The One-Two Punch of Hurricane Ian on the Florida Property Market

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There’s a lot to unpack in the wake of Hurricane Ian’s destruction across southwestern and central Florida. Ian is the strongest hurricane to hit Florida since Michael in 2018 and was the first Category 4 hurricane to impact southwest Florida since Charley in 2004, according to the National Oceanic & Atmospheric Administration (NOAA).

The number of deaths from Ian so far has risen to more than 100 and keeps climbing. More than 1,600 people were rescued in parts of southwest and central Florida since Ian’s landfall in Florida on September 28, according to the governor’s office. About 4 million customers lost power with more than 280,000 still without power as of October 5, according to In Fort Myers Beach, which was decimated by the hurricane, power may not be restored for another month, as the county’s electrical infrastructure was destroyed.

Ian’s Toll on the Insurance Market

Beyond the human toll and devastation is the insurance story. Estimates of private insured losses are rising, with the most recent costs pegged at up to $63 billion, according to Karen Clark & Company (KCC). The catastrophe modeler says Hurricane Ian will be the largest hurricane-related loss event in Florida history, in nominal dollars. KCC’s estimates do not include National Flood Insurance Program (NFIP) losses, damages to boats and offshore properties, or uninsured wind and flood losses. Total economic damage is projected to exceed $100 billion.

Florida’s Property Insurance Market Before Ian

Even before Ian made landfall in the Sunshine State, the property insurance market in Florida was in trouble. According to industry analysts, the state’s property insurance meltdown stems from fraudulent roof replacement schemes and rampant litigation, which depleted insurance companies’ capital and forced them to raise rates, drop policies, or fold entirely. According to the Insurance Information Institute (I.I.I.), annual homeowners insurance rates in Florida are three times the national average at $4,231. About 12% of Floridians don’t have homeowners insurance — that’s more than double the U.S. average of 5%.

There have been more than 100,000 lawsuits on average in Florida in the past three years related to property claim issues, with the state accounting for about 80% of all property claims lawsuits in the country. A dozen carriers operating in Florida have gone bankrupt since 2020, with property owners turning to state-run insurer Citizens Property Insurance Corp. for coverage. About 1.3 million homes are now insured with Citizens, that’s up from about 500,000 two years ago. If the reserves of Citizens are wiped out from Ian, Florida residents could face multiyear surcharges on their homeowners insurance or auto policies, according to I.I.I. spokesperson Mark Friedlander.

This year, six insurance companies were deemed insolvent. In addition, the Florida Office of Insurance Regulation placed 27 companies on a watch list in July due to concerns about their financial stability.

The impact of Ian on these carriers and reinsurers remains to be seen. Insurance distribution and underwriting company MarketScout recently predicted that Hurricane Ian will impact commercial and personal property rates “significantly” – not only in Florida but throughout “other wind-exposed coastal states.”

Many Homeowners Are Without Flood Insurance

Exacerbating an already dire situation is that many Floridians in the path of Ian’s destruction don’t have flood insurance. Friedlander, in speaking to various news outlets, stated that 40% to 50% of losses caused by Ian will be due to flooding. While more than 50% of homeowners in coastal areas carry flood insurance, inland, where there was also catastrophic flooding, only 5% of homeowners have coverage.

Over the last five years, in fact, the percentage of Florida homes covered by flood insurance has decreased, falling to 15.4% in August from 17.8% in 2017, according to Neptune Flood, a private insurer. Rising inflation and double-digit increases in Florida homeowners policies are factors in residents’ deciding to forgo purchasing flood insurance. Another factor is that the cost of federal flood insurance for many homes has risen to better reflect the property’s flood risk. Some rates will rise by hundreds to thousands of dollars per year, with the majority of increases limited to 18% per year. Additionally, some homeowners purchased their properties with cash and don’t have a mortgage requiring flood insurance.

Rebuilding After Ian

While the cost of materials has come down in recent months, homeowners will still see elevated pricing when rebuilding. According to the Bureau of Labor Statistics, prices for building materials had climbed 4.9% year to date and were up 14.3% in October over the past year.

CoreLogic, a provider of global property insurance, anticipates a slow and difficult recovery in light of inflation, high interest rates, a tight labor market, and materials in high demand. Additionally, Hurricane Ian serves as a huge wake-up call for how we plan to adapt to today’s catastrophe risk environment. “Infrastructure and building codes will evolve so that we can be more resilient ahead of what are bound to be more history-making storms in the near future,” said Tom Larsen, associate vice president for hazard and risk management, in a press release from CoreLogic. “We cannot just rebuild; we need to restore for resilience.”

The lack of flood insurance will also increase the cost of rebuilding. Coverage with the NFIP insures only up to $250,000 in damage, which is far less than the $387,500* median home sale price in places like Lee County, where Ian made landfall — and does not cover living expenses, which can quickly add up after a disaster.

Impact of Ian on Florida Real Estate

During the last couple of years, particularly when COVID-19 hit, many individuals and families migrated to Florida. The Sunshine State, in addition to its year-round warm weather, has no income tax, and homes are less expensive than in other major coastal areas. Hurricane Ian may put an end to the great migration to the state.

In a recent report from CoreLogic, Selma Hepp, interim lead of the Office of the Chief Economist, said, “Initially, we are likely to see an increase in mortgage delinquencies as is typical following catastrophes. Also, rents are likely to jump as households who lost their home seek immediate shelter. Longer term, home price growth in hard-hit areas is likely to lag that of the rest of the state and nation as people may opt to move to areas less prone to natural disasters. CoreLogic observed this trend in the Gulf Coast region following Hurricanes Laura, Delta, and Ida.”

Sources: NOAA, WSJ, Reuters, KCC, I.I.I, The Palm Beach Post, CoreLogic, *