Until late last month, there was optimism in the insurance industry. Hurricane season was quiet, and the number of wildfires remained below the annual average. Insurers were beginning to expect that reinsurance, the cost of insurance to insurers, would only rise gradually next year, rather than soaring as it has in the past two years.
Two major hurricanes upended that calculation.
The total economic losses from Hurricanes Milton and Hurricane Helen could soar to more than $200 billion, according to early estimates. While it’s too early to know exactly what portion insurers will cover, some consumer groups, lawmakers and analysts are already predicting that insurers’ finances will be hit hard and that ultimately the most vulnerable We are concerned that this could affect millions of people living in the region.
As climate change increases the intensity of natural disasters, insurance companies are raising premiums, cutting some coverage and exiting many high-risk areas. Two hurricanes that made landfall within two weeks could accelerate this retreat. It could also put further strain on an already fragile federal flood insurance system that has been filling gaps for homeowners living in areas where private insurers no longer offer flood coverage.
Hurricane Milton, which hit Florida’s west coast as a Category 3 storm on Wednesday, ultimately did not cause the expected havoc in the Tampa Bay area. However, it still caused considerable damage.
Sridhar Maniem, an analyst at insurance industry ratings firm AM Best, said it is too early to estimate insurers’ obligations, but industry observers have already put Milton on the map for Hurricane Milton, which caused more than $55 billion in insured losses in 2022. He said he was starting to compare himself to Ian. when it hits the same spot.
“People usually do this because there is a lack of information at first glance,” Maninem said. “This storm is roughly comparable to other storms in size, track, and strength, so we can get an idea of what the inflation-adjusted losses will be.”
If the storm is that expensive for insurance companies, there will be a ripple effect for customers as well. This would give insurance companies new reasons to raise premiums or stop selling insurance to people who live or work in certain areas. It could even put some insurance companies out of business, like Ian did. Nine property and casualty insurance companies have filed for bankruptcy in Florida since 2021.
Insurance companies are likely to have to cover more damage from Milton than from Helen, since Milton’s main destructive force is wind storms rather than flooding, and private insurance companies frequently do not cover it.
Helen, which came ashore before Milton, also caused severe damage. But the cost of repairing damage primarily caused by flooding is likely to be borne by the National Flood Insurance Program, which provides more than two-thirds of all flood insurance in the United States.
Some lawmakers on Capitol Hill are questioning whether the program will have enough money to pay flood insurance claims without additional funding from Congress. About $15 billion could be needed before a new reauthorization bill is needed.
“Hurricane Milton could wipe out the NFIP’s remaining resources,” Rep. Maxine Waters of California, the top Democrat on the House Financial Services Committee, which oversees the program, said in a statement to the New York Times. ” he said. “Even one more storm could bankrupt the entire NFIP and prevent future insurance payments to devastated communities.”
The program is full of problems. The company already owes the Treasury $20 billion and is racking up interest payments.
Waters said Congress should pass a bill to forgive the flood project debt.
The program could also be unaffordable for people living in flood-prone areas, where mortgage lenders require them to purchase insurance policies. Lawmakers hope to pass changes to the program, including a needs-based plan to help the poorest customers.
Consumer groups are concerned that private insurers will continue to withdraw from areas where people are at grave risk of damage from major storms but cannot afford to move. The Greenlining Association, a California-based consumer group, has begun pressuring insurance companies to make insurance more affordable for low-income homeowners.
Until recently, greenlining focused on encouraging banks to do business with people who have historically been kept out of the banking system through redlining and other discriminatory policies. Monica Palmeira, the group’s climate finance strategist, said it expanded its mission after realizing that affordability is also hitting poor and minority communities hard. Insurers are “allowed to inherently discriminate against communities that are most vulnerable to the effects of climate change,” she says.
On Friday, University of Minnesota Law School professor Daniel Schwartz proposed a federally managed homeowners insurance market modeled on Obamacare.
Smaller insurance companies will need to consider something else first. If managed poorly or if the business is too narrowly focused, it can collapse under the weight of insurance claims from a storm.
“Florida-based property and casualty insurance companies are at the very highest level of exposure,” Mannem said. He said these companies are likely to have the most trouble finding new reinsurance contracts.
