Collapse sparks new fears in fragile Florida insurance market


Steve Rosenthal escaped with his life when his Florida condominium collapsed last month and left him homeless, but he still owes more than $ 100,000 on his mortgage.

Rosenthal, a 72-year-old restaurant advertiser, quickly received two small insurance checks for living expenses and personal belongings, but he was still awaiting his big payment. He expects it to be over six digits, but he’ll likely go to the bank to pay off the mortgage on a condo that no longer exists.

“We’re all in a panic,” he said of the survivors of the partial collapse of the South Champlain Towers in Surfside. “I don’t want to tap into savings that I wasn’t supposed to get until I turned 80.”

For Rosenthal and other survivors of the collapse, sorting through complicated insurance payments is only part of starting over after a catastrophic loss. And his fellow Floridians may soon feel the shockwaves of the tragedy, as frightened insurance companies begin to scrutinize the buildings they cover, raising rates that are already among the highest in the country, or canceling the tax altogether. blanket.

The Surfside collapse, which killed at least 97 people, is causing further turmoil in the struggling Florida insurance market, further jeopardizing a coastal housing economy that was already under pressure from climate change. And it adds to growing concern among economists about a new problem in the climate crisis: if parts of the United States are becoming too risky to be insured, at least at a cost most people can afford.

This change has already started. Days after the collapse, insurance companies sent letters threatening to cut coverage for older buildings that had failed to pass mandatory safety inspections. In California, insurers have started to flee fire-prone areas; in other parts of the West, officials say they are seeing similar reports of insurers refusing to renew policies.

And it’s not just private insurers: In April, the federal government introduced changes to the heavily indebted national flood insurance program that will end up driving some people’s premiums five-fold or more.

“Coastal areas all over the Gulf and along the East Coast could start to see very similar dynamics” to what is happening in Florida, said Carolyn Kousky, executive director of the Wharton Risk Center at the University of Pennsylvania.

It is too early to tell if climate change contributed to the Surfside building collapse. But the effects of global warming, which include extreme heat and more humidity in the air, are causing structures to deteriorate more quickly, according to Jesse Keenan, a professor at Tulane University who specializes in the consequences of climate change for the built environment.

“Climate change is actually accelerating the degradation of buildings,” Keenan said.

Florida has long been a test for how the insurance industry responds to disasters. After Hurricane Andrew devastated Southeast Florida in 1992, more than a dozen insurance companies went bankrupt.

Since then, the willingness of private insurers to offer coverage in Florida has increased and decreased, often in response to storms. The current market is tighter than at any time since 2003 or 2004, according to Adam Lopatin, senior vice president at USI Insurance Services.

“It all comes down to the profitability of insurance companies,” Lopatin said. “And right now, doing business in Florida is not profitable.”

After the massive claims caused by Hurricane Irma in 2017 and Hurricane Michael in 2018, insurance companies have been losing money for years and those losses are increasing. Many insurers have started dropping clients in high-risk areas and refusing to accept new ones. In some parts of the state, it has become virtually impossible for homeowners to purchase private insurance.

Part of the problem, especially in Southeast Florida, is the lingering effect of Irma, which has led to an explosion of costly claims, especially for roof repairs. But insurers are also being squeezed by the rising cost of what’s called reinsurance – insurance that insurance companies themselves buy to protect against larger-than-expected losses in any given year. The cost of this reinsurance has increased as climate change causes more frequent and intense catastrophes around the world.

As the cost of doing business rose in Florida, many insurers began to expand into other coastal states, hoping their hurricane experiences would help them make money in places like Louisiana, according to Joseph Petrelli, president of Demotech, a company that assesses the financial health of insurers.

That strategy backfired last year, when Louisiana was hit by five named storms, the most to hit that state in a single season. Insurers ended up losing even more money.

At the end of last year, nearly half of Florida insurers assessed by Demotech had to raise additional funds from investors to stay afloat, Petrelli said.

The Surfside collapse could put even more pressure on companies to stop taking new condo clients and abandon some of the people they already cover, Petrelli said.

