Every Floridian knows that June 1 means the start of hurricane season. From June through November — and especially in August, September and October — we keep a wary eye on the weather forecast, load up on bottled water and hope we’ll be lucky this year.
Unfortunately, sometimes residents of the Sunshine State get the full force of a hurricane’s power. Last September, Hurricane Ian slammed into Florida’s Gulf coast, devastating the Fort Myers area especially. An estimated 149 Floridians died as a result of the storm, and the hurricane caused roughly $109.5 billion in damage in the state. According to the NOAA National Centers for Environmental Information, Ian was the third-costliest U.S. hurricane on record overall.
Human life is irreplaceable. But for survivors, once the storm is over, damage to a home or other property can become an ongoing burden.
Insurance, by design, is meant to protect against the financial consequences of unlikely but catastrophic events. According to the Florida Office of Insurance Regulation, Floridians made 708,255 insurance claims related to Hurricane Ian as of March 9, 2023. Approximately 34% of those cases remained open or were closed unpaid as of that date. While it is still inarguably better to be insured than uninsured when a hurricane arrives, these numbers suggest that insurance alone will not prevent misery. It is important to make sure you have both the right type of coverage and the right amount of coverage. You will also need to know how to most effectively pursue your claim in a worst-case scenario.
How Insurers Handle Hurricanes
Like auto insurance or disability insurance, property insurance spreads the risk of an unlikely but catastrophic event among a large pool of policyholders. Many of the insurer’s customers pay premiums, but only a few will need to make a claim within a given time frame. This allows policyholders to mitigate the risk of a hugely expensive event — in this case, major damage from a hurricane — at the price of paying premiums even in years where no damage to their property occurs. In a perfect world, premiums reflect perceived risk; the likelier a catastrophic event is, the more expensive it is to insure against it.
You may have already spotted one major challenge for insurers protecting Floridians from hurricanes. When insurers have geographically localized risk, such as insuring many customers in the same hurricane-prone state, a single storm can create a significant financial burden for a company because many policyholders will make claims at the same time.
Complicating this picture is the fact that, in general, Floridians need to carry at least two policies to protect themselves from the cost of hurricane damage: homeowners insurance and flood insurance. If the homeowner is financing the property, mortgage providers will require homeowners insurance, and often flood insurance, in order to bind the loan.
Homeowners insurance is familiar to homeowners across the country, and all policyholders should be clear on what their policies do and do not cover regardless of where they live. For those who live in a place with hurricane risk, it is also critical to understand that standard homeowners insurance does not cover all types of hurricane damage. Flooding is a major gap, but depending on your policy, you may also run into other limitations.
Most homeowners in freestanding homes carry either HO-3 or HO-5 homeowners insurance. In both cases, the policy covers any sorts of damage that it does not specifically exclude. HO-5 policies generally offer broader coverage than HO-3 policies in exchange for higher premiums. Regardless of which type of policy you carry, you should be sure you have sufficient personal property protection.
A major difference among homeowners insurance policies is whether the policy provides “replacement coverage” or “actual cash value.” As the name suggests, replacement coverage pays out what it would take you to replace your property, without factoring in depreciation. Actual cash value means the insurer will pay what your property is actually worth at the time it is damaged or destroyed. For example, if your laptop is several years old, its actual cash value would not be enough to replace it with a brand-new laptop from the same manufacturer. Replacement coverage is more expensive than actual cash value coverage, but you may find that trade-off worthwhile. If you have particularly valuable possessions, such as art or jewelry, you may also want to consider extra coverage in the form of a rider to your policy.
Note that if you have a car, your auto insurance should cover storm damage to the vehicle itself as long as you carry comprehensive coverage. Any possessions inside your vehicle are covered by your homeowners insurance. For renters, possessions inside a car are similarly covered by renters insurance.
While homeowners policies nearly always exclude flood and water damage caused by sources outside of the home, many do cover wind damage. However, you should read your current or prospective policy document carefully to understand the details. Many policies that cover nonwater hurricane damage have a higher deductible for hurricane damage than for other hazards. (Florida is one of 19 states that permit insurers to set a separate deductible for hurricane damage.) Typically, insurers determine whether a storm triggers these special rules based on the official hurricane ruling from the National Weather Service, though details can vary slightly between insurance companies. Hurricane deductibles often are set as a percentage of overall coverage. For example, if you are covered for $500,000 and your hurricane deductible is 5%, you will need to cover $25,000 out of pocket before your insurance kicks in. Depending on your insurer, you may be able to lower your fixed hurricane deductible by electing to pay higher premiums.
In addition to wind damage, most homeowners policies cover some amount of the costs of debris removal. Depending on your policy, there may be a cap on the debris removal costs your insurer will reimburse.
