A broken insurance market threatens Florida and its star governor

What may be Florida’s most destructive hurricane is threatening to swamp the state’s property insurance market, posing a stiff challenge to a star governor with national political aspirations.

Even before Hurricane Ian made landfall on Wednesday, the state’s property insurance market was buckling. Six companies had already fallen into insolvency this year as underwriting losses exceeded $1bn for the second consecutive year. Insurers, in turn, have been exiting the state and curtailing renewals, leaving homeowners with dwindling options for coverage and soaring prices.

“The homeowners insurance market in Florida has already seen escalating losses, increases in premiums, and insolvencies before there was a hurricane. Now with Ian, especially if this storm leads to litigation, it makes me wonder if the market can sustain this,” said Nancy Watkins, a principal and consulting actuary at Milliman.

Jon Schneyer of CoreLogic, a property research firm, called Ian “a worst-case scenario” that combined the dangers of enormous breadth, destructive winds and torrential rains. The firm estimated that 7.2mn residences, with a reconstruction value of $1.6tn, were at moderate to high risk of flash flooding.

Compounding the state’s difficulties, property insurance generally does not cover damage from flooding. That means many residents, particularly those further inland, will have to apply for federal support.

All this presents a unique test for Governor Ron DeSantis, a former Congressman with a Yale and Harvard Law School résumé. He entered the governor’s mansion with a narrow victory in 2018, and has since risen to national prominence with his defiant response to the Covid pandemic.

He has also become a hero to conservatives by picking high-profile fights, notably with Disney, among the state’s biggest employers, to resist what he deems progressive ideology. A record-breaking $177.4mn fundraising haul reported this month has further fuelled speculation of a bid for the White House — possibly in defiance of former President Donald Trump.

“If he does well in this crisis I think he’s passed the final test and becomes even more of a national force. The eyes of the country are on Florida,” said Adam Goodman, a political strategist at Ballard Partners, a lobbying firm with close ties to the governor.

Equally, a poor performance could dent DeSantis’ popularity, as an inept response to Hurricane Katrina in 2005 left a lasting wound on George W Bush’s presidency.

Christina Pushaw, the governor’s spokesperson, has rejected any link between the storm and the governor’s political career. “Media talking point is Hurricane Ian is a ‘test’ of Gov. DeSantis. No — it’s a natural disaster; the governor is focused on saving lives. Stop politicising!” she tweeted. “We are in good hands.”

On Thursday, the governor and his team were focused on search-and-rescue operations and restoring power to some 2mn residents. During briefings, he has demonstrated a fluent command of facts and figures concerning the relief effort, including petrol volumes flowing into various ports.

“It’s a massive storm,” the governor said on Thursday night, noting that the first 72 hours of the recovery were “really about life safety, and then working to restore the main services”.

He has halted attacks on his regular foil, Joe Biden, whom he is now courting for federal aid. Asked whether he would meet the president, DeSantis said: ‘At the end of the day, we want all the support we can get.” 

Making that dance more awkward is the fact that in 2013, as a Tea Party Congressman, DeSantis prompted fury among many northeastern colleagues by voting against a federal relief package for Hurricane Sandy, which devastated New Jersey and New York.

When the immediate danger passes, insurance will return to the fore as Floridians seek to rebuild. They will attempt to do so with a property insurance market that has been strained by a succession of severe storms, as well as extraordinary levels of litigation.

According to state officials, Florida accounts for 79 per cent of US homeowners’ insurance lawsuits but only 9 per cent of US homeowners’ insurance claims. Many are believed to be frivolous.

As coverage has become scarce and expensive, record numbers of homeowners have flocked to a state-run insurer of last resort, Citizens Property Insurance Corp. If its reserves are overwhelmed, taxpayers could face exposure, Jeff Brandes, an outgoing Republican state senator and longtime critic of the insurance system, has warned.

In May, Governor DeSantis convened a special legislative session to address the issue. The resulting fix — a $2bn layer of reinsurance to support Citizens — was dismissed by critics, even at the time, as a sticking-plaster solution that would not address the market’s larger problems.

S&P Global Ratings on Friday said it expected Hurricane Ian to result in insured losses of $30bn to $40bn.

Sensing a potential vulnerability, Charlie Crist, a Democrat who is challenging DeSantis in November, on Monday called his opponent “the worst property insurance governor in Florida history. Period.” Crist demanded that DeSantis provide 90-day emergency coverage for residents who were dropped by failing insurers.

In response, DeSantis touted the $2bn in additional funding, saying it had spared other insurers from insolvency. He also pledged to do more.

But others, including RJ Lehmann, a senior fellow at the International Center for Law & Economics think-tank, are faulting the governor for focusing more on provoking his foes in fights over culture war issues, such as critical race theory, at the expense of insurance reform.

“Lawmakers had ample warning about the need to act during the legislative session earlier this year, but they displayed more interest in waging culture-war battles than in helping Floridians to secure their lives and their property,” Lehmann wrote. The system, he added, was now facing “a state of full-blown collapse”.