Indeed, in addition to the risk of storms, insurers must now ask themselves whether the information they have about a particular building – the quality of its construction and whether damage has been detected and repaired – is correct.

“Now you must be wondering if the construction of this building is really what it was claimed to be?” Said Petrelli. This uncertainty could make insurers reflect on the ability of similar buildings to withstand a hurricane or other threat, he said.

There are indications that this is already happening.

Jim Gorman, CEO of American Property Insurance, said that since the Surfside building collapsed, his business has started receiving more and more calls from insurance brokers trying to find new coverage for clients whose insurance has been canceled or have seen their rates increase.

“I can say from the recovery in listing traffic that the real estate market in general is getting much more restrictive,” Gorman said.

The change since the Surfside collapse comes on top of private insurers that were already letting homeowners down. In April, Tim Weldon received a letter from his insurance company, telling him they would stop covering their Boynton Beach home after their insurance contract ended in June – just at the start of hurricane season.

Weldon, who had had a dispute with his insurer over payment for roof damage during Hurricane Irma, was unable to find insurance from other private companies. “Looks like no one is going to cover me up,” he said.

As private insurers pull out, more homeowners are buying coverage from Citizens Property Insurance, a public entity that was supposed to be the insurer of last resort – a safety net for people who couldn’t find a home. coverage in the regular market.

Now, instead of being a safety net, Citizens offers more home insurance policies than nearly any private insurer in Florida, according to state data.

But these policies offer less coverage for various types of damage. And because they’re ultimately backed by the state government, taxpayers could be held accountable if a major hurricane overwhelms citizens’ ability to pay claims.

“If there are catastrophic losses, the backstop isn’t a sophisticated reinsurance market – it’s the citizens of Florida,” Keenan said. “And that could be totally devastating.”

If owners and managers on the Florida coast want to avoid an uninsurable future, they can take steps to reduce the risk, such as further tightening building codes, increasing inspections, or restricting development near the beach, a said Ernst Rauch, chief climatologist at Munich Re, one of the world’s largest insurance companies.

But he said something needs to change, or higher insurance costs are inevitable, especially as climate change worsens.

“We need to reduce the vulnerability of our societies,” Rauch said. “Living by the water is not necessarily sustainable.

For people who lived in the South Champlain Towers, any insurance payment is likely to be limited. While many residents had individual policies on their furniture and other property, the largest payments must come from mega-policies on the building itself. Lawyers for the condominium association and its insurers said the resort has property coverage of around $ 30 million and liability coverage of $ 18 million.

Miami-Dade County Circuit Court Judge Michael Hanzman, who handles cases against the building, said $ 48 million “will obviously be insufficient to fully compensate everyone to the extent of their injury.”

The pot of money could grow if the land where the Champlain South Towers once stood, estimated to be worth between $ 100 million and $ 130 million, were sold. At a hearing on Wednesday, Hanzman agreed to have a court-appointed receiver begin the process of selling the property.

“I want you to go ahead with whatever needs to be done to monetize this property, so that we can put money in the hands of these people,” Hanzman said.

Brad Sohn, a lawyer representing at least one survivor of the collapse, said condominium associations should be required to have much more coverage for something as devastating as a collapse.

“When catastrophic events occur in Florida, stricter laws must be put in place to force people to be financially responsible, to have larger insurance policies so that people are not left behind,” he said. Sohn said.

Susana Alvarez, 62, who escaped the building collapse and currently lives in a rental, said she feared she would not be compensated for the $ 150,000 in renovations she made in its accommodation, including a new kitchen, floors and windows.

“It’s not about what I paid to own the apartment,” she said. “That’s about what it’s worth now. “

Rosenthal has a similar concern. When he first bought his 1,560 square foot unit in 2001, hoping to spend the rest of his life there, he paid $ 250,000 for it; the revaluation of the unit two years ago put its value at $ 650,000.

He would at least like to be able to pay off his mortgage and, with that in mind, he joined in one of the many lawsuits against the building’s condominium association. Survivors, he said, will look far beyond the building’s limited insurance policy, “suing anyone involved.”

This article originally appeared in The New York Times.

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