As Hurricane Season Ends, Green Shoots Sprout In Florida’s Insurance Market

Thursday marks the official end of a relatively quiet hurricane season after Florida's property insurance market was upended last year by Hurricane Ian.

While property owners braced for an active hurricane season this year, only one storm made landfall, in a sparsely populated part of Florida's Gulf Coast. Now, after years of punishing rate increases, the lack of damaging storms this year has buoyed hopes that the runaway cost of coverage will be reined in.  

There is cautious optimism in South Florida that the insurance market’s volatility has peaked as providers signal plans to expand coverage in the state and the pace of rate growth slows. The modicum of stability comes after runaway insurance costs have killed deals and stalled new projects. 

“The beginning of the year was ugly, and it’s gotten a little less ugly,” said Manny Ribot, a property insurance broker for the Florida region at Marsh McLennan Agency. 

The price increases have been dramatic — state-run insurance provider Citizens Property Insurance Corp. has increased commercial premiums by an average of 252% since 2019, according to CoStar — forcing new approaches to underwriting that in many cases mean less insurance coverage.

While insurers had been pulling out of the market, more are now providing quotes for policies after holding back since 2022, and carriers are expected to deploy more capital into the Florida market in 2024, insurance experts told Bisnow. 

At least one provider, Texas-based Mainsail Insurance Co., is entering the market with plans to provide full-line coverage, including commercial insurance. New excess and surplus lines insurance providers are also planning to come into the market, Ribot said.

The Florida Office of Insurance Regulation is also in active talks to bring other providers to the state, said Mark Friedlander, director of corporate communications at the Insurance Information Institute. The conversations follow a storm season where Hurricane Idalia caused an estimated $20B in damage, whereas Hurricane Ian wrought $113B in estimated destruction last year.

Taken together, the increase in coverage options is already having a moderating effect on rates for commercial insurance.  

“What we're starting to see is a little bit of an improvement,” said Nelson Stabile, principal at Integra Investments, a Miami-based development firm with $2.2B in assets under management. “I can't tell you that I'm completely optimistic, but I'm more optimistic now as far as what will happen next year compared to where we are today and what we’ve been experiencing this year.” 

Commercial rates in Florida may rise around 20% to 40% in 2024, Friedlander estimated, in line with the types of increases that were seen this year. But increases in costs to policyholders could be offset by a growing willingness among lenders to reduce insurance requirements on loans. 

Danielle Lombardo, the chair of the global real estate practice at the New York-based insurance brokerage Lockton, has been working with a group through the Mortgage Bankers Association that has been re-evaluating how insurance requirements are built into lender agreements. The goal is to encourage stakeholders to leverage data to more accurately model risk and allow lenders to reduce requirements.  

The tight lending environment and rapidly increasing rates this year have created more of an appetite among lenders and owners to take on more risk by bringing coverage levels down, she said. 

The group, which includes Fannie Mae, Freddie Mac, lenders, servicers and banks, has been focused on the issue for four years but has “been taking a lot of steam in the past six months, since rate increases have really been the difference between foreclosure and a cash-flowing property,” she said. 

At Bisnow's South Florida CRE Finance conference on Thursday, Capital One Senior Vice President Maggie Burke said agencies are starting to get more comfortable with different levels and types of coverage.

“On the agency side, I'm working on a number of deals where the coverage that Fannie or Freddie is requiring, we can't obtain that. So instead of just saying, ‘Oh, can't do the deal,’ it's, ‘What can you do?’” Burke said. “A couple of our transactions, we've been able to get Freddie comfortable with taking a little bit less of the coverage by mitigating that risk.”

Lenders in Florida are increasingly aware that buyers and owners are being squeezed by insurance costs and have been working with buyers to identify cost savings through reduced coverage requirements, Stabile said. He has seen $100M deals for apartment properties fall apart as buyers go into the market for insurance quotes and find costs well above their estimates. 

“Everybody is just trying to roll up their sleeves and work collaboratively towards finding a middle ground where you're well-covered by the insurance product that you have but you're not overly insured,” he said.  

The search for near-term solutions comes as changes in the marketplace are generating encouraging signs for more stability moving forward. 

Two Florida laws passed since May 2022 have aimed to reduce litigation costs for insurers in the state by, among other provisions, eliminating one-way attorneys fees and attorneys fee multipliers for all lines of insurance. 

The laws were passed in an effort to stabilize the homeowners insurance market — Florida accounts for 79% of the country’s homeowners insurance lawsuits while making up only 9% of claims, according to the Office of Insurance Regulation — but also apply to commercial properties. The changes have made the Florida market more attractive for commercial carriers, Friedlander said. 

“You combine those two reform bills together, and that is what is generating interest from companies wanting to come into the Florida market,” he said. “Nobody was knocking on Florida's door for many years as the market was in such great turmoil. Now, we have not only residential insurers coming to Florida, but an all-lines company and a commercial-specific insurer. We didn't expect that.”

There has also been a closing of a gap between where property owners and insurers value properties, Ribot said. A softer insurance market in the past five years gave owners the ability to secure policies with outdated appraisals, but underwriters began scrutinizing valuations in 2022. The mismatch was wide, he said, and involved upward modifications on asset values between 20% and 50%. 

“If the statements and values didn’t seem real, the [excess and surplus] underwriters were so inundated that, while they didn’t throw those straight into the bin, they certainly weren’t at the top of the pile,” he said. 

While shifting market dynamics and a quiet hurricane season in South Florida will help to provide some stability to the regional marketplace, insurance experts said rising severe weather activity across the United States is creating uncertainty in the broader market and pushing rates up nationally. 

All 10 of Florida’s largest commercial insurance providers, which accounted for 52% of all policies at the end of 2022, have risk exposure outside of Florida, and the country has already seen a record number of losses from storms this year. 

There were 25 separate weather or climate events through October where losses exceeded $1B, the most since 1980, when the National Oceanic and Atmospheric Administration began tracking such occurrences. Between 1980 and 2022, the average number of severe events was 8.1 per year. 

“Although it’s fun to blame Florida, the issue actually is not Florida. The issue is the volatility in weather-related losses outside of hurricanes,” Lombardo said. “The bigger issue is the volatility — the frequency and severity of nonmodeled events — and underwriters trying to play catch-up every year to these losses that they weren't expecting to pay.”