Is the Florida insurance market really “stabilizing”?

Back in the summer of 2022, in an interview for the Marketplace podcast “How We Survive,” Mark Friedlander described the Florida property insurance market as “hanging on a shoestring.”

Friedlander is with the Insurance Information Institute, an industry-funded research group. That year, several Florida insurers had gone bust. Others were pulling out of the state. And that was before Hurricane Ian caused about $60 billion in insured losses.

So it was a little surprising when, after back-to-back Hurricanes Helene and Milton hit the state this fall, Friedlander said, “according to our analysis here at the institute, the Florida market is in its best financial position in nearly a decade.”

What?

“It is incredible, absolutely incredible what’s happened,” he said. 

So, what did happen? Friedlander credited tort reform — new state laws that made it harder to sue insurance companies for denied claims. Insurers have blamed “excessive” litigation for driving up costs. Meanwhile, the inflation that added to rebuilding costs has cooled. And after years of raising premiums, Friedlander said, insurance companies are in better financial shape to absorb claims. This year, he said, companies have filed with the state for an average rate increase of less than 1%.

“That is a clear sign of a market that is stabilizing,” Friedlander said. “And on top of all this we have nine new companies that have come to Florida this year.”

As devastating as Hurricane Helene was elsewhere, Karen Clark, CEO of catastrophe modeling firm Karen Clark & Co., estimates insured losses were around $2 billion in Florida. She now expects claims from Milton will be lower than her company’s initial estimate of $36 billion, partly because Milton hit areas that had recently been rebuilt after Hurricane Ian.

“You had new properties,” Clark said. “You had a lot of new roofs, which withstand winds a lot better than older roofs.”

Homeowners weary from rising insurance costs may also be hesitant to file small claims, she said, so that their premiums don’t go up.

“So the insured loss is going to be well manageable for Florida insurers,” Clark said. 

But better shape doesn’t mean good shape, said Chuck Nyce, a professor of risk management and insurance at Florida State University.

“I don’t think people realize how close we were to a collapse of the private market in Florida,” he said. “We are on much stronger footing today; however, it’s still not where I believe it needs to be.”

As large private companies like Farmers Insurance, Progressive and Allstate have left Florida or reduced their coverage, Nyce said Citizens, the state-backed insurer of last resort, has taken on more risk.

The private companies that remain tend to be smaller, with less capital and experience, said Martin Weiss, founder of the independent firm Weiss Ratings. Of the 100 or so homeowners insurance companies the firm rates in Florida, more than half have ratings of C or lower based on various measures of financial health. 

Weiss said he’s also concerned about how often insurers are rejecting claims from policyholders. Last year Citizens closed just over half of claims with no payment, according to an analysis by Weiss. State Farm denied 47% of claims. 

“Insurance companies have been denying homeowners claims with no payment whatsoever at very high levels,” Weiss said. 

Insurers say denied claims are often for flood damage, which isn’t covered by traditional homeowners policies. But Weiss said the tort reforms the industry pushed for in Florida have made it harder for homeowners to dispute those denials. 

“It closes one more door,” Weiss said. “It makes the situation much worse for the policyholder.”