Insurance CEO: Floridians 'need to stop building in areas prone to flooding'

In the past several weeks, the west Coast of Florida has been hit, once directly and once indirectly, by hurricanes that have left hundreds dead, hundreds of thousands homeless and billion in damages.

It has also put one of the state’s most vulnerable industries, the property insurance market, under an even more glaring spotlight than it's usually under.

Florida’s insurance market has long been a concern for business owners, residents and lawmakers who worry a major storm could lead to a financial disaster. But the question often not asked is what would happen if back-to-back storms were to hit some of the state’s most populous localities as Hurricane Milton and Helene did, causing damage from Pasco County south to Collier County?

Both questions will soon be answered.

Photo by Mark Wemple

While it is far too early to know how the market will fare and how rates and coverages will be affected, it is believed some legislative reforms made in 2023 stabilized the system and may keep the worst fears from coming true.

To get an idea of how the Hurricanes Milton and Helene could affect the state’s insurance market and how prepared the industry is, the Business Observer spoke Oscar Seikaly, CEO of Miami’s NSI Insurance Group, one of the largest privately-owned insurance firms in Florida. (The conversation took place at 4 p.m. Oct. 9, — just about 4.5 hours before Milton made landfall near Siesta Key.) Edited excerpts: 

There’s been talk for years that the state’s insurance industry is one catastrophe away from collapse. Are these dual storms that catastrophe?

Personally, I don't think so. And the reason I say that is Dade County would be the one you're referring to because of the concentration of values and the amount of value that sits in a very small kind of area.

Sarasota, Tampa is more spread out. You don't have this massive concentration of billions of dollars in huge buildings and huge offices and people running huge businesses out of there.

When you're talking about a storm, you're not only talking about the damage to the buildings. You're also talking about how the business in that building are going to recover and how is the insurance company going to keep paying them until they're back into the same financial condition they were in before the storm.

I know Tampa has grown a lot in the last few years, but still, it's nowhere near the billions concentrated in a very small area as is down here in Dade County.

Do you have any concerns about insurance companies and (state run) Citizens Property Insurance Corp. being able to cover all the claims that are about to come in?

No. I'm not worried at all.

First of all, I'm not worried about Citizens because what Citizens did in the past year, which was very smart. They required every policy owner to carry flood insurance. That was a good step in the right direction.

Florida is the state that buys the most flood insurance of any state in the country. But it's all concentrated mostly in Dade County because most of the lenders in Dade County require you to carry flood.

So, there's are two numbers you have to watch out for. How much the storm is going to cost economically and then how much of it is actually insured, how much is going to be reimbursable.

Photo by Mark Wemple

What I’m trying to tell you is, the majority of the people in the area now do not carry flood and (and for those who do) flood only pays a limited amount. And this is where my concern is.

If you're a business owner, I would worry because all you're going to get is whatever the National Flood Program pays you, which is $500,000 max on your building and $250,000 on your contents.

Imagine if you have a $5 million building and you have $3 million in damage. You're only getting a check for $500,000. That's really what worries me in this case, more than anything else.

It’s early, but how are these storms are going to change insurance rates in the state in the coming years, particularly from Tampa and Pasco down to Lee and Collier?

After the first storm three weeks ago, I said it's going to maybe bump up the premium a little bit.

After the second one, it's probably going to bump them up where they become closer to what you pay in Dade County, which is substantially higher. The premiums in Tampa are maybe a third of what you pay here. So, they're going to creep up but not as high (as) Dade County, which is still more exposed than Tampa.

If the wind is the major factor, then that's going to make an impact on the pricing and that whole area is going to become kind of a difficult area to insure. Just like Miami, Dade County became in the last four years.

Do you have any thoughts on how Hurricane Milton, coupled with Helene, will change the state’s property insurance market?

It's too soon to tell because, remember, insurance companies have already gone through their revised underwriting structure to account for storms being more severe.

You're getting the same storm except it's much stronger than the one from five years ago. And they're happening more often. What (the insurance companies) did was they readjusted the premiums to reflect the fact that there's more severity and more frequency of storms. That’s been done mostly in the south and a little bit in the northern part of the state but less so because the prediction is always that the big storm is going to hit the southern part of the state, not the northern part.

Is there a way to mitigate the risk and the higher rates that could come with it?

I think Tampa has to go through its own rethinking of construction codes. They might have to change, adopt some of the Miami-Dade construction codes. That's a huge issue.

Construction codes is an issue, number one.

Number two, we need to stop building in areas that are prone to flooding. Every year it's the same story again. We need to be smarter and start doing things to counteract the severity of all these storms and the cost involved.

Like, we should stop building in areas that are going to be problematic unless we build using construction methods that are going to withstand this type of storm.

Otherwise, we're going to be having these conversations on a regular basis.

Do you see an appetite for that?

You don't have a universal commitment to actually do this and without a commitment, societal commitment, it's going to be each his own.

But if you want to keep building in those areas (without adapting), insurance companies slowly are going to say, “No, we're not going to insure you.”

So, eventually, it's going to be less attractive to build and with no appetite from insurance companies to insure in those areas, maybe that's when you’ll have no more interest from an economic point of view to live in those areas.