Hurricane Ian will test Florida's troubled insurance system

As millions of Floridians begin the arduous task of rebuilding after Hurricane Ian destroyed large swaths of the state, particularly in Southwest Florida, an army of insurance agents is out trying to assess damage and help clients begin filing claims.

These foot soldiers are the first line of defense for many business and property owners who after years of paying for coverage are now joining a massive number of others who are likewise looking to recoup their losses and start over.

But cleaning up and getting claims paid is just one part of what may be a monumental challenge coming to Florida in the months after the Ian. The state’s long-troubled property insurance market is likely to get worse as more insurance companies become insolvent and rates climb higher as an estimated billions of dollars in claims put pressure on a system already on the verge of collapsing.

For property owners facing the worst of Ian, though, those troubles are far away right now, conversations to be had in the halls of the Legislature in Tallahassee. Their concern is getting back what they’ve lost.  

These people are just beginning their dealings with insurance companies, dealings that could turn into weeks, months or, in some case, years of back and forth with claims adjusters, contractors and, in some cases, lawyers.

The insurance agents making the rounds provide a hand up in these early days, helping with documentation, filing claims and offering a bit of moral support.   

There is only so much an agent can do, though. For most property owners the process will be long and tough.

That’s why what happens in the first days and week is so important, says Matthew Mercier, national practice leader for the community association division of CBIZ Insurance Services in Sarasota and one of those insurance agents out helping clients after the storm.

Mercier, who specializes in insuring condominiums, spent the days before and after the storm amassing records including drone footage and other photos of properties. He’s doing this, and urges all property owners to follow his lead, because having photographic proof of a property’s condition before it was damaged will help to quickly settle any disputes with claims adjusters.

“If you get anything out of this article, document, document, document,” he says. “The more you document, the better you’re going to be with the adjuster in getting your claim paid. Think about it. They’re going to have a stack of claim submissions — picture a huge pile of paper. We could go from the bottom of that pile to the top and it’s as easy as having before and after pictures. Why wouldn’t we do that?”

While it may be too late for many to get the before pictures, the Personal Insurance Federation of Florida advises property owners to start documenting now, especially when immediate repairs are needed to a property to prevent further damage.

The organization, which represents insurance companies, advises policy holders to keep records of any expenses for temporary repairs, relocation costs and conversations with the insurance company, adjusters or anybody working on a property.

“Homeowners are obligated to do what they can to mitigate losses after a storm,” says Michael Carlson, the federation’s president and CEO. “If you leave your house after a storm and don’t take steps to mitigate further damage, you may find yourself at a disadvantage when seeking reimbursement for those losses.”

Along with documenting every step of the process, both insurance companies and agents advise that homeowners not agree or sign any agreements with contractors until they speak to the insurance adjuster. Bad players abound after a storm and undoing an agreement could be costly and detrimental.

They also agree that claims should be filed early. With so many losses, the sooner the claim is in the sooner it will be dealt with.

On the brink

As business and homeowners focus on starting over, the cost of Hurricane Ian is climbing into the billions.

Fitch Ratings, a New York credit rating company, has predicted that insurance losses in Florida because of Ian could be as high as $40 billion. The property data and analytics company CoreLogic Inc. says loses could go as high as $47 billion.

“In my opinion,” Jimmy Patronis, Florida’s chief financial officer, told a Panama City television station Thursday, “it will be the most expensive rebuild in the history of Florida.”

Moments earlier he said the cost of the storm “could run in the hundreds of billions.”

While those numbers are daunting to the average person, they’re terrifying to anyone in the insurance industry.

That’s because Florida’s already teetering property insurance system is about to be tested in ways only the most negative of naysayers would have dared predict. The most likely scenario is that in the coming weeks more insurance companies are likely to become insolvent as the number of claims mount and it becomes impossible to cover losses.

This will put even more pressure on the state-run Citizen Property Insurance Group, created as a last resort, which will have to absorb policies and cover some of the claims, this as even more customers come aboard as the number of carriers dwindle.

As of Aug. 31, Citizens has 1.02 million policies in place. In August 2022 it had 687,000 and 499,000 in August 2021. 

With Florida allowing exorbitant legal fees and with insurance companies' massive exposure, experts find it hard to imagine that the current system can last as it currently is in a post-Ian world.

“Why would you want to be an investor in Florida when you know every $100 of insurance you take in you’re paying $117.50 out in claims expenses?” says Mercier.

“You’re not making money in the state. There are certain carriers that would rather insure an oil rig in the North Sea — an oil rig in the North Sea! — than a condo in Sarasota, Florida. What’s up with that?”

The average property owner with a claim will be alright for the most part. The Florida Insurance Guaranty Association covers claims if an insurer is unable to pay. But their rates will likely increase both for property coverage and on other policies because Citizen can add a surcharge to other policies to stay solvent and offset losses.

There is concern, however, that some people are underinsured or have unknowingly bought less expensive policies that don’t qualify for reinsurance or the guaranty. Unless something changes, chances are they will have few options.

What happens now?

For their part, state leaders have been moving to mitigate losses and to protect property owners.

New rules on roof claims, limits on fee multipliers and new procedures for insurance companies passed as part of a bipartisan reform packaged approved by the Legislature during a May special session could reduce litigation. Lawsuits and the lawyers who bring them are seen as one of the biggest, if not the biggest, obstacle for an insurance company doing business in Florida.

While the new rules could help deter lawsuits and cut down on fraud, critics say more needs to be done to bring litigation costs and attorney fees under control.

In another move, Gov. Ron DeSantis, as the storm was heading toward Florida, ordered insurance companies writing in the state to cease canceling policies and issuing non-renewals for two months unless the policyholder requests it.

The protections also extend to life insurance policies and health insurance policies except those “subject to regulation by the Patient Protection and Affordable Care Act.”

They are meant to protect consumers from losing coverage when they most need it or being forced to make late payments when they can least afford it.

But as with everything having to do with property insurance in Florida, the few positives fail to outdo the negatives and are usually a band aid at best.

So says Kyle Ulrich, president and CEO of the Florida Association of Insurance Agents. “It has no impact on all of the events that have led to this point, that have put so many companies in financial peril.”

Ulrich says it’s no secret that Florida’s property market is in a state of crisis at the moment, with six insurance companies becoming insolvent this year, long before Ian. The lack of choice and affordability for consumers has long been a serious problem and a Category 4 hurricane hitting Southwest Florida isn’t helping the situation.

“I’m not trying to be sarcastic, but it’s going to only make matters worse,” he says, adding “It’s going to just further strain the system. And there’s, of course, that potential that this event could be the breaking point for another company or multiple companies that have really been hanging on by a thread financially.”

He says survival for a company is going to come down to what its book of business looks like and its concentration is in Southwest Florida.

“I mean, there’s a lot of factors that go into play here,” he says. “But it’s reasonable to assume that this could imperil a couple of companies who have struggled financially.”

And as Floridians start the process of recovering from Ian and see firsthand the damage a storm can cause, experts on all sides agree, the one thing people in this state don’t need when it comes to insurance is fewer choices.