Climate-fueled disasters like Hurricane Ian are wreaking havoc on home values across the nation, but Florida’s messy Insurance market makes it one of the most stressed, new research out of a nonprofit climate modeling group indicates.

High insurance premiums and a state-backed requirement that homeowners covered by the state-backed insurer of last resort enroll in the National Flood Insurance Program over the next three years could drop home values up to 40% in Florida in the next 30 years, data provided by First Street Foundation shows. And climate and insurance experts say that may further gentrify Florida’s coastal regions and barrier islands.

Using what First Street representatives described as a typical institutional-investing calculation, First Street Foundation found some homes, adjusting for 2023 insurance costs, have already lost up to 19% of their value.

The News-Press reported earlier this month on middle-class families being forced off Fort Myers Beach due to the rising costs associated with living on a barrier island in a time of stronger storms, including more stringent, expensive building requirements and a high demand for Beach property.

Experts say this trend will likely continue in coastal communities as high-income buyers who can afford to go without insurance rebuild and repair out of pocket. They say it will take a concerted effort among state and federal officials, as well as insurance and reinsurance companies to avoid climate-spurred migration and subsequent gentrification of Florida’s coast.

Geographer Zac Taylor, a professor with the Delft University of Technology in Norway, studies the connection between climate change and the insurance industry in Florida. Taylor uses they/them pronouns.

They urged caution in reassessing home values but agreed that this was a possible outcome based on current climate models.

Some of Florida’s more vulnerable coastline may even see corporations purchasing homes with the intent to rent them out, Taylor said, though real estate investor purchases of single-family homes dropped 45% in the second quarter of 2023, compared to a year ago, per realty company Redfin.

Soon, “only wealthy people will be able to afford to remain in coastal areas,” said Taylor.

Unsafe places, lost communities

Indeed, gentrification of Florida’s coastline may have already begun in areas hardest-hit by Ian.

This is likely to continue as a number of factors drive up the costs associated with living along the Sunshine State’s coast thanks to sea level rise, a 2022 study out of Florida State University predicted.

“Eventually, people are likely to start moving inland from coastal areas as the costs of staying become too great,” the report reads. “Those that are further inland are more likely to be displaced by higher income residents who eventually move inland in the process of relocating to higher ground.”

On Pine Island, a community whose year-round residents are largely working-class, people are cutting back their monthly budgets and searching desperately for cheaper insurance after rates rose in response to Hurricane Ian’s devastation of the barrier island. Some are even leaving the island after too many problems with insurance, said nonprofit civic group Matlacha Hookers president Joanne Correia.

Guylinda DeMyers and her husband have lived in Pine Island’s St. James City for 20 years, she estimates, but after this most recent hurricane, she said they plan to sell their home and leave for safer climes –– once their insurance company pays their Ian claim.

They’ve yet to see a penny of their claim from People’s Trust, she said, even though it’s been almost a year. In fact, it’s been so long, their policy has expired. They haven’t pursued a new one because “there’s nothing to insure,” DeMeyers said. “It’s broken.”

She doesn’t think they’ll get what the home was worth before the storm, but says her realtor has told her the property itself – an ocean-front lot ‒ is valuable enough by itself.

But DeMeyers is determined to see her claim through – if not for her, then for her husband, who has Alzheimer’s. After living through three major hurricanes and subsequent rising insurance costs, now faced with an insurance company that won’t pay out, she’s done.  

“It’s not safe here anymore,” DeMeyers said.  “We need a stable place.”

On Fort Myers Beach, another one of Florida’s vulnerable barrier islands, coastal gentrification is already underway. Renters and low-income homeowners are finding there’s nothing in their budget on the island anymore. The island is home to just 5,700 residents year-round, and the loss of even a few is significant.

“I feel like I’ve lost my community,” former Fort Myers Beach resident Cheri Warren told Chad Gillis of The News-Press in early September. Warren’s one-story home was destroyed during Hurricane Ian; now, she and her husband found it was too costly to repair it and have left the barrier island for the mainland. They plan to sell their lot at a later date, when the market has stabilized.

