Will Florida’s ailing insurance industry get swamped by claims from Hurricane Ian?

Even before Hurricane Ian made landfall, headlines were blaring that the storm would spell doom for Florida’s struggling homeowners insurance market.

Just this year, six property insurers have become insolvent, including one declared insolvent on the same day Ian formed as a tropical storm. State insurance regulators are closely monitoring dozens of other companies on the fritz, and homeowners’ premiums have risen to the highest in the nation.

“This is a test for the entire insurance industry,” said Michael Carlson, president of the Personal Insurance Federation of Florida, referencing Hurricane Ian. The federation represents State Farm, Allstate, Farmers and Progressive. “This looks like major devastation.”

READ MORE: Beware of scams, be patient, and other tips on filing insurance Hurricane Ian claims

While a 500-mile wide Category 4 storm is good for no one, it doesn’t necessarily mean disaster for Florida’s insurers — at least not yet. The insurance market is complicated, with shifting responsibilities and safeguards to pay out disaster claims.

But even if the storm isn’t a disaster for insurers, it’s likely to be one for tens of thousands of Floridians whose homes have been flooded by rain or storm surge.

Here’s what insurers and analysts are watching for in the coming weeks and months:

Flood versus wind damage will be key — and could be terrible for homeowners

A typical homeowners insurance policy covers damage from wind and fire — but not flooding.

Some analysts believe most of the damage from Hurricane Ian will be from flooding.

That would place most of the financial burden not on Florida insurers, but on the National Flood Insurance Program, which offers the vast majority of residential flood insurance.

And if homeowners don’t have flood insurance, they could be the ones bearing the burden. (More on that later.)

That doesn’t mean there likely won’t be hundreds of thousands of wind-related insurance claims. And because insurers may dispute responsibility for some of those damages, homeowners are likely to sue their insurer over them — creating a headache for homeowners and increasing costs for insurers, in part because of attorneys’ fees. This is a scenario that played out often after 2018′s Hurricane Michael.

Already, one group is estimating $25 billion to $40 billion in insured losses, but other observers say it’s too early to say. It will take adjusters from insurance companies and the Federal Emergency Management Agency to first assess the damage, experts say.

“I’ve not seen any damage estimates that I would rely on,” said Kyle Ulrich, president and CEO of the Florida Association of Insurance Agents.

Insurers have their own insurance to pay out hurricane claims

Insurance companies also have safeguards to pay out claims.

Insurers are supposed to be prepared for hurricane season by buying reinsurance — basically coverage for insurance companies.

In the event of a hurricane, those reinsurers will likely be footing the bill for claims, although insurance companies will have to pay a deductible.

Ahead of each year’s storm season, Florida’s Office of Insurance Regulation applies “stress tests” to insurers to make sure they have adequate coverage. Insurance companies are required to model a historical storm scenario, or a series of storm scenarios, and see if their reinsurance is adequate for the modeled losses.

Last year, 67 insurers were required to model three scenarios, one of which was 1992′s Hurricane Andrew. Only two companies failed; one was liquidated and the other added additional capital to withstand the scenarios.

This year, insurers’ tests included the 1928 Lake Okeechobee hurricane that killed about 2,500 people, the deadliest in the state’s history. However, the Office of Insurance Regulation has not said how companies fared in the tests.

Insurers also have a safety net with the Florida Hurricane Catastrophe Fund. Companies are required to pay into it, and when a hurricane such as Ian strikes, the fund helps pay claims.

Although the “cat” fund, as it’s called, went broke in 2006, it has about $15 billion available.

Homeowners without flood insurance could bear a huge burden

In Charlotte and Lee counties, which appear to be the hardest hit by Ian, only about 30% of homes have flood insurance through the National Flood Insurance Program, data show.

There will be some help for homeowners who don’t have flood insurance but probably not enough to make them whole.

FEMA’s disaster declaration, approved by President Joe Biden, qualified people to apply for its Individuals and Households Program if they live in 13 counties: Charlotte, Collier, DeSoto, Hardee, Hillsborough, Lee, Manatee, Orange, Osceola, Pinellas, Polk, Sarasota and Seminole. More might be added.

The program allows residents to apply for federal aid to repair their homes and vehicles if they don’t have flood or automobile insurance — or don’t have enough of it.

But the aid to repair a home is limited to less than $40,000, according to The New York Times. Congress can award additional money for the U.S. Department of Housing and Urban Development, to set up what it calls Disaster Recovery grants for states to pay homeowners, but that money can take years to get to homeowners, the Times reported.

The Small Business Administration offers low-interest loans to homeowners, businesses and nonprofits after disasters, but the loans must be repaid. As the Times notes, that can amount to another home mortgage.

What about Citizens?

As insurers have failed, many of those companies’ policies have ended up at Citizens Property Insurance, Florida’s state-run insurer for those who can’t find coverage on the private market. (It does not offer flood insurance.)

Many have anxiety over Citizens’ rising policy count, which has gone from 420,000 in October 2019 to just over 1 million. (The peak was nearly 1.5 million in 2011.) If a disaster strikes and Citizens can’t afford to pay claims, Florida taxpayers would be on the hook.

However, the company continues to be profitable. It has $6.8 billion in surplus (plus $6.5 billion in other accounts to pay claims) and the storm appears to have struck in a part of the state where Citizens does not have heavy exposure.

The company estimates it may see 225,000 claims from Hurricane Ian, and company losses could be between $1.9 billion and $3.7 billion, spokesperson Michael Peltier said.

“They view themselves as being able to weather this,” Gov. Ron DeSantis said this week, referencing Citizens.

The full scope might not be known for years

Homeowners have two years to file a claim after a storm, so Ian’s effect on insurers might take time to realize.

In the meantime, rates could continue to rise for homeowners, although there’s not necessarily a correlation between rising rates and storms. Floridians saw rising rates after the series of storms in 2004 and 2005 because they drove up the cost of reinsurance. State lawmakers and then-Gov. Charlie Crist responded by allowing companies to more easily use the Hurricane Catastrophe Fund.

Until Ian, Florida had not taken a direct hit from a hurricane since 2018′s Hurricane Michael, yet rates have risen sharply. In 2019, when DeSantis was sworn in, Floridians paid an average premium of $1,988. This year, it’s now $4,231, triple the national average.

In response, state lawmakers in the last few years have passed modest changes to the state’s insurance laws, mostly focused on curbing litigation and allowing companies to tap into a new state-created reinsurance fund.

Experts are watching to see if the changes will make any difference after Ian.

“We’re eager to see the effectiveness of this legislation in stabilizing the market,” said Jeff Waters, meteorologist and senior product manager for the risk management firm RMS.

Miami Herald staff writers Ana Claudia Chacin and Ben Wieder contributed to this report.