This article appears in the August 2024 issue of The American Prospect magazine. Subscribe here.
Florida is at the forefront of climate disaster, rattled by four major hurricanes since 2017 (Irma, Michael, Ian, and Idalia), which caused the deaths of almost 300 Floridians and resulted in hundreds of billions of dollars in economic losses.
As flooding persists with regularity and warming waters facilitate increasingly severe hurricanes, the state has pursued a deregulatory approach to resuscitate its death-spiraling property insurance market. Not only have carriers fled Florida in droves, but numerous others have become insolvent amid climate catastrophe.
In a bid to entice insurers to continue providing property insurance coverage, Republican Gov. Ron DeSantis and the Florida legislature have implemented a series of reforms aimed at protecting consumers and reducing insured losses by clamping down on social inflation, the name the industry gives to perceived cultural factors that drive increases in monetary awards in litigation.
The insurance industry and its captive regulators have been quick to lay the blame on fraudsters, unscrupulous contractors, overzealous lawyers, and even gullible juries for burdening consumers, the state, and insurers with superfluous costs.
Captured regulators could force homeowners across the Sunshine State to pay the price while insurers profit from their misery.
But the market instability has been twisted to facilitate another form of greed, orchestrated by Gov. DeSantis and his political allies. In implementing what is best described as Florida’s property insurance playbook, the DeSantis administration has homeowners in the state paying more for less, insurers profiting off soaring premiums, and the state pension giant investing hundreds of millions of dollars in investment funds that provide insurance for insurance companies, effectively socializing the risk that property insurers have on their balance sheets, sometimes through high-risk, high-reward allocations to complex financial instruments known as catastrophe bonds.
Florida’s playbook resembles the Republican playbook for addressing the home insurance crisis nationwide. As the Prospect reported earlier this year, Republicans have sought to deny climate change perils in their entirety, shift the blame to lawsuit abuse or socially responsible investing, and transform state-controlled insurance markets through market-friendly policies that allow insurers to rake in exceptional profits while gutting consumer protections.
ON MAY 15, 2024, GOV. DESANTIS signed a bill overhauling state energy policy and stripping any mention of “climate change” from state law. In a post to X following the signing, DeSantis ridiculed “radical green zealots” for seeking to address the climate crisis and reallocate taxpayer dollars toward clean-energy projects, environmental mitigation, and climate justice initiatives.
“This bill is going to have a devastating impact on our ability to address climate change,” Brooke Alexander-Goss, organizing manager at the Sierra Club’s Florida chapter, told the Prospect.
Alexander-Goss, a resident of Volusia County, fears the climate denial will exacerbate depopulation in Florida, where homeowners pay three times the national average for property insurance. Many prospective homebuyers consider climate risk when relocating to a new state or region, and may hesitate to pay excessive property insurance costs in dangerous regions.
When Hurricane Ian made landfall in Florida in September 2022, Alexander-Goss’s neighborhood flooded. Although her home was not damaged, she saw her insurance premiums skyrocket. By the end of the year, six insurers had declared insolvency.
Homeowners whose carriers collapsed were left scrambling, causing many Floridians to turn to the Citizens Property Insurance Corporation—the state’s insurer of last resort, which provides coverage to an estimated 1.4 million homeowners who are unable to access policies on the open market. Over the two years leading up to Hurricane Ian, the number of homeowners receiving property insurance from Citizens had more than doubled.
According to a July 2023 report from Milliman, a Seattle-based international actuarial and consulting firm, industry losses after Hurricane Irma in 2017 totaled $27 billion. But loss estimates from Ian averaged out to about $54 billion.
As a May 2023 report from the Hedge Clippers, the American Federation of Teachers (AFT), Florida Rising, and the Center for Popular Democracy explains, Gov. DeSantis’s policies have advanced the insurance industry’s goal of weakening Citizens, while simultaneously offering only unaffordable alternatives. Furthermore, a Florida Phoenix analysis of insurance handouts passed during the 2022 legislative session found that DeSantis’s policy changes “would drive customers of Citizens … into significantly pricier policies on the private market.”
