Reinsurance News

Hurricane Ian to demonstrate challenge of insuring Florida property: DBRS Morningstar

3rd October 2022 - Author: Pete Carvill

A new note from DBRS Morningstar says that Hurricane Ian, which hit Florida in recent days, will showcase the challenges of insuring property in the state.

The note says that the economic loss, which the company says is likely to top the $50bn caused by Hurricane Irma five years ago, comes at a time when insuring property in Florida is ‘a risky proposition’ due to reoccurring hurricane-related losses each year. A hardening reinsurance market in this area is also impacting on insurers dependant on it.

DBRS Morningstar wrote: “The damage caused by Hurricane Ian already appears to be severe and widespread with government officials warning of substantial loss of life and historic devastation. Given a storm path and intensity similar to Hurricane Charley and considering the increase in population and property values in Southwest Florida, economic losses could potentially reach above $50bn, which would be a record for a Florida-centric storm.”

It added: “In addition to property damage, a significant number of business interruption claims are expected with large-scale hospitality activities in coastal Florida and around Orlando being severely affected. Power outages are also widespread with 2.6 million customers without electricity. Because of the massive scale of the risk exposure to tropical storms in Florida, multiple state and federal government programs supplement insurance coverages, which can be difficult to obtain especially for flooding. Even with these programs, significant gaps in coverage remain and the victims of the disaster will bear a large portion of the costs.”

DBRS Morningstar also warned on the ‘substantial losses’ that Hurricane Ian is set to cause for property and casualty insurers in Florida, saying that insured losses in the $25bn to $40bn range are ‘plausible’.

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It wrote: “Claims arising from Ian will support the trend of property risk in Florida being more and more expensive and difficult to insure. Impacts of climate change, such as rising sea levels and coastal erosion, combined with high population and property value growth in coastal areas, will add to the existing woes of the Florida insurance market, which has seen multiple insurer failures in recent years. Insurers with concentrated exposure in the state are especially at risk, and their long-term profitability will remain subject to the availability and affordability of catastrophe reinsurance.”

Last week, a poll of over 1,050 insurance and reinsurance market observers and participants suggested that Hurricane Ian is likely to result in an industry loss of more than $50bn, although a surprising number of respondents feel the ultimate hit to re/insurance interests will be less than $40bn.

As Hurricane Ian approached its third landfall, and second in the US with hurricane-force winds, Reinsurance News asked readers how high the industry loss might be from one of the strongest storms to ever hit Florida.

More than 1,050 people from across the insurance and reinsurance sector responded to the poll.

Of this, 33% said that they expect the re/insured loss from Hurricane Ian’s wind, surge, and flooding (excluding NFIP) impacts to exceed the $50bn mark, which would make it one of the costliest catastrophe loss events ever for insurers and reinsurers.

The Hurricane Ian industry loss range of $40bn to $50bn received 23% of the votes. Interestingly, the even-lower industry loss range of $30bn to $40bn received 30% of the votes, which is surprising given recent loss estimates from modellers and analysts. The lowest range of our poll, up to $30bn, received just 14% of votes.

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