How climate change shapes the home insurance crisis

Maria Lopez lives in a small, green, two-bedroom bungalow in Tampa with palm trees lining the yard. She has art everywhere inside her home. She’s a visual artist, a graphic designer, and her husband was a painter who recreated Florida waterscapes and landscapes.

“That was his last painting, and you can see the darkness in the sky and all that, because he knew he was very sick,” Lopez said. He died in 1996 of pancreatic cancer.

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Lopez is an experienced homeowner. She immigrated from Cuba in the 1960s, and she’s basically owned a home in Florida for 50-plus years. She’s had townhouses, apartments, condos, houses.

“I’ve been through everything,” she said. And she thinks Florida’s property insurance is “a mess” right now.

“This last year, I was shocked that my insurance, all of a sudden, was canceled,” Lopez said.

Her insurer pulled out of Florida, just refused to sell policies here anymore. She had no say in the matter. Maria was passed off to another insurance company.

“They accepted my payment, they sent me a policy, and two months later, they decided they didn’t want me either. Why?” she asked.

The climate issue

What’s the tipping point for the average American? What singular aspect of climate change is most likely going to push a regular person to make some kind of big change in their personal lives? Climate experts say … home insurance.

Yep, boring old insurance is already reshaping where people live. It’s forcing some out of their homes, making the cost of a house out of reach for others. And for more and more people, changing their decision about where in the country they should live. And those experts say this is only the beginning.

Home Insurance is a frontline of defense against climate change. If your home is damaged by a flood or a fire, a good insurance policy is what allows you to rebuild, or at least get a payout money to help you start over.

Insurance is so important that you can’t get a mortgage without a policy, but what’s happening right now all across America is the home insurance market is collapsing. Big brand name insurance companies are straight up walking away from the riskiest states, and the companies that are sticking around are often doubling and tripling rates over a matter of just a few years.

Nothing like this has ever happened before, and nowhere is this crisis worse than Florida. The home insurance market in every other state seems to be headed down the road that Florida has paved.

Hearing from homeowners

For this story, we wanted to hear from people shouldering the burden of this crisis, so we put a call out to homeowners in the Tampa area along the Gulf Coast.

We were inundated. People seemed desperate to talk to us about what they’d been going through. And everyone said the same thing: Until recently, their home insurance was in the back of their minds. Now it’s blowing up their lives.

“I grabbed the mail on my way in, and I opened a letter and a few expletives came out of my mouth, and it was a notice from the insurance provider basically saying that you’re no longer going to be covered,” said Sarah Haverstick of Bradenton.

Just like that. No warning. Haverstick’s home insurance was canceled. And for Amy Beer of St. Petersburg, this crisis started with a stranger at her door.

“This guy knocked on the door and said, I’m here to inspect the exterior of your house. Your insurance company sent me,” Beer said.

He wandered around and checked out the house. Weeks later, Beer got a threatening letter.

“If you don’t replace your roof by January 8th, your home insurance will be canceled,” she said of the letter.

A new roof is possibly one of the most expensive repairs a homeowner will ever undertake. Beer’s insurer gave her just weeks to get it done.

This stuff will stop your heart. Everyone we spoke to was in fight or flight mode, but they didn’t have time to feel scared. They had to jump in to figure out how to insure their homes. Some folks we heard from haven’t been kicked off their insurance outright, but they are being priced out. That’s the case for Jeffrey Phillips of St. Petersburg.

“Just a few years ago, I was paying around $5,000 a year for my homeowners insurance. It’s now over $15,000 per year,” Phillips said.

That is a threefold rate increase. Who can budget for that?

“My insurance agents don’t seem to be able to help. I’ve looked on the internet to see if there are other options to have, and I just have found I’m stuck,” Phillips said.

