Florida is prone to hurricanes and catastrophic storms, making it one of the riskiest states for insurance companies. Insurers have tightened their guidelines or stopped offering coverage, leaving many homeowners dependent on state-backed insurance programs.

What is state-backed insurance?

State-backed insurance programs are designed for homeowners and business owners who can’t get coverage from private insurers, also known as “insurers of last resort.” Florida has a last-resort insurer that takes on risks that private insurers avoid. However, when many new policyholders join the last-resort pool, the financial risks for the state-backed program increase. If a major disaster strikes, the state-backed program could face claims exceeding its resources.

Unlike private insurers, the Florida state-backed program can’t leave the market when it’s too risky. This means every policyholder in the state could face extra costs after a crisis.

What are assessments?

Assessments are additional charges levied on insurance customers after disasters. If the state-backed program faces losses beyond what it can handle, it is authorized by the state to impose assessments on its customers and others across Florida.

Types of assessments

The state-backed insurance program uses different types of assessments to cover deficits caused by hurricanes and other disasters:

Policyholder surcharge

If the state-backed program experiences a deficit, it first imposes a surcharge on its policyholders. This surcharge can be up to 15% of annual premiums. For example, if your home insurance premium is $15,000, you could face an additional $2,250 charge after a disaster.

Regular assessments

If surcharges aren’t enough to cover the deficits, the state-backed program can impose regular assessments on all personal and business property insurance policyholders throughout Florida. This applies even to those insured by private companies. Regular assessments can be up to 2% of your property insurance premium.

Emergency assessments

When surcharges and regular assessments fall short, the state-backed program implements emergency assessments. Like regular assessments, these affect all Florida insurance policyholders. However, the emergency assessments are expanded to include auto, renters, boat and pet insurance policies, not just property. 

Emergency assessments can go as high as 10% of your premium. For instance, if your auto insurance costs $4,000 annually, an emergency assessment of $400 could be added to your renewal for several years.

Why are assessments necessary?

Assessments help state-backed programs cover claim obligations after major disasters. Unlike private companies, state-backed programs exist as a safety net. They keep premiums lower to remain accessible to all Floridians who can’t get private insurance.

However, lower premiums also mean less funding for financial risks. Assessments ensure the state-backed program can continue providing coverage by balancing the overage costs across all of Florida’s insurance policyholders.

Ways the state-backed insurance program tries to avoid levying assessments

The state-backed program works to limit its exposure and the need for assessments:

• It buys reinsurance and catastrophe bonds. These provide extra financial coverage after hurricanes and other disasters.
• It depopulates policies by moving some policyholders to private insurers to share risk across the market. This reduces the need to cover many catastrophes.
• It advises homeowners on home improvements to reduce storm damage.

Other statewide charges

Other statewide programs exist to help with insurance matters when the state is overwhelmed by catastrophic events:

Florida Hurricane Catastrophe Fund (FHCF)

This state-backed fund provides support to insurers during catastrophic hurricane seasons. If it runs out of resources, the FHCF can impose small assessments on all insured Floridians to rebuild reserves.

Florida Insurance Guaranty Association (FIGA)

FIGA helps cover claims for insurance companies that go bankrupt. If its funds are depleted, FIGA can also issue assessments to Florida policyholders. This ensures that insurance contracts like homeowner policies remain valid.

Call your agent to understand your coverage

Whether insured through a state-backed program or a private company, Floridians may face costs beyond their annual premiums after hurricanes. These assessments could extend for years, smoothing over the financial shortfalls caused by disasters.

Don’t wait for the next hurricane to learn about your full coverage costs. Call us today at 813-645-4404 to talk to an agent so you won’t be caught off guard.