Where does Florida insurance go from here?

Before the start of the 2017 hurricane season, Floridians were enjoying the longest stretch of storm-free seasons in nearly 40 years. The decision ten years earlier by some of the larger domestic insurance companies to leave the Florida market was looking short-sighted because nearly a decades had elapsed with no hurricane landfalls. Given the huge storm season losses of 2004 and 2005, there was no way for them to know in 2008 how the next decade would go.

At one point in 2004, there were 4 hurricanes in 6 weeks. As stated in this article from NOAA.gov,

"Florida, officially known as the 'Sunshine State,' was dubbed the 'Plywood State' by media after it was battered by four hurricanes in only six weeks during the 2004 hurricane season. Nearly every square inch of Florida felt the impacts from at least one of those four storms."

It's hard to stay away, the opportunity is enormous in Florida. With nearly as much waterfront property value as New York and more people moving to the state every year. During the ten year quiet stretch, there were new insurance companies entering the market with little experience, little capital, and concentrated coastal risk. Running an insurance company must have seemed easy and few were failing. Or at least, their structural cracks were well hidden.

The increase in supply put price pressure on home insurance rates, keeping them relatively flat over the course of 10 years. The low cost of high-risk / high value insurance coupled with low interest rates led to a housing boom. Insurance companies used the profits to expand coverage, take on new risk that otherwise should have been uninsurable, and enter new territory. Maybe what they should have been doing is saving up for a rainy day. In Florida, it's not a matter of if but when we become the "Plywood State" again.

How these changes affect the Insurance Companies in Florida

There are currently 16 companies in liquidation, 12 of which are property and casualty companies. There is an interesting trend in what year these failed companies began writing in Florida:

AMERICAN CAPITAL             2011

AVATAR                                  2008

FEDNAT                                 1984

FLORIDA SPECIALTY           1997

GUARANTEE                         1977

GULFSTREAM                       2004

SAWGRASS                           2007

SOUTHERN FIDELITY          2005

ST. JOHNS                            2004

SUNSHINE STATE                1997

WESTON                               1996

WINDHAVEN                         2005

Half of these failed insurance companies had essentially never experienced significant hurricane losses until 2017, at which point they nearly immediately crumbled. There are 30 other insurance companies that have recently been put on watch, many of which were formed around the same time, and we likely haven't seen the last insolvency.

We expect significant rate increases will continue for at least another year as insurance companies grapple with their cost structures, inflation, and supply problems. As premiums rise, it will attract new entrants in the market to replace what was lost and eventually competition will drive prices back to competitive balance.

References:

https://www.noaa.gov/stories/4-hurricanes-in-6-weeks-it-happened-to-one-state-in-2004

https://www.myfloridacfo.com/division/receiver/companies

https://www.insurancejournal.com/news/southeast/2008/02/24/87599.htm

https://www.insurancejournal.com/news/southeast/2022/08/04/678662.htm

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