Property insurance in Florida is a house of cards

Floridians think of hurricanes in terms of Category 1 through 5, but the only thing that matters about a storm in terms of Florida’s ability to financially withstand one is the amount of damage it causes — insured losses. What Florida must worry about is the storm — or storm season — that begins to climb above $20 billion in insured losses. The risk of one storm causing that much damage is small — 1992’s Andrew was a 1-in-50 year event, a 2% probability. But a few decent-sized storms in one season easily could rack up $20 billion in damages.

The structure of Florida’s insurance market means that the higher we climb past $20 billion in losses, the more likely it is that every policyholder in the state faces assessments and surcharges — taxes — that could increase by nearly half what Citizens’ policyholders pay in premiums and raise everyone else’s.

If Andrew, the only Cat 5 storm to strike Florida since 1935, struck again, it would deal a $57-billion loss, given inflation and how much more developed Miami has become, according to modeling company AIR Worldwide.

THE CAT FUND

Property insurance companies buy reinsurance from large, multinational insurance companies like Zurich Insurance Group in Bermuda so that they don’t carry all the risk for the potential losses they insure. In 1993, faced with the possibility that Florida insurers might not be able to get enough reinsurance, the state created the CAT fund. It’s become a source of cheap reinsurance for both Citizens and private insurers, charging only a third of what private reinsurance costs, which helps hold down Floridians’ premiums.
Exposure: $17.3 billion
Reserves: $8.6 billion

CITIZENS INSURANCE

The state-run insurer is Florida’s largest insurance company with 1.4 million insured (22% of the market). Citizens is actually three “pools” of risk — a higher-risk account for coastal residents, regular multiperil coverage statewide and commercial coverage for condo associations and others.
Exposure: $503 billion
Reserves: $6 billion

PRIVATE INSURANCE

While Citizens is the largest single property insurer in Florida, most Floridians — 78% — still have private property insurance. The five largest private insurers:
Universal: 587,000 (9.5%)
State Farm Florida: 491,000 (8%)
St. Johns: 174,00 (2.8%)
Security First: 147,000 (2.4%)
USAA: 142,000 (2.3%)

Wilma (2005): $9.2 billion	Katrina (2005): $597 million
Charley (2004): $8.5 billion	Andrew (1992): $23 billion