Flashing red lights from Florida

But a real solution is too hard for either political party

With three months of hurricane season left to go, Florida's extraordinary exposure to rapidly accelerating physical climate risk and the consequences of that risk for Floridians remain top of mind there: Last month, a poll of likely voters in Florida found that property insurance costs were the second-most important issue—right behind inflation. But neither party seems to have a vision of what's needed to prepare for the state's perilous future. Both are focused on short-term thinking in the face of unprecedented changes heading Florida's way.

Last month, the Auditor General of the State of Florida issued a report about Citizens Property Insurance Company, the state public insurer of last resort everyone calls "Citizens." According to the audit, if a stiff Category 3 or Category 4 hurricane hits Florida, Citizens projects that its "probable maximum loss" will be about $29 billion. Premiums already paid would cover about $6.2 billion of these losses. It plans to cover about $10.7 billion of those claims with money raised by way of bonds issued by the state or from reinsurance payouts.*

Here's the truly painful part. The remaining $12 billion, give or take, would come from surcharges passed through to Citizens' policyholders (about $1 billion), and emergency assessments passed on to everyone who has bought insurance in Florida.

Imagine that: if you live in Florida, and you have a car insurance policy, following a single major hurricane you'll be on the hook for your share of $11 billion, whether or not you ever bought insurance from Citizens.

The whole mess is a recipe for large-scale bankruptcy of Florida's insurance system, and Democrats are raring to point out to Florida voters that it happened while Republicans were in charge.

At a recent public forum, James Carville asked Florida Democratic Party Chair Nikki Fried to discuss whether insurance pricing "might not be a sleeper issue, but [instead] a huge issue" in the state. (Carville cracked wise, saying that although he lives in the Gulf South he doesn't have property insurance—let the storm "just knock it down," he said. Carville clearly has the means to carry on without insurance. Suze Orman does too, by the way. But the Ormans and Carvilles of this world will always be fine.)

Fried's answer was sharp and energetic: "It is the number one issue whether you have lived there for decades and now can't afford your property insurance, or you are a new homeowner and can't afford it, or even if you are a renter and your landlord is increasing your rent because of that. So every single person in the state of Florida is impacted," she said. She talked about the risk of insolvency of Citizens and the state as a whole, and declared the Republicans had done "nothing to fix" the situation. "We are going to hammer that," Fried said. It's her top talking point.

While it's true that Democrats have proposed a spray of legislative plans (suggesting, among other things, further study of the market and opportunities for mediation of disputes, requiring companies to offer home insurance if they sold car insurance in the state, and making Citizens insurance available to all homeowners), according to reporter Gray Rohrer of the Tallahassee Democrat none of these proposals would necessarily lower rates in the short-term.

It’s a tough time for many Americans. Consumer saving nationwide is at its lowest level since the Great Recession of 2006-2008, making people ever more vulnerable to shocks.

This is likely particularly true in coastal Florida, where the costs of living are high and many people depend on unstable tourism and hospitality jobs. As insurance costs climb, people already living on the edges of their resources in Florida may default on their mortgages, triggering pockets of rapidly repricing properties and causing a cascade of related financial woes. Neither party has a plan to stave off these defaults.

More importantly, neither party is even gesturing toward the fundamental issue: Everyone, Democrats and Republicans alike, is still subsidizing living and working in hazardous places. Many Floridians, of all possible political persuasions, are going to face financial ruin and displacement over the next few decades, as storms increase in intensity and chronic flooding arrives. These risks need to be reduced to avoid stupendous human and financial burdens ahead. But doing so requires facing a hugely expensive and complex long-term question: What's a durable, affordable, comprehensive, and fair adaptation process that could be phased in over time?

Right now, the financial world seems to be devotedly focused on the likely size of the Fed's rate cut later this month. Life is serene. Unemployment is holding steady and may tick downward soon, jobless claims are low, inflation is drifting lower, consumer spending is up, the Dow is reaching record highs, and a soft landing seems likely.

At some point, the consequences of Florida's insurance woes may prompt more long-term, nonpartisan thinking. Rate cuts will not meet this moment.

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*A note on future State of Florida Hurricane Catastrophe Fund bonds: It's not clear to me why floating these bonds will be successful at that point, because interest payments to the bondholders likely would be guaranteed by further insurance premiums being paid—in an atmosphere in which insurance companies would be facing significant losses, raising their premiums to stay solvent, and likely causing more policyholders to cancel coverage. This spiral of events will raise the riskiness and undermine the value of any premium-based bond issuance. But Florida loves raising money this way: Florida sold more municipal bonds ($12.4 billion) than any other Southeast state in the first half of this year, an 84% increase year-over-year.