Podcast: Beth Vecchioli Breaks Down Hurricane Ian’s Effect on Insurance Markets

Nate Adams: Welcome to our Florida Capital Conversations podcast series. Today, our subject is the effect of Hurricane Ian on Florida's property and casualty insurance market. And our guest is Holland & Knight's Senior Policy Advisor, Beth Vecchioli. My name is Nathan Adams. My co-host is Mia McKown. We are so pleased that you have joined us today to consider another important issue associated with state government affecting the business community and our daily lives as Floridians. Let us begin today's podcast by sharing our sincere sympathy for all those adversely impacted by Hurricane Ian. Our prayers and thoughts are with you. We wish for you the fastest possible recovery. Let us also begin by thanking the first responders for answering the call to search, rescue and begin to restore our fellow Floridians. Watching the convoys of National Guard, firemen, linemen and police on our highways always moves me. Catastrophic events like Hurricane Ian are an important reason Floridians have insurance. Insurance has a lot to do with recovery and is on the mind of many across Florida right now. Beth, what can you tell us about the expected total cost of Hurricane Ian?

Expected Total Cost of Hurricane Ian

Beth Vecchioli: Yeah, thanks, Nate. The initial estimates, which came out, you know, very early on last week, sometime right after the storm hit, were in the range of $25 to $40 billion with a B. I frankly think that those are probably low estimates because there just wasn't a lot of information at that point when those came out last week and we've seen all of the destruction now, obviously the death toll is rising. So I think, and some experts are saying this could be the most the costliest and deadliest storm for Florida. So I wouldn't be surprised if the numbers start approaching $50 billion.

I think, and some experts are saying this could be the most the costliest and deadliest storm for Florida. So I wouldn't be surprised if the numbers start approaching $50 billion.

Mia McKown: Beth, when they're doing these estimates for the total loss and the $20, $30 billion. What does that include? Does that include loss of business revenue, homes? What is factored into that number?

Beth Vecchioli: That's a great question Mia. So in that number, they would include all losses. So, you know, losses on your home. Cars that were flooded that are a total loss, so losses on your auto insurance. Any business that had business interruption insurance or commercial property damage, it would also include those losses as well. So it's meant to be a holistic number. These numbers that came out last week were from a couple of the different rating agencies I believe AM Best and Fitch Ratings came out with those numbers. And like I said, it was so early on, it was immediately after the storm. So I think what we're going to find over time is those numbers are probably somewhat understated.

Current Status of Florida Property Insurance

Mia McKown: I know we've talked with you before about property insurance in Florida and really talking about it in terms of what the legislature may do to help in that area. What is the current status of Florida property insurance industry? I know again, based on our prior conversations, there have been a lot of companies that weren't writing insurance, property insurance in Florida, and the legislature was trying to address that. And then you add this on top of everything else. What what is your assessment of the current status of Florida property insurance?

Beth Vecchioli: Yeah, so most people probably read in the press that the property insurance industry in Florida is definitely in a state of crisis. Just this year alone, we've had six domestic property insurers that have become insolvent and gone into receivership. On top of that, there are several others that the Office of Insurance Regulation is closely monitoring on a monthly basis, because their financial condition may not be as strong as the regulators would like. And so it wouldn't be a surprise to anyone if there are some other insurers that as a result of Hurricane Ian have also become declared insolvent in the next few months.

So most people probably read in the press that the property insurance industry in Florida is definitely in a state of crisis. Just this year alone, we've had six domestic property insurers that have become insolvent and gone into receivership.

Did the Special Session to Address Property Insurance Provide any Relief? 

Nate Adams: Beth, did the legislative reforms that were put into place during the special session in May, have they had a chance to kick in? Have they helped the insurance industry?

Beth Vecchioli: Yeah, that's a great question. So in May of this year, Governor DeSantis called a special session just to address property insurance, because we are already seeing many insurers being declared insolvent. One of the big reforms that came out of that special session was a new layer of reinsurance to be provided by the state, but which attaches at a level below where the Florida hurricane cat fund attaches. And it was designed to help those insurers who were unable to procure enough reinsurance in the private market at those lower layers, because many of the losses, you know, will fall in those layers. And, of course, Hurricane Ian was such a severe storm, there will be losses in the higher layers as well. But it was important for that lower layer reinsurance protection to be in place. And so that took effect immediately upon the governor's signature. Those insurers had to either buy that layer, participate this year or next year. And so I think what we'll see is those smaller insurers will be greatly helped by that additional layer of reinsurance, especially after this hurricane.

I think what we'll see is those smaller insurers will be greatly helped by that additional layer of reinsurance, especially after this hurricane.

