We received many responses to our Dec. 10 commentary, “Florida Insurance? Ouch!” (https://www.cumber.com/market-commentary/florida-insurance-ouch). Here are some of them.
Paul:
Two thoughts:
This is more than just a Florida issue. Much of the country faces climate-related risks and is seeing insurance rates rise.
Incentives matter. Insurance costs will become the carbon tax that changes behavior. Vulnerable locations will need to decide between expensive protective strategies or falling property values. Residents will relocate to higher ground or pay more to stay. The general public will ask why storms are getting worse and sea levels rising, and will expect politicians to act.
Dave:
I live in Idaho. Property insurance here, in an area which has had few disasters, is also getting out-of-control. But I suspect most of it is not due to climate. Here it is about the cost of materials and labor, especially labor.
John:
Nearly 3 months ago Allstate Insurance enacted a moratorium on writing new home and auto policies in FL, CA and NJ. It is still in effect. Car jackings and auto thefts in large metropolitan areas are a contributing factor. A rise in premium rates across the board are getting the attention of consumers.
Kate:
I’m exceedingly pessimistic about the politicos actually doing anything positive on this, but reversing the migration inflow into the state would at least be a start. I’ll be happy/sad to republish, as Sondheim might have said. This is truly a crazy world. Sending warm holiday wishes, nonetheless!
Bill:
Follower of you and the folks at Cumberland. Have been reading about insurance woes primarily in Florida and California. Imagine my surprise when this San Antonio, TX resident got my policy renewals last week to find my homeowners policy increased 47.8% and auto premium was up 23.4% (personal articles and umbrella policy increased ~20% as well). No claims of any sort for the 30+ years we’ve been in this house and never an auto claim at all. Unlike many parts of Florida and California, we haven’t had any significant Acts of God or such events to warrant these unexpected hikes. I feel your pain for the crazy increases as well as for who governs your state.
Robert:
What is the position of the banking community regarding a homeowner deciding to not take hurricane coverage? Will they default the borrower? Can borrowers gather together and demand a sharing of risk with the banks? Can the banks tolerate massive technical defaults?
Jim:
I normally agree with your positions but, as shown in the graph referenced below, I don't see an increased threat from hurricanes. Obviously, the increased building, increased density, and dramatically increased housing prices will increase the size of hurricane financial damage. I certainly hope that governments don't end up subsidizing risky personal housing choices.
“Historical Hurricane Tracks”
Bob Bunting, CEO of the Climate Adaptation Center, replied to Jim:
Hello Jim,
Regarding your note to David, I thought I would comment to provide more information for you. Hurricanes and tropical storms, especially in the Atlantic Hurricane Formation Area, are way up from what was normal just 30 years ago. In fact, even in the 2000’s we have seen a major increase in both the number and severity of storms. Florida has always been a favorite hit area, but what we are having now is far from normal. For example, in the past 5 hurricane seasons there have been 103 named storms! In the past 7 years, 8 major hurricanes have directly hit the Gulf Coast, causing a lot of human misery with hundreds killed & almost $500B in property damage.
For reference, between 1980-2000, only 5 majors struck the same area.
What is going on? The climate is warming fast. The storms are getting more intense, intensifying faster, and moving more slowly as the sea surface temperatures reach new record highs. Because the Arctic is warming 3X faster than the equator, the temperature difference between the pole and the equator is lessening. Because of this decrease in temperature gradient, both jet streams and ocean currents are slowing down, creating a nightmare scenario for the interaction of hurricanes and humans. Storms used to take days to intensify from tropical storm to major hurricane, but not anymore. Recent years have set record after record for rapidly intensifying storms. In 2018 I said this would happen, and now we have storms going from tropical storm category to Cat 5 in less than a day. But wait, there is more to consider. For every degree the atmosphere warms, it can hold 7% more water. Excessive precipitation is therefore another negative impact as these storms prowl and slowly move. Examples are Hurricane Harvey and Hurricane Ida.
Your point about more population and expensive real estate is true, but with 9 inches of sea level rise and ever more potent storms, all these combine into a catastrophic mix.
The climate has already changed and at a rate 50X normal climate changes.
The only choice we have now and for the next lifetime is to adapt. We must change from reaction to prevention by speeding adaptation strategies. We must build resilience from the ground up and not the top down. We have tried top-down for the last 50 years and it’s a mess! Just look at COP 28. The CAC is about ground-up… one person at a time, one community at a time, one region at a time, and so on. Without a stable climate there is no resilience.
Jim, I gave a talk about this just last week. Take a look. I hope it helps.
Also attached in a follow-up email is our CAC information. Maybe you would like to become part of the solution?
Check out our website and visit the ‘Donation' link, which will lead you to our 'Members & Partners’ page: https://www.theclimateadaptationcenter.org
Happy Holidays to you, Jim.
Bob
Greg:
What are some of the immediate and intermediate measures Florida could take the lessen the cost of hurricanes? Much, much stricter building codes for instance?
Lindsey:
What I see is those who live in a high-risk area should be paying the bulk of the costs for home insurance. Instead, what you see is spreading of the cost. In some instances, if you build in an area that's pretty much guaranteed to be hit by a natural disaster, then the cost of coverage should be set accordingly or not even able to get insurance.
Let me give you a real-world example of wanting to spread the cost of home insurance. In 2007 my son bought his first home in the SE heights of Albuquerque, the house my parents sold to him. When going through all the rigmarole for buying a home, my son pointed out to us that FEMA assigned a flood status warning for this property and thus cost of insurance was raised. Upon helping my son with contesting this flood rating, which we were able to have overturned, I found out that FEMA was changing flood status ratings for properties throughout the US. l assumed this was due to Hurricane Katrina on costs to FEMA.
The property my son bought is nowhere near designated floodplain areas in the Albuquerque area. What I learned is there was a concerted effort in redrawing flood hydrographs based on a 2-sigma event.
As the real world turns.
Don:
As always, your commentary is right on target. My condo association has given up continually raising dues to cover rising insurance costs. We now have a special annual surcharge.
Regarding Citizens, at least it has put some hedging in place, albeit expensive hedging, with a recent $750M cat bond. But, as I understand it, the real problem here is the need for tort reform. E.g., a homeowner suffers $1000 damage on her roof, then requests the insurance company to pay for a totally new roof. I believe that this is what has driven so many insurance companies out of the Florida market. The insurance company can either pay to fight the claim, or just give in—and it is the latter option that usually prevails. I think that we must somehow tighten up proof of claim rules, and make it more difficult to flood the legal system with these claims, while still ensuring that legitimate claims are paid.
Jack:
Thanks, David. Our property insurance doubled early this year. AIG really wanted out of GA entirely or at least the coast. Our Insurance Commissioner got them to stay by approving a huge rate increase. We followed our local insurance agent's advice (and what he was doing) and changed carriers but realize that is just putting our proverbial "finger in the dike" until the new carrier decides to either pull out or substantially increase their premiums. Next year??!!
Tim:
I am a snowbird from Maryland and just got my insurance invoices. My auto premiums for the cars I have in Maryland are up over 30% yr. over year. My homeowners insurance is up close to 25%, less than the 22% rate increase in Florida. When I complained to my insurance agent, his response was all companies are doing it. The increases are reflecting of higher building costs, higher car prices and higher repair costs. My point is that just like health insurance , homeowners and car insurance rate increases are out of control and I don’t know how much of the root cause is bad storms. It is a national problem.
Thank you for reading these responses to the Florida Insurance commentary.
David R. Kotok
Co-Founder & Chief Investment Officer
Email | Bio
Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.
Sign up for our FREE Cumberland Market Commentaries
Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.