Citizens is required to place policyholders with a private carrier if that insurer’s premium is within 20 percent of their Citizens premium. One Palm Beach County resident who asked for anonymity was pushed to Citizens after Hurricane Irma, and told the Prospect about their experience being driven back into the open market.
Initially, Citizens attempted to place them with a carrier whose premium fell below the 20 percent threshold. But the quote they received exceeded this threshold. Fortunately, they were able to demand a better rate with help from a broker, but not all Citizens policyholders—who are predominately middle- and working-class individuals—have the wherewithal to ensure placement with carriers whose policies do not exceed the threshold.
DESANTIS’S HANDOUTS TO THE INSURANCE INDUSTRY include the creation of a $2 billion reinsurance fund, the elimination of the one-way attorney fee provision in Florida law (which gave policyholders who win cases automatic attorney’s fees), and more stringent requirements for contingency fee multipliers, which lawyers are granted upon winning particularly challenging cases. The controversial reforms seek to prop up insurers’ ability to access reinsurance—the insurance that insurance companies purchase—and limit payouts to litigants and their legal representatives.
“The rampant gerrymandering since Jeb Bush’s governorship means DeSantis can hurt millions of Floridians through predatory practices with nary a peep from the legislature,” AFT president Randi Weingarten told the Prospect. “Moreover, the attack on workers and consumer freedoms that the governor and the legislature have wrought is designed to thwart any fightback.”
The litigation-oriented reforms have drawn criticism from civil society groups for limiting homeowners’ ability to seek legal recourse in the event they are wrongfully denied claims, while the reinsurance fund, dubbed Reinsurance to Assist Policyholders (RAP), subsidizes industry-related risks with taxpayer dollars. In a statement, the office of Gov. DeSantis described RAP as a series of “pro-consumer measures” intended to alleviate insurance costs, increase claim transparency, and “crack down on frivolous lawsuits.”
Two years later, premiums have remained elevated—leaving consumers in limbo as they attempt to navigate a crumbling market.
RAP throws money at a problem that warrants a far more considered solution. The tax-exempt Florida Hurricane Catastrophe Fund (FHCF), which provides partial reimbursements to property insurers for hurricane losses they incur, has already disclosed plans to borrow up to $3.8 billion, because experts have argued it is on the brink of collapse.
The $12.4 billion fund is administered by the Florida State Board of Administration (SBA). Earlier this year, SBA announced it would sell $1.5 billion in municipal bonds to further ameliorate FHCF’s financial condition. In June 2024, CIO Lamar Taylor announced that SBA closed on $1 billion in pre-event bonds to add funding to FHCF.
According to the Hedge Clippers report, Gov. DeSantis and the Friends of Ron DeSantis political action committee received a combined $3.9 million in contributions from insurance company donors between 2018 and 2023. The total included $150,000 in contributions from State Farm agents or their firms in a single day, as well as $125,000 donated by two property insurers, both of which have been RAP participants.
In October 2023, Gov. DeSantis appointed two donors to the Citizens Board of Governors who had maxed out contributions to his ultimately aborted presidential campaign: gambling executive Jamie Shelton and homebuilding magnate Carlos Beruff.
CRONIES ASIDE, GOV. DESANTIS IS PERSONALLY one of three trustees on the SBA board, which banned environmental, social, and governance (ESG) considerations from Florida’s pension investment management practices in August 2022. Specifically, the resolution prohibits SBA staff from considering climate-related financial risk, as well as other factors, when making investment decisions.
SBA oversees the Florida Retirement System Pension Plan, which has roughly $200 billion in assets from public employees. In October 2023, the plan announced it would be ramping up its allocation to a range of complex financial instruments known as insurance-linked securities, or ILS.
With the 1 percent target allocation to ILS approved by SBA last October, these investments could total as much as $2 billion. According to an SBA investment staff member familiar with the matter, the ILS allocation was valued at about $1.3 billion at the end of 2023. As of the same date, $200 million of the allocation was exposed to so-called catastrophe bonds.
