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Incoming: yet another FL insurance thread. Reports are emerging that two property insurers, with 120k policies combined, will be deemed insolvent this week. This comes as private insurers across the state have asked for rate increases or pulled out of geographies wholesale.
(see here: https://www.artemis.bm/news/two-florida-carriers-likely-to-head-into-receivership-within-days/)
So what does this have to tell us about the 'insurability' of conventional (if catastrophe-prone) residential real estate, as in sprawling Miami or Tampa? That's tough to answer, but current trends do clearly highlight new and enduring challenges with underwriting risky property.
These 2 firms were among the 28 I analyzed in this article. They are emblematic of the rise of Florida 'specialist' insurers, which have come to dominant the market in the make of persistent market upheaval for decades. https://journals.sagepub.com/doi/10.1177/0308518X19896579
Like the name suggests, these firms generally (but not always) specialize in Florida residential business, which is a unique feature of this hurricane-prone market. To 'de-risk' their portfolios, they rely much more on reinsurance (or insurance for insurers) than most firms.
For a few years, specialists grew their business by assuming unwanted policies from FL's public insurer, and passing risk on to reinsurers. Many of the latter crafted lucrative + sophisticated financial mechanisms to 'assetize' this risk (eg ILS -- think MBS but for insurance).
All was good, until insured losses in FL *and* elsewhere caused global reinsurance costs to rise. Other FL factors, like issues over claims litigation, has further spooked capital. And so this provisional fix for risk is looking all the more fragile.
Remember, FL's real estate markets depend on affordable insurance, so we can expect the state to step in. Step 1? State-run Citizens will assume tens of thousands of policies from struggling private insurers -- just years after subsidizing those firms to take those policies.
There's missing nuance here, some of which is explored in the aforementioned article. But FL remains the canary in the coal mine, not least because many of the 'alternative capital mechanisms which came to scale here are now being pitched as solutions for NFIP, CA EQ, beyond.
Even progressive visions for climate-finance management (eg Dem's climate plan) have pitched the expansion of these kind of insurance fixes to offset risk. And that's worrisome, b/c we are *at best* reproducing a problematic coastal development paradigm.
(We're also opening up new forms of climate risk rent seeking, and may be creating *new* local political and economic risks by opening up housing to global capital flows in yet a new way. Renters + non-prop owners remain outside of this discussion, too.)
To wrap, it's naive to expect re/insurers, who write policies year to year, to continue to finance growing long-term risk w/out attrition. We need integrated community risk mitigation planning + investment to complement re/insurance, before places really do become uninsurable.