Protections and Resources Available to Floridians Impacted by Ian

Mia McKown: What type of protections, Beth, are currently in place to help consumers recover from Hurricane Ian? I mean, the individuals, you just see it on the TV and we're reading about it in all the papers. Individuals are really hurting and suffering as a result, especially down in southwest Florida. So what kind of protections are in place that are available to them?

Beth Vecchioli: Well, I would the first thing that I would like to speak about and one of the most important things is as of Monday, October 3rd, less than a week after the hurricane, the Department of Financial Services has already set up what they call insurance villages. I believe there's at least one in Lee County, one in Naples, and some of the other counties as well. And this is physically a place where you have the regulators, you have the insurance companies that come together. They actually set up portable offices under tents for insurers to just come. They can walk in, they can get in line, and they can actually file their claims right there on the spot. And so that has been tremendously helpful, I think, for many consumers that, you know, are struggling to get back on their feet and need help right away. Just in the first day, of reporting claims there are over 200,000 insurance claims filed, accounting for $1.6 billion in insured losses. So I would say this is tremendously helping consumers to get back on their feet.

The Department of Financial Services has already set up what they call insurance villages... And this is physically a place where you have the regulators, you have the insurance companies that come together. They actually set up portable offices under tents for insurers to just come. They can walk in, they can get in line, and they can actually file their claims right there on the spot.

Mia McKown: That's really a great idea, especially with folks not having power. Some may not even having an Internet connection that they have a place to go where they can actually talk to a person and walk through that process. That's a great idea.

Beth Vecchioli: Additionally, FEMA and I don't know if they've done this in years past, but I noticed it seemed like it was something maybe newer this year. FEMA has established a program where consumers can get reimbursed for living expenses. Let's say they're having to stay in a hotel because their house was destroyed. And also for small property repairs. I believe that FEMA is giving grants out to folks, but I think it's limited to no more than $75,000. But that is a way to kind of get money in the hands of consumers very quickly so that they don't have to wait for their insurance company to adjust their claim. You know, they'll have some money at least to survive on until their house can be repaired.

I believe that FEMA is giving grants out to folks, but I think it's limited to no more than $75,000. But that is a way to kind of get money in the hands of consumers very quickly so that they don't have to wait for their insurance company to adjust their claim.

Mia McKown: Beth, I wanted to go back to the I guess you called them insurance villages. Is there someplace that people down in southwest Florida where they can go to locate either a website or a number to call where they can find where these villages are located?

Beth Vecchioli: Yes, they can go on the Department of Financial Services website. The web address is myfloridacfo.com and they can go to that website under the Division of Consumer Services. They're the ones who are manning and staffing these villages. And I believe there's something on the website that shows the actual location.

Future of Citizens Property Insurance

Nate Adams: So, Beth, how will Citizens Property Insurance Corporation fare through all of this? We know that you know, as we've spoken the last time the number of policyholders has increased almost every year. What can we expect will be the outcome for Citizens Property Insurance?

Beth Vecchioli: Yeah, Nate, you're right. At this time in 2020, so September 30th, 2020, Citizens had only 500,000 insurance policies. Fast forward two years later, so September 30th, 2022 Citizens now has over a million policies. So they've doubled in size in just two years. That is an indication that the private market is in a sign of distress because more and more people are having to resort to Citizens for coverage. Citizens said that actually, I think it was the day after the storm that they currently have about $6 to $7 billion in surplus and that's on top of the reserves that they already set aside to pay claims. So they're predicting and projecting that their claims alone could be around $2 billion, and with $6 to $7 billion in surplus, they're saying they will be just fine after paying all their claims, which is definitely good news for us, because you may recall a month or so ago, one of the rating agencies called Demo Tech out of New Jersey downgraded several of our property insurers. And when those insurers ratings are downgraded, those are insurance policies, homeowner's policies that people have to buy if they have a mortgage on their property because their lender requires that their property be insured. Well, those mortgages are all backed by the federal government, Fannie Mae and Freddie Mac. Both Fannie Mae and Freddie Mac do not accept low ratings of insurance companies paper. And so when this rating agency downgraded our insurers, all of a sudden now it made consumers have to scramble because now their lender won't accept the policy from their insurance company. And this happened after the special session, but as a reaction to that, the regulators and Governor DeSantis decided that Citizens would also serve as a reinsurer to those insurers who were downgraded and because of making that reinsurance available to those insurers, now Fannie and Freddie can accept the policies issued by those downgraded insurers. So that was a critical piece in making sure that, you know, our housing market, our insurance market, our financial services markets did not all implode simply because insurance companies were downgraded. So on top of Citizens paying $2 billion in their own insured claims, now they're going to be serving as a reinsurer to some of the distressed insurers. But they have indicated that they have the financial means to pay all of that.

So on top of Citizens paying $2 billion in their own insured claims, now they're going to be serving as a reinsurer to some of the distressed insurers. But they have indicated that they have the financial means to pay all of that.