Artemis.bm, a news media and data service providing intelligence on the ILS market, defines catastrophe bonds as an investment vehicle designed to “transfer a specific set of risks (typically catastrophe and natural disaster risks) from an issuer or sponsor” to investors. By investing in catastrophe bonds, investors incur the risks associated with a qualifying catastrophe loss or named peril event to secure an exceptionally high return on their investment.
But if an eligible event protected by the bond occurs, investors will lose either a portion or the entirety of the money they initially invested. The severity of potential losses is dependent on how a particular bond is structured.
The federal government could and may be forced to get involved in state insurance markets with funding in exchange for reforms.
Despite its status as a well-capitalized investor, it remains unclear whether SBA is accurately pricing in the risk associated with its catastrophe bond investments, because the plan is prohibited from including ESG considerations in its investment decisions.
SBA did not respond to multiple requests from the Prospect for comment.
“It’s absolutely absurd that Florida is attacking the tools investors use to measure risk while essentially causing there to be increases in climate costs,” Sierra Club’s Florida chapter told the Prospect in a statement. “By investing pension money in catastrophe bonds, Florida workers’ retirement savings are going to be used to cover costs associated with increasing natural disasters.”
Catastrophe bonds are not the only financial instrument susceptible to climate-related financial risk within ILS, though they are the riskiest. Catastrophe reinsurance has also suffered from climate-driven losses.
Pillar Capital Management and Nephila Capital, two of SBA’s ILS fund managers, also provide investment management services to the Hawaii Employer-Union Health Benefits Trust Fund (EUTF), a pension plan with approximately $7 billion in assets. Pillar and Nephila oversee EUTF’s reinsurance investments, which in November 2022 underperformed as a direct result of losses from Hurricane Ian.
SBA, which has been invested in ILS since 2017, also experienced catastrophe reinsurance losses during the second half of 2022. According to Artemis.bm, the investments cost SBA retirees $63 million between June and December 2022. Nonetheless, the pension plan remains incentivized to continue investing in these securities so long as property insurance premiums continue to soar.
If the 2024 Atlantic hurricane season is as disastrous as experts predict it will be, SBA and other investors with property insurance–related investments may find history repeating itself.
FLORIDA IS THE ONLY STATE WHERE the chief financial officer oversees the Office of Insurance Regulation. Jimmy Patronis, Florida’s CFO, also serves on the three-member SBA board of trustees. In 2022, he joined Gov. DeSantis in assailing the premise of ESG. Patronis has also been criticized for his complicity in lightly regulating the state’s insurance industry.
The Patronis-led Florida Department of Financial Services is required to examine companies at least every five years. When the now-defunct property insurer Sawgrass Mutual Insurance Company declared insolvency in 2018, the department’s report blamed the collapse on “mismanagement and lack of funds.” Reporting from the Tampa Bay Times highlighted the department’s abysmal track record of producing lackluster reports that neglect the full extent of what companies have done to remedy their financial woes.
Captured regulators could force homeowners in vulnerable areas across the Sunshine State to pay the price while insurers profit from their misery. An alternative approach would involve reclaiming consumer control over the insurance industry through a series of targeted reforms: capping home insurance rates, preventing rate hikes rather than approving increases at a whim, creating an industry-funded homeowner insurance incentives program, reinstating the one-way attorney fee rule, and requiring insurers receiving incentives to increase their presence in the state.
In addition, the federal government could and may be forced to get involved in state insurance markets with funding in exchange for reforms.
At present, the Republican Party’s grip on Florida, a prohibitory legal environment, and lack of political will for federal intervention are likely to impede the creation of such homeowner protections. Making matters worse, the National Association of Insurance Commissioners (NAIC) has long opposed federal intervention in favor of market-friendly policies, such as those implemented by the DeSantis administration.
Federal funding for climate-exposed insurance markets could be a game changer, but as the Prospect has reported, Democrats have yet to actively communicate alternatives to Republicans’ destructive approach to insurance policy, to prevent the climate-insurance-housing crisis from spilling over into the broader economy.