Much of the damage from Hurricane Irma was caused by winds like this, which downed trees along North Fort Lauderdale Beach. (Chip Somodevilla/Getty Images)

Before Hurricane Irma hit Florida last weekend, many warned about the potential for record storm surges, which did, in fact, flood large parts of Florida’s western coast and devastated the Florida Keys. But flooding is just one reason for the housing damage wrought by Irma. Wind is the other.

Irma’s unprecedented 350-mile width put every county in Florida on hurricane watch for the first time in the state’s history. Hurricane-force winds ended up hammering houses across the entire southern and central part of the Florida peninsula; the rest of the state was hit by sustained, tropical storm winds.

That wide geographic spread will test the resilience of Florida’s unique private homeowner insurance market. And it will also test the state government’s election-season resolve not to expand subsidized state homeowner insurance.


Will private homeowner insurers survive Irma’s wind damage claims?

Residential flooding damage is exclusively insured by the federal government. The National Flood Insurance Program mandates the purchase of flood insurance in designated high-risk zones. Wind damage, however, is covered by private homeowner insurance policies or by designated state or “residual” insurance programs. Buying such insurance is quasi-mandatory, since banks won’t issue mortgages unless a property is covered.

Florida has a relatively specialized and geographically concentrated private insurance market; its property owners face an unusual set of risks from hurricane winds. The last record-breaking hurricane seasons were in 2004 and 2005. Since then, private insurers have built up capital reserves that were not significantly checked even by last year’s Hurricane Hermine. That means that insurers’ ability to keep covering Florida properties has not been tested by a major hurricane over the past 12 years.

Before Irma made landfall, observers projected property damage of up to $200 billion. That would have almost certainly collapsed Florida’s private insurance market. Fortunately, Irma took a path that left much less damage than feared. At least for now, homeowner insurers have dodged a fatal bullet. And yet, as they assess Irma’s impact — and reassess the potential damage from future catastrophic storms — insurers may nevertheless offer less coverage in the future.

How might that happen? Smaller and less resilient insurers could be hit with larger-than-projected claims. Florida’s state government recently weakened its building code. Deteriorating conditions in the global reinsurance market and fickle alternative capital sources could push up insurers’ capital costs. All these might combine to persuade insurers that they can no longer afford to underwrite policies in Florida.

That would leave Florida’s homeowners and developers only one source of insurance: the state.

State insurance to the rescue?

In 2003, Florida commissioned a state-run insurance corporation to offer coverage to homeowners who could not obtain it through the private market. Known as the Florida Citizens Property Insurance Corp., this quasi-governmental body relies on its own retained earnings and state reinsurance to cover its claims. If Florida Citizens is unable to pay its claims, the state Office of Insurance Regulation has the authority to charge all other property insurers in the state a policy surcharge to cover that shortfall.

Right now, Florida Citizens is well positioned to pay any claims on its current policies. That’s true in part because since early 2012, the Republican state government, led by Gov. Rick Scott, has worked aggressively to get private insurers to take over Florida Citizens’ 1.5 million homeowner insurance policies and reduce the state’s financial exposure to future hurricane costs. That has worked, reducing the state’s obligation by more than half: In 2016, Citizens underwrote only 520,400 policies.

But that success is relative. According to data from the Property Insurance Plans Service Office, Florida Citizens’ share of total written homeowner insurance premiums is still higher than that of similar programs in other hurricane-prone states along the Gulf of Mexico.


So why did the Florida state government take over so much of the homeowner insurance market?

During 2004 and 2005, Florida was hit by a record eight hurricanes. Together, those storms affected most of the state’s population either directly or indirectly. After those hurricanes, insurers either left the Florida market or steeply increased their polices’ rates. Floridians suspected that price gouging and general opportunism were keeping them from being able to find or afford insurance — and they pressured the state government to step in.

At the time, Florida’s Republican government under Gov. Jeb Bush argued that insurance should be left to the private market. By early 2006 — as a state election approached — a loose coalition of homeowners started to mobilize politically to demand that the state subsidize insurance. Riding the wave of populist anti-private insurance sentiment, Republican Charlie Crist succeeded Bush as governor.

Immediately after the election, Crist pushed for a special legislative session in early 2007, where he championed, and the incoming legislature passed, state bill CS/HB1A. This law effectively limited how much private insurers could charge homeowners and expanded Florida Citizens’ ability to insure all potential customers at lower prices subsidized by state taxes.

Unable to compete at these prices, larger private insurers wrote fewer and fewer policies, and Florida Citizens became the largest insurer in the state. Insurance professionals across the nation started jokingly calling it the “Soviet Republic of Florida,” accusing Florida Citizens of distorting the local market.

How could a Republican state where lawmakers have a deep pro-market bias do such a thing?

In a forthcoming paper, I show that what happened was a perfect storm. Punishing hurricane damage across a broad swath of geography and time, combined with homeowners’ political mobilization, wouldn’t have been enough for Florida’s conservative legislature to decide to expand the role of subsidized state homeowner insurance. But the state was holding elections at precisely that political moment — enabling the popular groundswell to override lawmakers’ pro-market leanings.

That perfect storm may be about to hit once again. Hurricane Irma’s wind damage will affect a significant share of Florida’s small homeowners. Faced with large payouts and higher capital costs, these insurers are likely to push for price increases or, if regulators block them, reduce their coverage. In the meantime, political parties and support groups are already gearing up for critical state and midterm elections in 2018.

Don’t be surprised if, once again, Florida’s homeowners are able to pressure their politicians into abandoning their support for private insurance markets, instead subsidizing hurricane risks.

Emanuel Ubert is a doctoral candidate in sociology at the University of Wisconsin at Madison whose research investigates societal adaptation to climate change through the lens of property insurance markets and natural disasters. Follow him on Twitter @EmanuelUbert.