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Florida's insurance market was already on the edge — then Hurricane Ian hit

MARY LOUISE KELLY, HOST:

Hurricane Ian has now claimed at least 100 lives, and it left a bill - tens of billions of dollars in property damage. Now, some of that will be covered by insurance, but insurance in Florida was already in a tough situation before the hurricane. Six private property insurers went insolvent earlier this year, and many people in the path of the storm do not have flood insurance. Mark Friedlander is here from the Insurance Information Institute. He's based in Florida. Hey, Mark.

MARK FRIEDLANDER: Thank you so much for having me today.

KELLY: So this is a big problem. Of its many parts, let me focus you on two. There's homeowner's insurance, property insurance, and then there's flood insurance. That is a relevant distinction here. Explain.

FRIEDLANDER: Well, a storm of the magnitude of Hurricane Ian will bring significant property losses both from wind and water. And that's why it's so important to have flood insurance in addition to property insurance. Most likely, we might see 40 to 50% of the losses caused by flood. And unfortunately, only about 18% of Florida homeowners have flooded at this point. Now, we look at the coastal counties that were hit hardest with the storm surge. The good news is, on average, more than 50% of homeowners in those counties have flood coverage. That's really good. But we go inland - say, the metro Orlando area that also suffered catastrophic flooding - less than 5% on average have coverage.

KELLY: OK. So just to be crystal clear, if I have a home and it gets walloped by a hurricane, the wind damage is covered by my homeowner's insurance. But the water damage is not.

FRIEDLANDER: Depends on the type of water damage because, for example, say your roof blew off and it rained in your home and destroyed everything inside the house. That is a property insurance claim from your home policy. If the water rises up or, say, the storm surge that we saw last week - it comes from the ground up, that is a flood claim.

KELLY: And why? Why not just make it easy? I have a home. I want to insure it. Why not have my homeowner's insurance just cover whatever may come along to damage it?

FRIEDLANDER: If every home insurance policy included fire coverage, nobody could afford to buy it. If it was an all-inclusive package, it would be an unreasonable cost.

KELLY: When you talk to people who live on a coast who do not have flood insurance, what do they tell you about why?

FRIEDLANDER: The general comment is, too expensive. But, you know, we look at the equation here. We think from a financial perspective, it's a big mistake because a flood could devastate a family financially. They could destroy your home. Just look at how many homes have been destroyed by storm surge from Hurricane Ian. That's a complete loss. Do you have the funds to rebuild your home out of pocket? - because that's the only way you're going to recover. FEMA has grants available. They're very small. A FEMA grant is not insurance. It's not a replacement.

KELLY: Let me turn it to the other prong of this, to property insurance. I mentioned six property insurers went insolvent this year. Why? What's going on?

FRIEDLANDER: What we've been facing in Florida for many years is a manmade crisis - nothing to do with hurricanes. For several years, we've had a combination of rampant roof replacement claim schemes where unscrupulous contractors go door to door scamming homeowners into thinking they need to replace their roof when they don't. And then you have related excessive litigation filed against insurers. For example, when the insurance company rejects this bogus claim from this contractor, they get sued. And that leads to endless levels of lawsuits. We've had over 100,000 lawsuits on average in Florida in the past three years related to property claim issues.

KELLY: So you're describing a challenge that isn't even to do with other storms...

FRIEDLANDER: No.

KELLY: ...Or massive numbers of claims. This is about scams and litigation.

FRIEDLANDER: Florida accounts for roughly 80% of all property claims lawsuits in the U.S. We're on pace actually for about 130,000 suits this year. We've got a real problem on our hands here.

KELLY: There's all this turbulence with property insurers going insolvent. What impact does that have on people's premiums? How does this affect just ordinary people trying to get insurance, trying to figure out how much they can pay?

FRIEDLANDER: According to our analysis, Floridians are paying the highest average premium in the U.S. right now, almost triple the U.S. average. Also, Florida homeowners are seeing average increases across the state at about 33% versus the U.S. average of 9%. It's getting to the point where the insurance crisis in Florida is going to impact a booming real estate market. You buy a home. You can't close on the home because you can't find affordable insurance. That's what we're coming to here in the state.

KELLY: Mark Friedlander with the Insurance Information Institute in Florida. Thank you.

FRIEDLANDER: Thanks so much for having me today. Transcript provided by NPR, Copyright NPR.

Mary Louise Kelly is a co-host of All Things Considered, NPR's award-winning afternoon newsmagazine.
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