By Daniel Brouse
October 10, 2024
Hurricane Milton is expected to result in over $100 billion in insurance claims, creating an unprecedented challenge for Florida homeowners in obtaining affordable coverage. In addition to this staggering figure, the public and government costs are projected to exceed $50 billion, intensifying the financial burden on taxpayers and straining the state's economy. Much of the destruction from Milton was caused by powerful winds and an unprecedented number of tornadoes. The eastern side of Florida bore the brunt, with over 30 tornadoes wreaking havoc, causing widespread destruction, numerous fatalities, and substantial financial losses. The convergence of hurricanes and tornadoes exemplifies the increasing frequency, intensity, and complexity of chaotic climate systems.
The Role of Citizens Property Insurance Corporation
Citizens Property Insurance Corporation, Florida's state-backed insurer, has emerged as the largest insurance provider in the state. This development is largely due to the exodus of private insurance companies, which are retreating from the market in response to escalating risks from hurricanes and other climate-related disasters. While Citizens has become a safety net for many Floridians, it is under significant financial strain. The increasing frequency and severity of hurricanes make it difficult for the insurer to remain solvent without heavy reliance on taxpayer support.
Citizens operates on a model where, in the event of massive losses, statewide assessments are levied on all policyholders and even those insured through private carriers. As hurricanes like Milton grow more devastating, these assessments will likely rise to unsustainable levels, placing an overwhelming financial burden on Florida taxpayers.
Vulnerability of Florida's Real Estate Market
The precarious state of Florida's insurance industry underscores the broader vulnerability of the state's real estate market. As storms grow stronger and reconstruction costs soar, property values in high-risk areas are increasingly at risk of plummeting. Those who have not yet sold their properties may want to reconsider holding onto assets in such an unstable market. Managed retreat -- the strategic relocation of communities and investments away from high-risk areas -- is becoming a more urgent consideration.
A Growing Climate Crisis
The intensifying climate crisis exacerbates the challenges faced by Florida's insurance and real estate sectors. Rising global temperatures, shifting weather patterns, and the heightened risk of storm surges contribute to escalating losses. Hurricane Milton is a stark reminder of the increasing unpredictability and severity of these events.
While some areas may be better equipped to withstand these impacts, the overall trajectory points toward growing instability. Comprehensive strategies to enhance property resilience, including stricter building codes, elevated infrastructure, and robust stormwater management systems, are urgently needed. However, these measures alone may not be enough to counteract the rapid escalation of climate risks.
The Path Forward
Policymakers, insurers, and property owners must urgently address the unsustainability of Florida's current approach to climate risk. Diversifying the state's economy, investing in green infrastructure, and exploring new models for climate resilience will be critical in the years ahead. Without decisive action, the combined financial strain on the insurance industry and taxpayers could become untenable, leaving the state's economy and residents in a precarious position.
For those holding property in Florida, it may indeed be a case of "better late than never" to consider selling or relocating. As climate risks continue to escalate, so too will the financial and personal costs of remaining in high-risk areas.
(i.e. Managed Retreat).
* Our climate model employs chaos theory to comprehensively consider human impacts and projects a potential global average temperature increase of 9° above pre-industrial levels.
