Back-to-back disasters challenge insurance industry and consumers

Stronger, more frequent storms and fires have insurance companies changing how and who they insure
A hurricane seen from space approaching the East Coast of the United States

The hurricane season in the Atlantic basin runs from June 1 to Nov. 30, but typically stays quiet until the middle of August. This year has been no exception, but the National Oceanic and Atmospheric Administration made an unusual amendment last week to its annual hurricane forecast.

With Caribbean waters much warmer than normal for this time of year, NOAA upgraded its forecast to warn the end of the 2023 hurricane season could be busier than usual.

That’s bad news for coastal residents and insurers reeling from back-to-back years of record losses, said Marc Ragin, associate professor of Risk Management and Insurance at the University of Georgia Terry College of Business.

While Georgia’s insurance markets weren’t as affected as other states, insurers must decide who will pay more for coverage and who will be out of luck.

1. In 2022, insurers saw some of the biggest underwriting losses since 2011. What is the health of the U.S. insurance market going into this year’s storm season?

The property insurance market is having some turbulent times right now. Insurers are facing increased frequency and severity of disasters from windstorms and wildfires. The companies’ increased losses can be attributed to climate change, but also to more people living in disaster-prone areas.

In addition, inflation hit insurers very hard — they are seeing as much as a 40% increase in costs to replace or repair damaged property.

Ultimately, they will pass those costs on to consumers via higher premiums, but state regulators often prevent them from increasing premiums too much in a single year. The combination of more expensive claims and rate regulation is especially bad in states like Florida and California — insurers are pulling out of both states in big ways.

Some of the largest insurers already fully or partially pulled out of those markets, including State Farm, Farmers, Allstate, and others. Many consumers there are having trouble finding coverage, and since the market is less competitive, those who can find coverage are paying exorbitant prices.

2. Seems like Florida has always been a costly place to insure homes for homeowners and insurers. Is it just the intensity and frequency of hurricanes making it untenable for insurers now? Are there other factors at play?

The Florida market is in crisis from the issues above but also has some issues with a legal system that exacerbates the problem. Namely, Florida allowed homeowners to turn their insurance claims over to a third party for pretty much any reason. Most other states restrict this in some way.

This created a cottage industry of roofers and lawyers going door-to-door, saying they see roof damage and telling homeowners they can handle the claim on their behalf. I imagine you can see how this spirals out of control when people tell their neighbors they got a “free” new roof and didn’t have to deal with the insurance company at all.

Florida is also highly litigious — Florida represents 8% of property claims in the U.S. but 76% of litigation against insurers. The legislature recently passed laws to address this problem, but it will be a few years before we know whether it’s sufficient.

3. Do Florida and California have state-backed insurance options for people who can’t find insurance? Will fire and storm insurance ever have a federally-backed provider based on the flood insurance model?

Most states (including Georgia) have state-run “insurers of last resort” for homeowners who can’t get insurance elsewhere. Florida’s state-run market is called Citizens Property Insurance Corporation. With so many insurers pulling out, Citizens went from writing 450,000 policies in 2018 to writing 1.2 million policies in 2022. California’s state market is much smaller — they wrote only about 250,000 policies last year, but this is double the 120,000 they wrote in 2018. Georgia’s state-run market pales in comparison, with fewer than 10,000 policies written in 2022.

The flood insurance program has had major financial issues since Hurricane Katrina in 2005, and it’s difficult to imagine creating a similar government program for fire and storm risks. There is still a relatively healthy private market outside high-risk areas, and I expect that will continue. Over the next few years, insurers will be able to raise rates gradually, and a competitive market will reemerge. However, these disasters will continue to increase over the long term, and everyone involved — insurers, politicians, and citizens — will need to adapt.

4. Georgia, thankfully, doesn’t have quite the same number or intensity of storms or fires that Florida and California have seen, but our rates seem to rise just the same. Are we in danger of losing insurers?

Fortunately, the problem isn’t nearly as bad in Georgia. We have less coastal exposure, and wildfires are rare here. We tend to be less litigious than Florida, though, of course, lawsuits still happen. We are seeing 20-30% premium increases in many cases, partially due to inflation and partially due to higher claims. These two factors are likely the biggest culprits. But there are also many other factors at play, such as higher home values (and thus higher limits), pricing in the automatic “inflation guard” for many policies, and poor investment returns for insurers due to interest rate trends.

We’ve seen insurers pull back on coverage here, but we still don’t have the severe supply problems Florida and California are seeing. It stinks to have such big increases, but at least we can get coverage. We will probably see significant rate increases for another year or two until premium revenue catches up to the increased claim expenses.

5. It seems even people far from the Georgia coast have seen some violent thunderstorms this summer. What advice do you have for people on the coast, or inland, who want to ensure their property insurance is on point ahead of storm season?

Most property insurance covers windstorm and lightning damage but not flood. If you’re in a low-lying area or near water — even a small creek — you should seriously consider flood insurance. Many people think they only need flood insurance if they’re in a flood zone, but FEMA’s flood zones are notoriously inaccurate — more than 40% of flood claims come from outside high-risk flood zones[MR1] .

Insurance is helpful to pay for losses when they occur, but it’s important to address risks before a disaster happens. Homeowners should take a careful look around their property and remove or trim trees that pose a risk to their home. Outdoor furniture should be brought inside when a storm is on the way. Surge protectors can help protect delicate electronics from electrical surges. Near the coast, hurricane shutters are a wise investment. And every household should have an emergency plan and a small kit with essential supplies for the hours and days after a storm. is a great resource for disaster preparedness.