Anyone in Florida who has opened a home insurance bill in the last several years is aware that premiums have risen dramatically. According to new projections from a data analysis firm, they’ve been rising much faster than in any other state.
According to LexisNexis Risk Solutions, house insurance rates have risen by 57% during 2015, demonstrating the magnitude of the impact on Florida customers’ wallets. This is nearly treble the national average (21%) and much exceeds Nebraska, which has the second highest average home insurance increase (43%).
Climate change could bear some of the blame: Warming oceans and a changing atmosphere make hurricanes more likely to swiftly strengthen and may increase the frequency of stronger storms. A recent string of devastating hurricanes has forced numerous Florida insurers into bankruptcy.
According to insurance experts, there are other, more ordinary explanations. The cost of materials and labor to repair or rebuild a house has risen due to inflation. Rising interest rates have increased the cost of borrowing for insurers and reinsurers. Developers continue to build expensive homes in floodplains and near deteriorating coasts. And new inhabitants continue to come in, increasing the state’s insurance risk.
All of these variables have contributed to an insurance problem, which is raising the cost of living for homeowners and renters from the Keys to the Panhandle.
HURRICANE DAMAGE HIKES RATES
Wind damage from hurricanes is often covered by homeowner’s insurance plans, as well as other calamities such as fires, lightning strikes, and theft.
Florida has recently been devastated by a succession of devastating hurricanes, including Hurricane Irma in 2017, Hurricane Michael in 2018, and Hurricane Ian in 2022. In Florida, those three storms alone inflicted approximately $200 billion in damage. According to Chris Dittman, head of Florida strategy at Aon Reinsurance Solutions, this is one of the reasons premiums are growing in the state.
“Florida has had its fair share of events in the last five or six years,” said Dittman. “So there is a bit of ‘Is this climate change? Is this the new norm? Should we increase the frequency that we expect these events in Florida?’”
The hurricanes exacerbated Florida’s already precarious insurance market. Six Florida insurers declared insolvency in 2022, suggesting they couldn’t afford to pay their claims even before Hurricane Ian hit. Other insurers chose to withdraw from the state entirely.
It’s part of a rising pattern of insurance companies leaving weak states with uninsurable properties. According to Axios, the country’s two largest insurers, State Farm and Allstate, stopped accepting new house insurance coverage in California last year due to the state’s climate change-driven wildfire risk. Major insurers began reducing their risk in the Florida market decades ago, with Hurricane Andrew in 1992 kicking off the industry retreat.
Dittman said State Farm and Allstate now make up just a tenth of the home insurance market in Florida. “The two biggest carriers have a significantly smaller market share [in Florida] than in other big states,” said Dittman. The rest of the insurance market, he said, “gets filled in by smaller carriers that don’t have the same level of capital to cover claims, and that creates a little bit of instability.”
In Florida, Hurricane Ian increased the cost of reinsurance, which insurance firms purchase to ensure that they can pay out claims when major catastrophes strike. The remaining insurance companies in Florida are anticipated to pass the costs on to their clients. Meanwhile, Citizens Insurance, the state-backed insurer of last resort that covers over 1.1 million Floridians, has asked state regulators for approval to boost premiums by 14%.