While being a savvy consumer is important, the reality is that obtaining homeowners insurance at all has become increasingly difficult here in Florida. Many insurance companies are leaving the Florida market; others have outright collapsed. Between 2020 and the end of 2022, 15 insurers declared insolvency. Many others — including Universal Property and Casualty, the largest private insurer in Florida — have announced moratoriums on new business in certain Florida counties. Some have had to cancel existing policies to limit their risk exposure.
While Florida has endured some especially intense hurricanes in recent years, insurers generally have not blamed nature. Instead, many have asserted that some contractors and attorneys have encouraged homeowners to file frivolous claims. Insurers say that unwarranted claims not only drain insurers’ resources, but create hardships and delays for policyholders who try to make good-faith claims. In addition, reinsurance (a product that insurance companies buy to protect their own financial stability) has grown more expensive. Large insurers often pass these costs to policyholders, while smaller insurers may not be able to afford or obtain reinsurance at all.
Mark Friedlander, the Florida analyst for the Insurance Information Institute, told Gulfshore Business in December, “The private home insurance market in Florida is on a trajectory toward total collapse.”
Flood insurance isn’t only a good idea in Florida; it is often mandatory. If the mortgage is federally backed and the home is inside a flood zone, homeowners are required by law to purchase a flood insurance policy. But like homeowners insurance, flood insurance can be challenging for Floridians to secure.
One of the most common ways to purchase flood insurance is through the National Flood Insurance Program. Policyholders usually must pay NFIP premiums upfront, rather than monthly. Policies offer up to $250,000 in dwelling coverage and $100,00 in personal property coverage after a 30-day waiting period. Some private carriers also offer flood insurance; waiting periods and coverage can vary compared to NFIP policies.
Sewage Backup Coverage
Flooding isn’t the only sort of water damage you may face in a hurricane. You may also have to deal with water that enters your home through backed up pipes. This sort of water damage is not covered by flood insurance and is only sometimes covered by homeowners insurance. However, many homeowners policies offer sewage backup coverage as an endorsement. Endorsements, like riders, offer extra coverage added on as amendments to a standard insurance contract. If your homeowners policy does not include sewage backup damage, pursuing extra coverage may be wise.
Financial Preparedness For Florida Hurricanes
Understand Your Coverage
As the previous section suggests, making sure you have sufficient insurance coverage is a critical part of preparing your finances for hurricane season. If you already have homeowners and flood policies, take some time to review your policy documents. Make sure you understand what is covered, what your responsibilities are, and any potential coverage gaps you may want to plug. If you own a condo, ensure that you understand what the association does and does not cover when it comes to storm damage.
If you think you need supplemental coverage, research your options. While the full process of selecting a homeowners policy is beyond the scope of this article, my colleague Eric Meermann covers many of the basics in Chapter 8 of The High Achiever’s Guide to Wealth. If you already have a policy and you wish to research riders or endorsements covering items such as expanded debris removal or sewage backup damage, you can reach out to your insurer or agent to learn about your options.
While this article is mainly aimed at homeowners, renters should also be sure to secure renters insurance. A landlord’s policy will not cover tenants’ furniture or belongings. (See “Should I Buy Renters Insurance?” for more information.) Note that, unlike homeowners insurance, renters insurance usually doesn’t have a separate hurricane damage deductible.
Each year when you receive your renewal documents, be sure to save them in both electronic and paper format. Your insurance provider or agent will be swamped with requests when a hurricane is looming. Post-hurricane, you may lack power or internet access, so a paper version of your policy information can come in handy.
Know Your Options When An Insurer Goes Under
Many Floridians who were once happy with their coverage received the unfortunate surprise of a carrier either canceling a policy or fully liquidating as a business. Florida state law stipulates a 30-day window to replace a canceled policy before the customer is considered uninsured. However, given the challenges I mentioned earlier in this article, 30 days is often not a lot of time; a broker’s help can be invaluable if you are worried about a gap in coverage.
If your policy was paid up, you will also need to take steps to reclaim the value of any premiums you paid in advance for coverage you no longer have. Floridian claimants can go to the Florida Insurance Guarantee Association for relief. However, note that claimants must pay a $100 deductible upfront and that getting your money back may take up to 10 weeks. In addition, you could have trouble securing new coverage if you have an open claim with a liquidated carrier. You may want to discuss your options with a fee-only financial professional, who can give you advice tailored to your financial situation.
Homeowners in Florida who cannot secure insurance from private carriers often turn to Citizens Property Insurance Corp., a state-run program. Policies from CPIC tend to be more expensive than private insurers’ policies. According to digital insurance marketplace PolicyGenius, CPIC rates run nearly three times the national average for comparable coverage. However, as other insurers abandon Florida, stop issuing new policies, or fold, many homeowners have nowhere else to turn.
