Florida's insurance market is under pressure as the NFIP battles flood risks

As hurricanes grow stronger and more unpredictable, their impact on the insurance industry is becoming more apparent. The recent landfall of Hurricane Milton—one of the fastest hurricanes to reach Category 5 strength—is a stark reminder of this fact. After packing winds of 120mph and making landfall as a Category 3 hurricane, Milton unleashed unprecedented destruction far inland.

While Florida's insurance market has historically accounted for wind, flood, and surge exposure, Milton's extensive damage raises urgent concerns about vulnerability beyond coastal states.

Susan Flemming (pictured left), senior vice president and Florida manufacturing leader at Amwins confirmed, “Carriers already have the cost of wind and the potential flooding and major Florida exposure — and a lot more that the first phase of that issue presents, but they didn't expect. there were devastating floods in an area 500 kilometers from the coast.”

Milton: Point to help in getting insurance

With Hurricane Milton damage estimates reaching $50 billion, this huge financial impact is set to complicate the claims process.

John Tolland (pictured right), senior vice president and area leader for Florida at Amwins, said processing claims will be especially challenging following Milton. Repairers will need to navigate the damage caused by Milton and caused by the most recent hurricane, Helene, which affected many of the same areas.

“There are many challenges for adjusters dealing with insured losses for both Helene and Milton, particularly in identifying the cause of each loss per incident. I expect this will extend the loss ratio longer than anyone expects. Indeed, Milton's result has become a revival event,” he explained.

This classification process can take months or even years, resulting in extended loss estimates and hindering the insurance market's ability to respond effectively. Flemming and Tolland both emphasized that Florida's upcoming insurance contract renewal, which takes place in the middle of the year, will be important in assessing Milton's long-term effects on Florida's insurance industry.

“I think there's going to be a lot of uncertainty until then as there's a lot of adjustment that's going to happen,” added Tolland.

Flood insurance: is the NFIP sustainable?

This uncertainty is especially concerning in Florida's high-risk flood areas, where businesses and homeowners have traditionally relied on the National Flood Insurance Program (NFIP) for assistance. However, Flemming warns that this government-backed program is approaching a crisis.

“The NFIP serves as a temporary solution for many business owners, but it cannot be sustained at its current rate. Funds are cleared as soon as they are filled. At some point, Congress will need to step in, and that could mean changing the insurance market. If that happens, premiums will increase significantly as the program is currently heavily subsidized. “

Flemming also expects that after hurricanes like Helene and Milton, carriers will scrutinize cargo areas more closely, especially those near lakes, streams, or rivers that may flood. “Before Helene, these features were not included in the prices. That will change,” he said.

Additional parametric solutions

Effective flood risk mitigation strategies must go beyond standard insurance. Accordingly, Flemming and Tolland noted that many Floridians are increasingly exploring other preventative measures to protect their properties.

“We're seeing a lot of insurers doing parametric programs to help reduce losses,” Flemming explained. For example, flood parameter solutions include equipping homes with water sensors; when a predetermined water level is reached, insurance payments are started immediately.

“This allows insureds to begin repairs without delay, whereas traditional insurance coverage would have to go through the repair process,” Tolland said.

Despite the fast payouts, Tolland emphasized that parametric insurance should complement traditional coverage, not replace it. “The massive damage in North Carolina opened everyone's eyes to the flood products available. I believe that we will continue to see more of this going forward,” he said.