5 ways hurricanes increase your expenses in Florida

(Bloomberg) –The US hurricane season officially kicks off next week, and no other place in the country is more vulnerable to storm-related damage than Florida, the fastest-growing state in the nation. Last year, Hurricane Ian battered the state, killing almost 150 people and costing insurers roughly $63 billion.

Florida has an outsize susceptibility to climate events, with damages equaling almost 4% of the state’s annual gross domestic product since 2017, said Andrew John Stevenson, senior ESG climate analyst at Bloomberg Intelligence. Last year, Hurricane Ian resulted in a more than 10% hit to the economy when totaling up all of the property destruction, infrastructure spending and power outages, he said.

With the climate crisis resulting in increasingly more dangerous storms, the residents of the Sunshine State are left with higher costs in the form of indirect and direct insurance payments.

Here are five ways that climate change is costing Floridians money right now—and in the future.

1. You pay what are fast becoming the highest property insurance rates in the nation.
The average annual property insurance payment in the state is $4,231, nearly triple the national rate of $1,544, according to the Insurance Information Institute, an industry association.

That price is climbing rapidly. Property insurance rates were mid-range until 2020. Insurance rates jumped 27% in 2021, 33% in 2022, and are expected to rise at least 40% this year (maybe 50%), according to the institute, which would put the average price at $6,000.

Florida’s Office of Insurance Regulation blames this on fraud not hurricanes, pointing out that Florida accounts for 9% property insurance claims in the nation, but more than 76% of property insurance lawsuits. For example, it is not uncommon for homeowners to claim storm damage to replace a roof just worn out by age. Florida lawmakers have passed recent changes to make such lawsuits more difficult but their effects are still unclear.

Hurricane Ian is also a factor. “If you look at the difference in the increase between last year and this year, that’s probably Ian,” said Mark Friedlander, a spokesman for the institute.

2. Your tax money is going to prop up the reinsurance market.
In the last 13 months, seven of Florida’s 47 local property insurance businesses went under and another 24 are on the regulatory watch list. Part of what’s killing off these small firms is the price of reinsurance—that is, the insurance they have to buy to protect themselves in the event of a catastrophe that makes them pay a lot of claims all at once. Many big firms just don’t want to work in the state at any cost.

The insurance industry is bracing for another year of losses. Indeed, Warren Buffett’s Berkshire Hathaway Inc. has an “unbalanced” reinsurance exposure to Florida, according to Ajit Jain, who oversees the company’s insurance operations.

“What that means is if there’s a big hurricane in Florida, we’ll have a very substantial loss,” Jain said, speaking earlier this month at the company’s annual meeting.

To support what’s left of the struggling private market, Florida created a fund that basically acts as partial reinsurance for catastrophic hurricane losses. Florida’s given $3 billion of taxpayer money to reinsurance. Even so the new fund is limited — it doesn’t cover tornados or tropical storms.

And insurance lobbyists have asked for a more robust program. So far lawmakers have resisted, but if more of those two dozen residential insurers fail, taxpayers will have to likely have to pony up more.