As of December 2022, Citizens provided nearly 1.14 million policies, making it the largest home insurer in Florida. The number of policies it provides increased 50% over the course of 2022. CPIC is funded by policyholder premiums, though it has the option to levy assessments on policyholders (and in some situations, on nonpolicyholders to a lesser extent) in the case of catastrophic storms. A spokesman for Citizens told Gulfshore Business last year that the fund lacked sufficient reinsurance, creating anxiety over its ballooning exposures.
Despite these concerns, Citizens continues to offer coverage for Floridians who have no other options. CPIC provides homeowners insurance with endorsement options to cover windstorms and flooding (though, notably, not sewage backup). These policies offer annual hurricane deductibles of 2%, 5% or 10% (or, for homes insured for less than $100,000, a flat $500). The program also provides condo and renters insurance. Legislation passed in 2022 requires Floridians who carry CPIC homeowners policies to purchase flood insurance, regardless of whether their property is located in a flood zone; at this writing, these new rules are still phasing in.
Understand Recent Legislation
Florida’s legislature has recently made various changes designed to support the state’s faltering insurance marketplace. Some of these new rules directly affect homeowners, while others aim to make the state more attractive to insurance companies and thus ease the burden of finding coverage.
Senate bill 2-A, which became law in December, tackled several pieces of the property insurance puzzle. The legislation eliminated one-way attorney fees for property insurance claims, a move that is meant to discourage excessive litigation. This, in turn, will ideally reduce policyholders’ premiums. SB 2-A also enhanced the ability of the Office of Insurance Regulation to conduct market examinations of insurers to prevent appraisal process abuses. And it created the Florida Optional Reinsurance Assistance program, which is designed to extend reinsurance coverage to insurers who have struggled to obtain it.
Earlier in 2022, Senate bill 2-D tackled the problem of frivolous property insurance claims. Among other changes, the law prohibits attorney fee multipliers except under “exceptional circumstances,” making it less attractive for attorneys to encourage unnecessary claims; forbids contractors from inducing a homeowner to make a property insurance claim for roof damage without providing certain notices to the homeowner first; and requires insurers to provide policyholders with “a reasonable explanation” if the company fully or partially denies a claim. The law also created the Property Insurance Stability Unit, an organization that will provide increased regulatory oversight for insurance companies.
SB 2-D also created the “My Safe FL Home” program. This program offers grants to homeowners who make upgrades to their property that are designed to protect it against hurricane damage. Floridians who own a single-family residence can apply for a free hurricane inspection; if the inspection recommends upgrades, including changes to doors, windows or roofs, the homeowner can apply for matching grants. Homeowners must provide their own funds as well for these projects. To secure the maximum grant of $10,000, applicants will need to spend $5,000 on the projects in question. Participants may also receive premium discounts on their homeowners policies after the projects are complete. Homeowners must show proof of homestead exemption and the home must be insured for $500,000 or less.
Concurrently with SB 2-D, Gov. Ron DeSantis signed Senate bill 4-D, which requires regular inspections for condominiums and cooperative buildings three stories tall or higher. In addition to regular inspections, the law requires these buildings’ associations or cooperatives to conduct structural integrity reserve studies. These studies and the inspections must remain part of the associations’ official records and must be provided to potential buyers of a unit in the building. Potential purchasers can thus have an educated sense of how much funding is available for future structural repairs.
These legislative changes will not provide a quick fix to Florida’s property insurance market. They do, however, represent lawmakers’ efforts to encourage prevention through upgrades and to discourage abusive overreaches that have contributed to rising insurance costs.
Most homeowners know that it is important to document any post-storm damage thoroughly and carefully. But it is equally important to document the interior and exterior of your home as a baseline before a storm rolls through. This will make it much easier to illustrate exactly what was damaged and how severely. If you perform major renovations or make significant repairs to your property, be sure to document those upgrades or changes. Because wind damage and water damage are often covered by different policies, it is also critical to be as clear as possible about how the damage occurred.
Finally, it is important to be persistent. As Larry Elkin explained in our company blog several years ago, securing insurance funds after a hurricane can take many months, multiple encounters with a field adjuster, and sometimes help from a lawyer. A robust emergency fund can help to ensure you are able to start repairs even if your insurance check is weeks or months away.
Florida is a beautiful place to live, but hurricanes are a fact of life here. With luck, regulators will help to reform our shaky property insurance market to make coverage fairer and more economical for everyone. In the meantime, it is important to take the time to navigate the sometimes frustrating world of homeowners and flood insurance. Even if it takes several tries to get the coverage you need, you will be grateful the next time that you hear a major storm is headed your way.