On September 28th, Hurricane Ian landed in Central Florida, eventually becoming a catastrophic category 4 storm. The maximum winds sustained reached 150 mph, making Ian the 5th strongest hurricane in the United States. Over the past decade, flooding has become a significant issue as the state continues to experience worsening tropical storms and hurricanes. As a result, a significant amount of major insurance carriers have essentially pulled out of the state, leaving little to no option for flood insurance programs. Florida representatives have been working to provide reasonable options, but the severity of Ian may have derailed efforts to bring insurance back to Florida.
Hurricane Ian’s Costly Damage
Ian may only be the 5th strongest storm in the United States, but it's on track to be the costliest storm in Florida history. With flooding up to 18 ft high, cities and residential areas experienced severe flooding, and property damage, and hundreds of thousands are still without power. As of Monday, more than 1,700 people are living in emergency shelters and countless have been displaced from their homes. Thousands of homes have been destroyed including vacation homes, hotels, luxury high-rises, and suburban housing communities. The property damage is still in the estimation phase but is projected to reach $75 billion dollars. This projection was released by Enki Research, which specializes in the financial impacts of storms. They also concluded that even in the best best-case scenario, the damage would reach $65 billion in losses.
This type of catastrophic loss would be impactful on any state, and any community affected. However, the reason Ian may impact Florida more significantly is that it comes after a long stretch of volatility in the market, due to increased climate-related issues. Insurance companies have largely pulled out of Florida because of the high-frequency losses and increased risk. Though insurance companies intend to provide protection, they are still a profit-first business and will not take on a risk they consider to be a definite loss.
How has the Insurance Market Responded to Hurricane Ian?
Since the damage brought by hurricane Ian is still so new, insurance carriers are more focused on providing necessary resources to their policyholders than planning an exit out o the market right now. Back in August of 2022, state-backed Citizens Property Insurance reached over 1 million policyholders for the first time since the early 2000s, meaning a large percentage of Florida residents are getting coverage through state-funded programs. While most people prefer private insurance for the increased coverage and limits, state programs have been endorsed through FEMA and highly recommended in areas where private flood insurance or property insurance is challenging to access. As of right now, with so many people in need of damage repair and coverage, state-funded programs may not be able to keep up with the demand. The Office of Insurance Regulation has issued an emergency order that suspends the ability to cancel or non-renew current policies for up to 60 days. All policyholders need to file a claim as soon as possible in order to receive coverage and avoid a policy loss.
Flood coverage is not included in homeowners coverage, and unfortunately, only a small percentage of Floridians have opted into the state-funded programs. NFIP which is run through FEMA is the main provider of flood insurance and still remains expensive for all risks. Even under these programs, most don't receive financial compensation equivalent to that of the damage. In fact, the average payment of a flood policy is around $80,000 for severe flooding, nowhere near the cost of damage for coastal Floridian homes.
In response to hurricane Ian, the insurance market is predicted to harden once again. Premiums likely will go up but limits will not. There is also a large discussion around reinsurance programs expanding their flood presence and making coverage more accessible. This would ideally bring private commercial carriers back into the flood market as their financial risk would lessen in tandem with reinsurance providers.
What is the Future of Flood Insurance?
In January 2022, FEMA announced that they had transferred $1.064 billion of the NFIP’s financial risk to private reinsurance markets. The agreement will remain effective through the year and likely renew for the 2023 term. It ensures that NFIP losses above $4 billion arising from a single flooding event are covered by the reinsurance providers. This risk transfer program involves 28 private reinsurance companies and many future flood insurance programs may follow a similar path.
Hurricane Ian was another indicator that individual private companies cannot carry the burden of severe floods alone and that the transfer of high risks across multiple providers is the best way to ensure policyholders can remain protected. With climate-related issues progressing at the rate that they are, reinsurance will be more common even outside of Flood risks. Property damage and homeowners insurance are increasing in risk across states that are experiencing hurricanes, wildfires, blizzards, mudslides, and more. It’s less of a question of the future of flood insurance, and more of a question of insurance in the age of climate decline.
Insurance Programs with ECBM
ECBM Insurance can help you build and manage insurance programs for all of your business needs. If you have questions or concerns regarding your property coverage or are in search of flood coverage, our agents and consultants are here to help. Visit our website or contact us for more information on our services.