Hurricane Ian might not 'crater' Florida's insurance market, but here's what to expect
Many insurance companies have paused insuring in Florida until they have a better handle on their losses from the hurricane, says Joseph Gendelman, president and CEO of Bruce Gendelman Insurance Services.
The damage from Hurricane Ian has made it more difficult for Florida to get control of its property insurance crisis, but one Greenberg Traurig attorney is cautiously optimistic that the effects of the hurricane won’t “crater the marketplace.”
There are a number of pressure points that insurers are facing which have caused both insurers and consumers to suffer, according to Fred Karlinsky, co-chair of Greenberg Traurig’s insurance regulatory and transactions practice group.
“One thing we’re seeing from Ian that is pretty evident from the losses is that a significant portion of these losses is flood losses, which aren’t covered under traditional homeowners’ policies. They’re covered under the National Flood Insurance Program or private flood policies,” Karlinsky said.
Many insurance companies have paused insuring in Florida until they have a better handle on their losses from the hurricane, said Joseph Gendelman, president and CEO of Bruce Gendelman Insurance Services.
“It is unclear which ones will come back and continue to insure properties and autos in the state,” Gendelman said. “It seems to me that some will leave for good and the ones that stay will have major premium increases or coverage changes. Many of the local companies may not have the capital to continue to do business, or do business in the same way as the past.”
Gendelman said a lot of the homeowners hit by Hurricane Ian didn’t have the proper flood insurance limits or any flood insurance at all, as many mortgage companies only require the federal flood program, which offers up to $250,000.
“For many homes that had damage, that is not a sufficient amount. Through an insurance broker, you can buy excess flood above those limits up to the full limit of your dwelling,” Gendelman said. “Also, it is important for the consumer to understand what is covered on a homeowner’s policy with windstorm coverage versus flood insurance. Typically, flood coverage is excluded from a homeowner’s policy even if the flood happens during a hurricane.”
State-backed Citizens Property Insurance Corp. projects an estimate of 100,000 claims from Hurricane Ian, according to Floridarealtors.org. So far, Citizens has received 47,248 claims. That number is less than what Citizens originally projected at more than 225,000 claims. The insurer said it still expects to see total losses between $2.3 and $2.6 billion.
Total private market-insured losses from Hurricane Ian could reach $67 billion, according to estimates from RMS, a Moody’s Analytics company and risk modeling and solutions company.
As a growing number of insurers have left Florida by going through liquidation and canceling policies, Citizens has seen its policies double over the past few years due to Florida’s property insurance crisis, which has left homeowners with fewer insurance options, high premiums and tighter underwriting processes. So far, the insurance company has about 1.08 million policies across Florida.
Last week, the parent companies of Universal Property and Casualty Insurance Co. and Homeowners Choice Property and Casualty Insurance Co. issued statements giving assurances about their financial health.
“We can sustain a much greater loss than Ian has dealt to us,” HCI chairman and CEO Paresh Patel claimed in a video posted on the company’s website.
However, that isn’t the case for all, as four insurers were placed in receivership so far this year, and reinsurance rates and claims-related litigation rose.
Karlinsky said resources such as money and employees for both Citizens Insurance and private insurers will continue to be strained.
“Unfortunately, most of the flood insurance market is through the NFIP, which is the government-backed program, but more unfortunate is the fact that most people in Florida and throughout the U.S. don’t have flood insurance, so you’re going to have a lot of uninsured losses,” he said.
But he said the Florida Hurricane Catastrophe Fund is in a good position to cover losses.
“The Florida Insurance Guaranty Association is the entity that covers losses for insolvent insurers. The Guaranty Association doesn’t have a pool fund similar to the Cat fund or Citizens to draw upon, so they’ll ultimately have to access policies, which costs everyone more when their premium renewals are up,” Karlinsky said.
The insurance fraud narrative
Fraud is also a big contributing factor to the rise in insurance rates. Gov. Ron DeSantis signed legislation to stabilize the market, by setting up a $2 billion fund to assist insurers in paying potential hurricane damages and changed rules on coverage denials and attorney fees.
“The bad actors always seem to be always one or two steps ahead of everyone else,” Karlinsky said. “As it relates to rates, home values and the cost of rebuilding a home are up dramatically as well. That will play into, ultimately, insurance rates moving forward.”
Given the state of the market before Hurricane Ian, Gina Clausen Lozier, an insurance expert with law firm Berger Singerman, said we should expect to see more alternative insurance arrangements, insolvencies and potential assessments imputed to all policyholders.
“It will also be important to monitor the appetite of the reinsurance market in the coming months as rate increases are expected,” Lozier said.
Lozier said insurance companies have created a narrative about insurance fraud in Florida and use that narrative to keep homeowners from pursuing their legal right to representation. In order for homeowners to ensure a fair resolution of their claims, it’s important to understand their rights and obligations under their insurance policy.
“While the insurance company has an obligation to act fairly and honestly in the adjustment of a claim, an insured has certain duties after a loss to report the damage, mitigate the loss and provide information. The failure of an insured to understand these conditions can be fatal to insurance recovery,” Lozier said.
Attorneys should counsel homeowners on what to expect during the claim process, she said.
“Too often, insureds are led to believe that since they pay premiums on the policy, the insurance company is automatically obligated to provide coverage. Unfortunately, that is not always the case. The claims process is just that, a process that does not happen overnight,” Lozier said. “A knowledgeable first-party attorney understands the process and will assist the insured in not only complying with the policy but making sure the insurance company has all information requested to pay for the damages. Additionally, attorneys should understand a client’s particular circumstances and offer alternatives to litigation if the situation calls for it.”
Plans to ‘strengthen the system’
Gendelman said he believes Hurricane Ian will have a long-term impact on the ability of consumers to buy insurance.
“Whether it is for your home, auto or business, it is likely that we will see the rates will go up and the capacity will go down,” Gendelman said. “For some consumers, insurance might not be available if you are in a specific location, flood zone, or your home is not built up to the current standards. Ultimately, that could affect the ability to get a mortgage and the overall real estate market.”
The hope for the near future, as Karlisnky sees it, is that the Legislature will come back and tackle some of the one-way attorney fee issues, and the availability and affordability of primary insurance.
“The Legislature has shown in recent history along with the governor and state CFO that they definitely want to strengthen the system to make it more viable moving forward,” Karlinsky said. “I think they’ve given an indication that they’ll look at that sometime toward the end of this year, which I think is a positive step.”
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