(Bloomberg) — The US hurricane season will officially begin next week, and there is no other place in the country more vulnerable to hurricane-related damage than Florida, the fastest growing state in the country. Hurricane Yang hit the state last year, killing nearly 150 people and costing insurance companies an estimated $63 billion.
Florida is extremely susceptible to climate events, with damage equal to nearly 4% of the state’s annual gross domestic product since 2017, said Andrew John Stevenson, senior climate analyst at ESG at Bloomberg Intelligence. Hurricane Yang caused more than 10% damage to the economy last year, he said, when you add up all the property damage, infrastructure costs and power outages.
As the climate crisis leads to increasingly dangerous storms, Sunshine State residents face higher costs in the form of indirect and direct insurance payments.
Here are five reasons why climate change is costing Floridians money now and in the future.
1. You pay insurance rates that are quickly becoming the highest in the country.
According to the industry association, the Insurance Information Institute, the average annual property insurance premium in the state is $4,231, nearly three times the national rate of $1,544.
This price is rising rapidly. Until 2020, property insurance rates were average. Insurance rates jumped 27% in 2021, 33% in 2022 and are expected to rise by at least 40% this year (maybe 50%). price 6000$.
Florida’s Insurance Regulatory Authority blames this on fraud, not hurricanes, pointing out that Florida accounts for 9% of property insurance claims in the nation, but more than 76% of property insurance claims. For example, it is not uncommon for homeowners to claim hurricane damage to replace a roof that has just worn out from time to time. Florida lawmakers have passed recent amendments to make such litigation more difficult, but the implications are still unclear.
Hurricane Yang is also a factor. “If you look at the difference in growth between last year and this year, it’s probably Yang,” said Mark Friedlander, a spokesman for the institute.
2. Your tax money will support the reinsurance market.
In the past 13 months, seven of the 47 local property insurance companies in Florida have gone bankrupt and another 24 are on the regulatory list. Part of what is killing these small firms is the price of reinsurance, that is, the insurance they must buy to protect themselves in the event of a catastrophe that forces them to pay multiple claims at once. Many large firms simply do not want to work in the state at any cost.
The insurance industry is bracing for another year of losses. Indeed, Berkshire Hathaway Inc. Warren Buffett has an “unbalanced” reinsurance risk in Florida, according to Ajit Jain, who oversees the company’s insurance operations.
“This means that if Florida hits a major hurricane, we will suffer very substantial losses,” Jane said, speaking at the company’s annual meeting earlier this month.
To support what’s left of the struggling private market, Florida has created a fund that basically acts as partial reinsurance for catastrophic storm losses. Florida set aside $3 billion of taxpayer money for reinsurance. However, the new fund is limited – it does not cover tornadoes or tropical storms.
And insurance lobbyists have been asking for a more reliable program. So far, lawmakers have resisted, but if more of those two dozen insurance companies fail, taxpayers will likely have to pay more.
3. The insurer of last resort is expensive.
Stevenson said Florida’s real estate and accident business has become a two-tier business. There’s Florida Citizens Property Insurance Corp., the state-backed insurance company of last resort, and all the rest.
Created by the state legislature in 2002, Stevenson said Citizens had a 16% market share last year, up from 4% in 2019. This makes it the largest home insurer in the state. Its growth is likely to continue as more homeowners cannot find sufficient coverage in the private market.
The business environment means climate risk remains “underestimated in the Sunshine State,” Stevenson said. Average premiums at Citizens are 44% lower than their private counterparts and nearly 60% below the rate required to keep premiums up to date, he said, citing an analysis from Florida.
Since Citizens is limited in how much it can raise rates, it is very underfunded. This year, Citizens is asking for an average rate increase of 14% for primary residences and up to 50% for second homes.
If a major hurricane strikes that exceeds the amount Citizens has in net reinsurance reserves, everyone will pay: The law creating Citizens requires a multi-year state surcharge on every home insurance policy in the state to make up for losses.
4. Need a separate policy to protect against flooding. In some cases, the state will not allow you to miss it.
A shocking number of Floridians are not immune. They assume that their usual policies protect them from winds and floods. But they almost always need to be bought separately.
A new state law is trying to fix this by requiring that everyone who gets new homeowner insurance from Citizens also get flood insurance. This policy will immediately affect new policyholders in federal flood zones, but by 2027, all 1.2 million policyholders anywhere in the state.
For many people, this means a second expensive policy. Cindy Haydon, a real estate agent, owns less than 2,000 square feet of waterfront land in Tampa. She pays $7,000 a year to homeowners and then another $7,000 for flooding.
5. You will also pay more to protect your car.
While property insurance is the biggest problem, it’s not the only insurance problem Florida residents face. According to the Insurance Information Institute, Florida’s average auto insurance premium for full coverage—comprehensive and collision—is $3,121 per year, about 50% above the national average. And rises quickly. Last year saw the biggest increase from last year, jumping $421 on average.
Fraud plays a role here too, but Florida’s high rate of accidents and fatalities also plays a role. “We have significant weather events here in Florida all year round and the weather does play a role in accidents,” Friedländer said. “So yes, climate definitely plays a role in that.”
–With assistance from Max Reyes.
To contact the authors of this story:
Leslie Kaufman in New York at lkaufman27@bloomberg.net
Tim Quinson in New York at tquinson@bloomberg.net