Phillips is an eye doctor. He said he’d like to fully retire, but can’t, because of his home insurance premiums. Beer, by the way, is a writer, and Haverstick is a company manager. Haverstick is raising young kids. She and Beer were both in remission from cancer when that letter or knock at the door came. Also, none of these homeowners had any real damage done by storms. No one even filed a claim with their insurers and still got kicked off or priced out.

“It was such a sort of slap in the face and the idea that all of a sudden I can just get this notice of non-renewal now you’re not holding up your end of this agreement,” Haverstick said.

How we got here

Florida isn’t the only state where it’s getting really expensive or just impossible to insure your home. This is a climate change problem. Insurers are pulling out of states where they’re losing money.

In Louisiana, they’re losing money because of hurricanes; in California, wildfires; in the Midwest, severe storms and tornadoes.

But in Florida, home insurance is in a full-blown crisis. It’s worse here than any other state, and it’s been brewing here longer. If Florida is where the rest of the country is headed, then we should all pay attention.

“This cycle we’re in. We’ve seen it all happen before. Florida seems to be kind of stuck in this kind of terrible loop of insurance crises that have never really resolved themselves, and frankly, I don’t know if they ever will,” said Lawrence Mower, who covers the state House for the Tampa Bay Times and The Miami Herald.

Mower said, to understand Florida’s chronic cycle of home insurance crises, you have to go back to where it started: Hurricane Andrew in 1992.

At the time, Hurricane Andrew was the costliest natural disaster in U.S. history. It came ashore as a Category 5 storm and destroyed tens of thousands of homes in South Florida.

Residents filed about 650,000 insurance claims. Insurance companies — big ones — were not ready for this. State Farm, Allstate, Travelers, Prudential … some dropped hundreds of thousands of policies. Others just abandoned the state.

“A lot of Floridians were left with this situation where they couldn’t find insurance for their homes,” Mower said.

Solutions that became problems

And housing fuels Florida’s economy. This was an existential threat. State lawmakers had to do something, so they came up with a couple of big solutions that would actually become even bigger problems.

Take Citizens Property Insurance Corp., a home insurance company created by lawmakers and run by the state. It’s basically socialized home insurance for people who can’t find coverage on the private market.

“Citizens was supposed to act like an accordion,” Mower said.

Lawmakers set up Citizens in the years after Hurricane Andrew and because of high demand from people dumped by commercial insurers, Citizens expanded. It took on hundreds of thousands of homeowners. Lawmakers freaked out.

“It violates Republicans’ idea of the government and the free market. When it gets big, there becomes this panic among politicians to get rid of Citizens policies. Get rid of these policies, put them back on the private market,” Mower said.

Lawmakers squeezed the accordion. They kicked a bunch of homeowners off Citizens. So where did all those people go if the state couldn’t cover them, and big insurers fled? How did they find home insurance? Here’s another solution that became a problem.

Florida lawmakers encouraged entrepreneurs, people with no insurance experience, to open new very small insurance companies. Citizens dumped tons of its policies directly into the hands of these small companies.

“Basically, these companies are vehicles to do one thing, and that is to extract as much money out of the insurance market as possible for their investors,” Mower said.

In the same market where big insurance companies had lost money, the CEOs of these tiny companies started making $20-plus million a year.

“These guys are making more than the CEOs of State Farm, nationally, Allstate, Progressive. These guys were getting filthy rich,” Mower said.

Here’s how that’s possible. Let’s say I want to make a bunch of money in Florida’s insurance market. Insurance companies are highly regulated. States actually limit how much profit I can skim off of all those monthly premiums that homeowners pay me.

But I’m greedy, so here’s what I do. I open an insurance company that’s only a shell. I don’t hire anyone to work there.

“You’ll never deal with somebody literally from the insurance company, because the insurance company often will employ no one,” Mower said.

At the same time, I open a string of sister companies.

“You’ll deal with a sister company of the insurance company, one that charges the insurance company a ton of money for these services,” Mower said.

