When Disaster Knocks
A continuous series of natural
catastrophes around the
United States might finally be
pushing people out of their dream
homes in Florida and beyond.
Even as hundreds of thousands of new residents have flowed into Florida in the last few years, there is evidence that the continual series of hurricanes is changing people’s calculus about the Sunshine State, says veteran economist and insurance industry stakeholder Robert Hartwig.
“Although it has seemed for many decades that no amount of hurricane-fueled devastation would deter people from Florida’s sunshine and tax-free income, the recent storms over the past several years have some people realizing the ‘Florida dream’ is not all it’s cracked up to be,” Hartwig says.
Few people can explain the insurance market implications of a climate disaster better than Hartwig. For me, Bob has been a go-to source more than a hundred times over the past quarter-century to interpret the impact of one crisis after another on the insurance industry and its customers.
Our first interview was scant weeks after Bob was named chief economist at the Insurance Information Institute in 1998. They continued as he became president of the Triple-I in 2007, then clinical associate professor of finance and director of the Risk and Uncertainty Management Center at the University of South Carolina in 2016, and was appointed last year to the Federal Reserve Board’s Insurance Policy Advisory Committee.
We’ve gotten to know each other well over the years, so when I read that Hurricane Helene had devastated Lexington, South Carolina, where Bob and his family live, I called to ask how they were faring. “Not too bad,” said Bob. “The shingles on one side of the roof have blown away. There’s a crew up there right now installing a tarp while I sit here drinking a spicy margarita.”
The below Q&A encapsulates my interview with Bob two weeks later. The content has been condensed for narrative clarity and coherence.
Q
So how bad was it? I read that the hurricane had unleashed a torrent of tornadoes in your area, with winds whipping up to 100 mph.
A
Many people here had it far worse than we did. We lost some shingles and power for four days; others lost everything. I decided to replace the entire roof, however, even though only part of it was damaged. I figured now was a good time to go with an upgraded roof with thicker shingles and extra nails, similar to a roof you might find along the coast.
Q
I read a few days ago in The State that few people were prepared as Hurricane Helene charged up the southeastern side of South Carolina. In one article, the reporter wrote that many people were “blindsided… caught totally by surprise.” Did you anticipate when you moved to Lexington, a hurricane of such destructive strength would reach Lexington, since the city is about a hundred miles inland from the Atlantic coast?
A
I did consider it, knowing quite a bit about Hurricane Hugo, the costliest insurance disaster in the U.S. at the time. The storm hit Charleston [in 1989], about 20 miles west of where we live. Incidentally, I actually just ran the numbers on Hugo in 2023 dollars, about $10.3 billion. Today, it would rank as the 21st costliest hurricane, nowhere near No. 1, Hurricane Katrina in 2005, approximately $64 billion in insured losses in my adjusted figures. By the way, both Hurricane Helene and Milton are costlier than Hugo, insurance-wise, knocking it down two spots.
Q
To my untrained eye, the adjusted figures would seem to suggest that hurricanes throughout the Southeastern U.S. over the past 35 years have become more frequent and more costly. Climate change is a factor, but so is the greater number of people living in the Southeast. What really blows my mind is that the coastline is not the only devastated area; geographic regions many, many miles inland also are susceptible.
A
We’ve lived here for eight years and while Helene is the first major hurricane to reach us, we’ve certainly experienced the remnants of several hurricanes and tropical storms coming ashore from Florida. Helene, for instance, made landfall in the Big Bend area of Florida, which is approximately 450 miles as the crow flies from Lexington. These are not your grandfather’s hurricanes.
Q
Let’s talk about Florida. Despite a persistent increase in Category 3, 4, and 5 hurricanes, more than 700,000 people relocated to Florida since 2020, on top of millions of others over the past decade, making it the country’s fastest-growing state. Will they continue to come?
A
Although it has seemed for many decades that no amount of hurricane-fueled devastation would deter people from Florida’s sunshine and tax-free income, the recent storms over the past several years have some people realizing the “Florida dream” is not all it’s cracked up to be. To a very real extent, the savings from no state income tax is diminished by high homeowners insurance prices and the cost of the homes themselves, as largescale migration has driven up property values. According to recent articles in The New York Times and Wall Street Journal, many people are reconsidering the economics associated with living in Florida and are pulling up stakes.