Will Insurance Rates Increase post-Ian?

Nate Adams: Well, I think a lot of Floridians also are beginning to ask themselves, hey, are we going to see our insurance rates go up after this storm? And what do you think about that?

Beth Vecchioli: Well, I think one thing that consumers can expect, and I think they're already being charged for this because of the insolvencies we've had in the last year or so. If you look on your invoice from your insurance company, in addition to the premiums you're paying, you're also paying assessments. And there are a couple of assessments already on your policy for the Florida Insurance Guarantee Association, because that's the entity that guarantees that your claims will be paid even if you're insurance company becomes insolvent. And so in order to pay for all of those claims, they've levied assessments on all different types of insurance policies, not just residential property. So we will continue to see those assessments. Because Citizens has indicated that they're in a very strong financial position. It's not likely that citizens will levy assessments for this storm. But of course, as we will see, there will be some rate increases, I'm quite certain, as a result of Hurricane Ian so that insurers can have enough funds to pay claims going forward.

There are a couple of assessments already on your policy for the Florida Insurance Guarantee Association, because that's the entity that guarantees that your claims will be paid even if you're insurance company becomes insolvent.

Is a Special Session Necessary to Address Issues Stemming from Ian?

Mia McKown: Beth, do you think there will be a need for a special session to address any property insurance issues or things that are stemming from Hurricane Ian? Or do you think they'll wait until session and address any issues at that time?

Beth Vecchioli: Yeah, I think they're going to wait until March. You know, I mean, unless there's always the possibility something else could happen between now and then. But my guess is that, you know, they're going to wait until the newly elected legislature is in place and seated and let them debate the issues. I do think that there will be a lot of discussion about property insurance in the session next year. We're already worried about this action by Demo Tech, the rating agency. There's been talk about wanting to form a separate rating agency so that we don't have to rely on demo tech so heavily in Florida. So I think there'll be a lot of issues that will be in play come March.

My guess is that, you know, they're going to wait until the newly elected legislature is in place and seated and let them debate the issues. I do think that there will be a lot of discussion about property insurance in the session next year.

Mia McKown: Well, this has certainly been a long process. And just watching the hurricane come and then it's even longer with the aftermath. And so Nate, I agree, I hope that our neighbors down in south Florida continue to get the support that they need. I know this is an extremely difficult time and I hope that they're in some way, if they're able to listen to a podcast and maybe didn't know about the insurance village and things like that, that we've been able to help them, maybe direct them to some services in some small way.

Importance of Flood Insurance

Beth Vecchioli: If I could just add one more thing before we wrap up, because I think this is very important, especially as it relates to Hurricane Ian. We saw record storm surge in that hurricane. And the problem with that is that's considered flood. And if you don't have flood insurance and you didn't have really any wind damage to your house except for rising waters, then you may find that you're not going to recover all the money you need to repair your house if you did not have flood insurance. Additionally, what I would like to say is that the NFIP, the National Flood Insurance Program, provides insurance, but only up to certain dollar amounts. And some of these homes I'm quite certain were quite expensive. And so even if they had federal flood insurance, it wouldn't be sufficient to cover all their losses. So I think one thing that everyone needs to do, especially the Office of Insurance Regulation and the Department of Financial Services, is to educate consumers in a better way about the importance of flood insurance, even if you're not in a flood zone. Many people have it in the flood zone, but it may not be enough. And what we've seen now with this storm surge is waters, it's not just our coastal counties that are affected by storm surge. I mean, this storm had so much rain and storm surge that inland counties were very affected. You know, rivers start accumulating all that rain and then the rivers overflow and then there's another flood. So it's just so critical that consumers consider buying flood insurance even if they're not in a coastal location.

It's just so critical that consumers consider buying flood insurance even if they're not in a coastal location.

Mia McKown: That's so true. My friends from high school, we were keeping track of each other. We had some that lived in Naples, some that lived in Tampa, West Palm Beach, but the one that had actually the most damage to their home, she was located in Orlando and it was because her lake flooded and came all the way into her house and she's inland. So, I mean, to your point, it had effects in areas where you didn't think there would be that type of damage.

Beth Vecchioli: Yes. And I don't know if your friend had flood insurance, but hopefully she did.

Mia McKown: She did. In fact, one of my other friends sold her the flood insurance, so she had it. My other friend sells property insurance and flood insurance. And so she had us all covered.

Beth Vecchioli: That was probably the best decision your friend has ever made.

Mia McKown: I agree.

Nate Adams: All right. Well, thanks to Beth Vecchioli for these sobering and informative comments on the effect of Hurricane Ian on Florida's property and casualty insurance market. Thanks to my co-host Mia McKown and most of all, thanks to you for joining us today. Please plan to join us for our next Florida Capital Conversations podcast. Have a great day.