Florida Braces for Hurricane Milton
Hurricane Milton has Floridians on high alert as the financial-rating agency, AM Best, warns of a significant threat to the state’s property insurance market. This comes as the hurricane could potentially make landfall in densely populated areas of the Gulf Coast early Thursday. The situation is more intense considering it comes barely two weeks after Hurricane Helene wreaked havoc, causing extensive flood damage in Florida and other states.
Unlike Helene’s damage, which was primarily flood-related and thus not covered by typical property-insurance policies, Milton is predicted to cause extensive wind and flood damage. This is expected to significantly impact reinsurance – the backup insurance for insurers – and insurance-company surplus amounts, which serve as a financial cushion.
The severity of Milton’s damage is anticipated to be much worse than Helene’s, predominantly affecting Florida. The implications of this are severe, especially for property insurers concentrated in the state, who could experience a significant loss of surplus. This, in turn, would affect the availability and affordability of property insurance in the state.
Impact on Florida’s Property Insurance Market
As of 1 p.m. Wednesday, Milton was a Category 4 storm, with maximum sustained winds of 145 mph and was about 160 miles southwest of Tampa, according to the National Hurricane Center. The predicted path has it hitting the Tampa Bay area as a major hurricane, a potential nightmare scenario.
Florida’s private property insurers have been rebounding in the past year after financial difficulties led to large policy drops and significant rate hikes. However, this recovery could be threatened by the imminent hurricane. State Chief Financial Officer Jimmy Patronis estimated potential insurance losses from Milton could reach $20 billion, but expressed confidence in insurers’ ability to handle the storm.
Despite the confidence expressed by state officials, AM Best’s analysis highlighted the state’s heavy reliance on what it described as “Florida specialists.” These are insurers focused solely on Florida’s property insurance market and rely heavily on reinsurance to shield them from financial risks. Hurricane Milton is likely to halt any softening of price and terms in the property reinsurance market, with companies potentially having to pay large numbers of claims with their own cash, creating a squeeze.
What Lies Ahead?
The impacts of Milton are predicted to significantly pressure the Florida property market. With possible local insolvencies and declining capital among insurers concentrated in Florida, Citizens Property Insurance Corporation may see an increase in the number of property owners it covers. This comes despite its efforts to reduce its number of policies.
Furthermore, the presence of debris from previous hurricanes, such as Helene and Debby, could increase insured losses from Milton. Each storm leaves behind debris, which becomes projectiles for the next storm, leading to more damage than is typically associated with a Category 3 or 4 hurricane.
As Floridians prepare for the impending storm, the state is left to grapple with the potential economic implications. With the insurance industry bracing for a major hit, the question remains: how will the Sunshine State weather this storm and its aftermath?