Since the NFIP’s inception [in 1968], taxpayers have had to chip in many billions of dollars to bail out the program. Since 2005, losses have exceeded premiums by $36 billion. Were it a private insurer it would have gone bankrupt long ago—multiple times.
Q
I read the same articles. In the WSJ article (“The Great Florida Migration Is Coming Undone”), an insurance broker said the Jan. 1 property catastrophe reinsurance renewal was the toughest he’d ever experienced, and that was before Helene and Milton came to visit. I imagine this year’s renewal will be equally if not tougher. I just read a follow-up story this morning in the WSJ, stating that many Floridians had reached their “breaking point” and were “packing their bags” for Georgia, North Carolina, and Tennessee.
A
It’s no wonder states like Tennessee that are well inland with a reasonable cost of living and a moderate climate are beneficiaries of this secondary migration. The price of reinsurance is up across the board in the U.S. for property carriers, but more so for those serving areas highly exposed to catastrophe property losses. For example, people living in parts of Louisiana and Texas, other states where Mother Nature has concentrated her fury, may be rethinking their residential prospects for similar reasons.
Q
It’s amazing to me that homeowners insurance, of all things, is a factor on the same level as property taxes and state income taxes in choosing where to live. In my state of California, where insurers like State Farm, Farmers, Allstate, and others won’t touch anything close to a hill with trees, I’m forced out of the homeowners insurance market and have to buy fire coverage at stratospheric rates through the state’s FAIR Plan.
A
The rates in California are based on experience just like in Florida and Tennessee, for that matter. Since property cat reinsurance is a global market and insurers compete globally for the same pool of capital, insurers in cat-prone states pay higher reinsurance rates in regions of the U.S. more exposed to catastrophic losses.
Q
I was reading in this week’s edition of The New Yorker that Doug Heller, the insurance director at the Consumer Federation of America, wants Congress to establish a federal reinsurance facility enabling major insurers like Allstate and Farmers to buy cheaper reinsurance. As he put it to the reporter, “We can’t just be sitting on the sidelines and hoping that the market will solve the problem…. There needs to be a public backstop.” What do you think? Good idea?
A
While the legislation would theoretically require the premium collected by the government reinsurer to be appropriate for the risk, that’s a pipe dream. Look at the NFIP (National Flood Insurance Program). Since the NFIP’s inception [in 1968], taxpayers have had to chip in many billions of dollars to bail out the program. Since 2005, losses have exceeded premiums by $36 billion. Were it a private insurer it would have gone bankrupt long ago—multiple times. It’s not too hard to imagine how this reinsurer will be politically manipulated from day one.
We’ve lived here for eight years and while Helene is the first major hurricane to reach us, we’ve certainly experienced the remnants of several hurricanes and tropical storms coming ashore from Florida…. These are not your grandfather’s hurricanes.
Q
In what sense, “politically manipulated?”
A
There’s no doubt federal bureaucrats, members of Congress, and even a president would be pressured to cap rates or temper actuarially justified rate increases. This is especially true when neither party demonstrates any fiscal discipline whatsoever. It’s even more problematic under a second Trump administration.
Q
Why is that?
A
Under the Trump administration [in 2018], $18 billion in NFIP debt was forgiven, but the flood program is still more than $20 billion in the hole. Mr. Trump has already claimed he will lower auto insurance rates by 50%, cap credit card interest rates at 10%, and pressure the Fed to lower interest rates and other direct forms of manipulation in private markets. Keeping reinsurance rates artificially low will be consistent with other populist policies.
Q
Not much one can do other than invest in fortifying one’s home. While you were sipping that spicy margarita, did you contemplate other ways to decrease the potential of future damage?
A
The hurricane certainly reinforced my intention to continually remodel the house. Windstorms are common here. Although we didn’t need a whole new roof, I replaced it anyway, paying out of my own pocket. It gave me peace of mind. It’s doubtful many of my neighbors went to this expense; from what I see, most repaired the damaged parts of their roof and paid for it with their insurance.
