MAPFRE CEO: AI Regulation Needed | AI: At the Center of CLaiMS  December 4th 2023

Senate committee investigates Florida's insurer of last resort

The US Senate Budget Committee has initiated an investigation into the financial viability of Citizens Property Insurance Corporation, known as Florida’s insurer of last resort.

In a letter addressed to Governor Ron DeSantis and other top Florida officials, Committee Chair Sheldon Whitehouse requested documents outlining Citizens’ plans to “address increased underwriting losses from climate-related extreme weather events.”

Whitehouse shared the committee’s growing concerns about Florida’s climate exposure and Citizens’ expanding market share, which “more than doubled since 2020” to around 18%. He also drew attention to state law that allows Citizens to impose special assessments on all policyholders, potentially resulting in substantial spikes in insurance costs.

The letter went on to state that Florida might turn to the federal government for a bailout in the event of Citizens’ insolvency, adding that such a request could put the budget and American taxpayers “at substantial risk.”  

Whitehouse pointed to recent reports by Swiss Re and Munich Re suggesting that Citizens could see losses ranging from $36 billion to $162 billion, depending on the severity of future catastrophes.

“Florida is on the front line of the climate crisis, and it could take just one major hurricane to render Citizens insolvent - a fact the current governor has, himself, admitted,” Whitehouse told CNN, referring to a statement made by DeSantis earlier this year.

“As most people know, Citizens has not been solvent,” DeSantis had said to the press last March. “If you did have a major, major hurricane hit with a lot of Citizens property holders, it would not have enough to pay out.”

Banks more hesitant to lend in areas with inaccurate flood maps

Climate change poses many problems for society as a whole, and for commercial real estate (CRE). Properties can face flooding or wildfires or heavy damage from winds. A building can be cut off from everything else. All the time while increasingly cut off new business lines in states that have been particularly hard hit by disasters.

At a time when insurance can’t be counted on as the rescue of last resort, lenders must consider the risk they could take on. The Federal Reserve Bank of New York emphasized this point in a recent blog post.

The observation started with a previous post about potential inaccuracies in flood maps. It wasn’t a nationally representative examination, but one still worth consideration because the issues aren’t only restricted to one part of the country.

The accuracy of federal flood maps is important for their part in setting insurance requirements for mortgage borrowers. But, as the NY Fed pointed out, there’s a mismatch. The maps are static, periodically updated by the Federal Emergency Management Agency. The conditions in any given area covered by a map aren’t static.

“On the one hand, the climate continues to change, and the risks posed by a rising sea level, hurricanes, or even summer rains are constantly evolving,” they wrote. “On the other hand, many communities proactively manage flood risks through the construction of dams, floodways, or elevated dwellings to reduce the chance of catastrophic damage.”

Erik Sherman, Freelance Writer and Photographer