Management han sabido interpretar el nuevo contexto para transformar desafíos en oportunidades concretas de inversión. ¿Sabes lo que es el flipping?

Manolo, un ícono argentino que dejó su huella en las playas y en la cultura de Miami Beach

(Por Marcelo Maurizio) Miami, la ciudad del sol, la diversidad y el deporte, ha sido testigo de historias que cruzan fronteras y culturas. Entre ellas, la de Manolo, un clásico argentino que se consolidó en Miami Beach como un símbolo de comunidad, tradición y pasión futbolera. ¿Cómo un pequeño restaurante con raíces en Burgos, España, y tradición en Uruguay y Argentina, logró convertirse en un referente de la cultura argentina en Miami?

Tiempo de lectura: 5 minutos 

Las 5 mejores playas nudistas de Florida: un tesoro cultural y económico que revoluciona el Estado del Sol

(Por Vera) ¿Por qué el nudismo en Florida es mucho más que una tendencia? ¿Cómo influye en el pensamiento estratégico, en la cultura empresarial y en la percepción social? Descubre en esta nota cómo estas playas representan un movimiento de libertad, inclusión y crecimiento económico que todos en LATAM, Miami, EE.UU. y España deben conocer y valorar.

Tiempo de lectura: 5 minutos 

Los secretos detrás del espectáculo musical en la final del Mundial de Clubes FIFA 2025™: (la fusión de fútbol, cultura y negocios globales)

(Una Cocreación MotorHome y la red de InfoNegocios) La revolución del entretenimiento en eventos deportivos internacionales. ¿Sabías que la final del Mundial de Clubes FIFA 2025™ no solo dejó una épica batalla deportiva entre Chelsea y PSG, sino que también marcó un hito en la historia del entretenimiento global? 

(Tiempo de lectura: 5 minutos)

Amazon Prime Day 2025 reporta su evento más grande de la historia, con ahorros récord y ventas mundiales sin precedentes en más de 35 categorías

(Informe especial desde Silicon Beach por Taylor, edición Maurizio) El secreto, mega rebajas reales desde más del 40%. Amazon ha marcado un récord histórico en 2025: su evento de Prime Day más grande y exitoso hasta la fecha. Durante cuatro días, millones de clientes en todo el mundo aprovecharon ofertas exclusivas para ahorrar miles de millones en productos de categorías tan diversas como tecnología, belleza, hogar y alimentación. 

(Tiempo de lectura: 5 minutos)

Café La Trova, el bar cubano de Miami que si o si tienes que visitar este verano 2025

(Por Vera y Maqueda) En medio de esta diversidad, Café La Trova se ha destacado como uno de los destinos más emblemáticos del panorama gastronómico y de coctelería internacional. Reconocido por su autenticidad, su ambiente vibrante y su innovación en la coctelería cubana, este bar ha logrado posicionarse entre los 50 mejores bares del mundo según la prestigiosa lista de The World’s 50 Greatest Bars. 

Tiempo de lectura: 5 minutos 

Donald Trump rompe el protocolo y festeja el título del Chelsea en el Mundial de Clubes 2025: (¿por qué lo hizo?)

(Una Cocreación MotorHome y la red de InfoNegocios) En un hecho que combina política, deporte y estrategia de liderazgo, Donald Trump sorprendió al mundo al romper el protocolo habitual y celebrar en persona el título del Chelsea en el Mundial de Clubes 2025 en Estados Unidos. Este gesto, que trasciende la esfera deportiva, refleja nuevas dinámicas en la interacción entre poder, liderazgo y sociedad global. 

(Duración de lectura: 5 minutos)

La impactante fortuna que ganó el Chelsea en el Mundial de Clubes FIFA 2025™: un récord de US$ 156 millones (Bolsa de US$ 1.000 millones en premios)

(Una Cocreación MotorHome y la red de InfoNegocios) ¿Sabías que el Mundial de Clubes FIFA 2025™ no solo fue un espectáculo deportivo sin precedentes, sino también una verdadera máquina de generar dinero para los clubes? La coronación del Chelsea con una victoria histórica y un premio en metálico de 156 millones de dólares, además de la distribución total de 1,000 millones de USD en premios para los 32 equipos participantes, marca un hito en la historia del fútbol mundial.

(Tiempo de lectura: 5 minutos)