Forecasts of a ”potentially explosive” hurricane season and high operating costs continue to dog Florida’s home insurers. But there are positive signs for the state’s $76 billion market, which is quietly growing after a period of contraction and is starting to feel the benefits of new laws designed to help cut down on their costs. The weightiness of insurance has become more important as Florida’s population continues to grow by roughly 300,000 per year.
“[Because of] Florida’s expansion overall, just in terms of density and overall population growth…it isn’t as if the total dollar amount of exposures is holding steady. It’s increased significantly here over the last several years,” S&P Global Market Intelligence analyst Tim Zawacki told Fortune. “That just underscores the urgency of the need for even more private investment in this fast-growing market.”
Given its exposure to Atlantic hurricanes, Florida has always been an expensive insurance market. But hurricanes Irma and Ian in 2017 and 2022, both of which caused economic losses estimated above $60 billion, were the nail in the coffin for many private providers, that realized they simply couldn’t afford the yearly risk of massive storms racking up billions of dollars in claims. Costs for reinsurance, policies that insurance companies take out to shield themselves from losses, also spiked—which made staying in Florida a losing proposition for many companies.
“The reinsurance market…is always cautious when it comes to Florida, but the level of caution has been especially heightened here over the last several years,” Zawacki said.
Some 15 companies pulled out of the Florida market from the beginning of 2022 to last June. That shortage sent homeowners’ rates soaring to above three times the national average of $1,700 per year, and forced Florida’s Citizens’ Property Insurance Corporation to pick up the slack.
Citizens, Florida’s state-owned “insurer of last resort,” is a taxpayer-funded organization that writes policies in areas where no private insurer is willing to. It boomed in 2022 and 2023, as the exodus of private firms forced millions of Floridians to turn to Citizens for coverage: It grew by over 65% annually as of last July, and underwrote as many as 1.4 million policies last September—making it the tenth-biggest property insurer in the entire country, despite only operating in one state.
That’s bad news for Florida’s insurance market. Citizens regularly loses millions on its insurance operations every year, and it went under federal investigation in 2023 after Florida Governor Ron DeSantis said it was insolvent. If a major hurricane hit the state, Citizens could have to ask taxpayers—and potentially even the federal government—for a bailout, unlike its private counterparts.
But there are positive signs for the beleaguered sector. Citizens is making a splash in the capital markets, seeking up to $5.5 billion in reinsurance coverage—its largest-ever purchase—to cover itself from losses and mitigate the need for a taxpayer bailout. Further, almost $1 billion of that coverage could be in the form of catastrophe bonds, which could open the door for more private insurers to access the reinsurance market and give a boost to the rest of the insurance sector, Florida State University professor and insurance expert Charles Nyce told Fortune.
“Over the past couple years, Citizens has…definitely eased back on their reinsurance demand to allow the private insurer better access to reinsurance. It was a purposeful decision on Citizens’ part,” Nyce said. “There’s only a limited amount of capital in the reinsurance industry. If [Citizens] takes it, the private market can’t get it.”
Industry analyst Steve Evans told Fortune that he suspected private insurers’ willingness to enter the market was not a result of Citizens’ cat bond sales, and that it was more due to softening reinsurance premiums after a period of high prices. Fitch Ratings said it expected reinsurance rates to begin easing later this year.
“If the reinsurance market can soften a little bit, we’ll see some rate decreases in 2025, hopefully,” Nyce said. “That’s great news for the people of Florida.”
Providers have also been given a boost by new Florida laws passed earlier this year that cut down on legal expenses associated with negotiating claims, saving them millions.
Reasons outstanding, an uptick in the number of private insurers entering the market has been a breath of fresh air for Florida’s insurance industry. Florida had approved six new property insurers to start underwriting policies as of March, and over 250,000 Floridians left Citizens for private competitors over the past nine months. That’s a good thing for the market—more private insurance policies means taxpayers aren’t on the hook for big losses.
Expectations of a dangerous 2024 hurricane season are only underlining the need for a stronger insurance market. AccuWeather predicted in March that this hurricane season would be “potentially explosive,” estimating that there would be between eight and 12 Atlantic hurricanes, well over historical norms. Insurers aren’t just preparing for more storms, but also more consistently powerful ones as warming sea temperatures generate faster and more dangerous hurricanes.
“The current belief is that [because of] warming sea surface temperatures and rising sea levels, we’re not just going to see more frequent storms—we’re going to see more storms that would have been category 1 or 2 becoming category 3, 4, or 5,” Nyce said.
