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The Cost of Climate Change

Politicians may deny the effects of climate change, but insurance companies definitely do not

Farmers Insurance has made the decision to cease offering its policies in the state of Florida, which includes home, auto, and umbrella policies. This move will require thousands of policyholders to seek alternative insurance providers. The company clarified that this choice was a strategic business decision aimed at managing its risk exposure in a state known for its susceptibility to hurricanes. Although Farmers serves approximately 100,000 customers in Florida, the discontinuation of their policies will not affect customers who are insured through Farmers’ owned subsidiaries like Foremost Signature and Bristol West.

Trevor Chapman, spokesperson for Farmers Insurance, stated in a released statement, “Such policies will continue to be available to serve the insurance needs of Floridians. Affected customers will receive notifications detailing when their coverage will end and will be advised of options for replacement coverage.”

Extra Risk

Florida, being a hurricane-prone region, poses unique challenges for insurance companies. National insurers, including Farmers, have a limited presence in the state, with Farmers holding a meager 2% share of Florida’s insurance market. To ensure policyholders are adequately informed, Florida regulations mandate that affected policyholders must receive a 120-day notice regarding the non-renewal of their policies.

According to Mark Friedlander, a spokesperson for the Insurance Information Institute, recent months have witnessed numerous home insurers imposing moratoriums on writing new business in Florida. Additionally, four carriers have declared their intention to voluntarily withdraw from the market, while seven companies have faced insolvency. As a result, the state regulator has placed 18 residential insurers on a watch list due to concerns surrounding their financial stability.

Apart from the challenges posed by extreme weather events, insurers in Florida also point to the state’s legal system, which they claim promotes litigation abuse and excessive claims. Friedlander asserts that this is a “man-made crisis” that demands attention. Although the insurance industry successfully advocated for legal reforms to mitigate perceived abuse, the outlook for insurers remains unchanged. This is partly due to a significant influx of nearly 300,000 lawsuits that were filed just prior to the implementation of the new law.
Florida’s geographical location and low elevation make it particularly vulnerable to hurricane-related damage. The Atlantic hurricane season for this year is projected to be within normal ranges, as indicated by the National Oceanic and Atmospheric Administration (NOAA), with a 30% chance of an above-average season and a 30% chance of a below-average number of hurricanes.

Last year was particularly devastating for Florida, with Hurricane Ian in late September causing $114 billion in inflation-adjusted damage. This made it the costliest storm in the state’s history and the third most expensive in US history, following Hurricane Katrina in 2005 and Hurricane Harvey in 2017. In addition to its decision regarding Florida, Farmers Insurance has also restricted the issuance of new homeowners insurance policies in California due to high costs and wildfire risks. Similar changes have been implemented by State Farm and Allstate in the state.