My sister companies do all the work for my shell insurance company. One of them handles claims, another does my marketing. I use my sister companies to charge my shell company crazy inflated prices for these basic services, and the financial regulations do not apply to my sister companies. So, my shell insurance company does OK, but my sister companies, they do great.

“And what it’s done to the insurance market is about a third of every premium dollar goes gets extracted out of the company and goes to profits,” Mower said.

While lawmakers scrambled to prop up Florida’s shaky home insurance market, you know what they didn’t plan for? Climate change.

Back-to-back hurricanes

In the years after Hurricane Andrew, the oceans warmed up, and then the Atlantic started pumping out hurricanes like never before.

In 2004 and 2005, eight hurricanes hit Florida in two years.

“And when Florida started getting hit by storms, these little companies started going out of business. They couldn’t handle it,” Mower said.

Small insurers went bankrupt, left and right, although the CEOs tend to do just fine as these small insurers go bankrupt. Take former Tampa Mayor Bill Poe Sr.

This powerful politician opened his own little insurance company and in 2008 state regulators sued him, his wife and five of his children. The family and other executives were accused of pocketing $140 million as their web of companies were going bankrupt.

Anyway, after all those hurricanes, more insurers pulled out or closed shop. New ones replaced them, and for a while, also pulled in crazy profits. And then it happened all over again starting in 2017.

Four massive hurricanes have hit Florida in recent years. The coastal water is now so warm that storms rapidly intensify just before they come ashore. There may never be a hurricane lull here again.

Where things stand

Florida’s insurance market is in the worst shape it’s ever been. Citizens is under investigation by the U.S. Senate for apparently not having enough money to pay out if a big disaster hits.

But at the same time, Citizens has been expanding like crazy. In just the last five years, it has more than tripled the number of homeowners it covers from about 420,000 people up to 1.4 million.

Meanwhile, private home insurance here is super chaotic. Farmers pulled out of the state last year, and there’s this constant churn of small insurers going bankrupt and being replaced by others just like them.

Still, the small companies control the market. A few dozen small companies hold 70% of home insurance policies in Florida.

“These companies will turn around and give millions of dollars to Florida politicians to finance their campaigns, and when there have been serious efforts to reform the market, these little companies have stood in the way,” Mower said.

Florida lawmakers recently made it harder for consumers to sue their insurance companies and mandated roof inspections for homes over 15 years old. Every time they pass some kind of reform, it seems like their priority is protecting insurers, not homeowners.

Canary in the coal mine

“Florida is an example of what happened when that risk hit a tipping point. The way Florida dealt with that is basically a lesson for everyone else because we’re already starting to see insurance companies in other parts of the country pull out. We’re already starting to see more natural disasters in places that did not see them before, and insurance companies are very good about shedding risk,” Mower said.

None of the homeowners had a clear answer to what they were going to do next. Some might stay in Florida, some might leave.

Maria Lopez wants to stay in Tampa. Her daughter lives next door. She loves her little home, but …

“I think it’s a mess. I’m not like a government take all person. I have my own company. I’m all for independent people and having their own thing, but definitely, there’s an abuse to the citizen. There’s an abuse to people,” she said.

Lopez got passed around from one insurer to another. Eventually she got covered for more than she was paying before. It has been so frustrating for her.

“But what really got me through all this, when I spoke to friends, is that I have many, many friends that don’t have insurance anymore. And this is not like the very poor people; it’s everybody,” she said.

And it’s not just Lopez’s friends. There’s data on this. One in five Floridians are now going without home insurance.

For years, there have been anecdotes and headlines about Florida’s broken home insurance system. Now that we understand exactly how climate change is breaking it, we’re left with more questions: What will happen after the next big storm? Who will be able to afford to live in Florida. And if Florida is the canary in the coal mine, what will that mean for the rest of the country?

This story was written in collaboration with Carlyle Calhoun and Jack Rodolico with additional help from Garrett Hazelwood, Halle Parker, Eva Tesfaye and Ryan Vasquez for the podcast Sea Change, a production of WWNO and WRKF.

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