(NewsNation) — As Hurricane Ian wreaks havoc on southwestern Florida, the state’s already strained home insurance market may be pushed to its limit.
Florida residents are projected to pay an average of $4,231 in homeowners insurance premiums this year, according to a recent analysis by the Insurance Information Institute. That’s the highest rate in the country and nearly three times the national average.
“Florida has the most volatile insurance market in the U.S. and that was before Hurricane Ian was on our radar,” said Mark Friedlander, the Director of Corporate Communications for the Insurance Information Institute.
Although Ian could further strain a regional insurance market that’s already struggling, Friedlander said hurricanes are not the primary reason for the state’s sky-high prices.
Instead, he said insurers have been hit by a wave of fraudulent property claim scams that have become more common due to the state’s favorable litigation environment, which allows attorneys to collect generous fees.
Florida homeowners’ insurance claims account for 9% of the claims filed nationwide, but the state makes up nearly 80% of all the property claim lawsuits, the Insurance Information Institute found.
The threat of litigation has made the Sunshine State an unattractive place to do business for major insurance carriers whose footprint in Florida has shrunk in recent years.
In order to fill the void, smaller regional insurance companies have become more common. But with fewer resources to accumulate capital, those same companies are also more vulnerable.
Just this year, six regional domestic insurers have been declared insolvent — which means they are unable to cover their debts. Others have stopped writing new business.
The Florida insurance industry has seen net underwriting losses exceed $1 billion in each of the past two years.
Those losses have led to higher prices for homeowners, in part, because the regional insurance carriers have seen rate increases on their own insurance.
In order to offset their risk, insurers rely on reinsurance — think of it as insurance for insurance companies — but those prices have risen for Florida insurers relative to other states.
“This year, Florida insurers are paying about 50% more for reinsurance due to the litigious situation,” said Friedlander.
Hurricane Ian could further increase reinsurance prices as insurance carriers pay out a wave of claims.
The loss of private insurers has driven property owners to Citizens Property Insurance, a state-run public insurer meant to be a last resort. The number of Floridians relying on Citizens has doubled over the past two years and it now accounts for about 13% of the market, according to the Wall Street Journal.
In May, Florida Gov. Ron DeSantis signed property insurance legislation in an effort to shore up the state market.
The new laws created a $2 billion reinsurance program that insurers can purchase to insulate themselves from risk. In order to access the state fund, insurers would have to reduce policyholders’ rates.
It remains to be seen how much damage Hurricane Ian has caused, although early signs suggest the storm surge and the flooding that resulted from it had the greatest impact.
The typical homeowner’s insurance policy does not cover flooding — a fact that could reduce the number of claims insurers end up paying in the coming months.