Citizens policies, premiums increase

For its new study, released Thursday, First Street Foundation founder and CEO Matthew Eby said the nonprofit, like institutional investors, calculated home values by dividing the amount of what a property would rent for over the course of a year, minus operating costs (which includes insurance costs), by 5%, an average risk amount.

While most homeowners look at the prices their neighbors homes are selling for in order to figure out how much theirs could be worth, this approach can take a while to show fluctuations in real home value, said First Street Foundation’s head of climate implications Jeremy Porter. Institutional investors use a standard calculation that First Street Foundation employed to “take the uncertainty out of the equation,” he said.

“We ended up choosing it because the homeowner market for property valuation density is a lot more irrational: it doesn’t respond to increases in insurance expenditures, it decreases property values because others around you have decreased or sold for less,” Porter continued. But “if insurance pulls out of a community the values will go down, it just take a while to show up.”

But with the cost of insurance rising due to both inflation and natural disasters like hurricanes and fires, risks increase as well. That means that operating costs have increased, particularly for Floridians who have no option for insurance other than state-created nonprofit Citizens Property Insurance Corporation. Citizens was created to insure homes that all other carriers refused to insure –– the riskiest properties.

Not only is Citizens often more expensive than other carriers, as state law allows them to charge an actuarially-sound amount, but Florida legislators recently passed a law requiring homeowners who get their insurance through Citizens also enroll their homes in the National Flood Insurance Program, a federal insurance program.

That increases a homeowner’s operating costs even further.

“When … you don’t have anywhere else to go and you are beholden to whatever increase in prices that they just decide to put on you, there’s no way out,” Eby said.

Citizens has seen large percentage increases of policies in force in Collier and Monroe counties in the past year, state-provided data showed, but inland counties had the largest number increases of policies. Seminole (+2,992%), Orange (+2,818%), and Osceola (+2,491) counties all saw over a 20 times increase in Citizens’ policies in force from 2016-2023, First Street Foundation data showed.

Since 2017, Citizens’ number of policies have increased 168%, while the average premium has also increased by more than 50%, from roughly $2,000 to more than $3,000 annually.

Citizens spokesman Michael Peltier said Citizens is held to a policy premium increase of 12% annually, and increases are subject to state approval.

Although California and Louisiana are facing rocketing insurance costs as well, according to First Street Foundation’s data, Eby said, “Florida has the biggest problem.”

The nonprofit examined the number of policies Citizens holds in Florida going back to 2017, when Citizens held roughly 500,000 policies. Eby noted that increased over time, and dramatically grew in 2021 as private insurance companies began to pull out of the state. After Ian, it shot up once again.

Citizens currently holds 1.5 million policies in force, and, Peltier said, expects that to increase to 1.7 million by the end of 2023.

“The major insurance companies have all been pulling out of Florida, leaving Citizens the largest insurer in the state,” said Eby. “The insurance company of last resort, the very last one that you want to go to for your insurance, is now the insurer for the entire state.”

How to avoid risk?

Many residents are feeling pain upon reception of their homeowner’s insurance bills, but have yet to translate that to loss of equity, Porter said.

“When you go to sell it, that’s when the property devaluation becomes realized – at the closing table,” Porter said. But even those who hang on to their homes may feel it the next time Florida gets hit by another major weather event like Ian, he cautioned.

Then, he said, taxpayers will be the ones hurting.

“At some point, the amount of exposure on Citizens is too much, relative to its premiums,” said Porter. “If it’s not accounted for properly there has to be some kind of a subsidy from Florida taxpayers one way or another.

Eventually, Porter predicted, “the state of Florida is going to have to ask the federal government for a bailout if they if they end up getting hit by a disaster that empties the coffers.”

According to Peltier, Citizens has a number of backstops to keep itself solvent. First, he said, if the state-created nonprofit goes through its premium-driven surplus, like all other insurers in the state it has access to the Florida hurricane catastrophe fund. It also purchases reinsurance to cover the possibility that the catastrophe fund is exhausted. Finally, Peltier said, Citizens is required by law to levy assessments on policyholders to make up any deficits.

Can Florida – and other states with gentrifying coasts – claw back parts of its gentle coastline for lower-income residents? If so, how?

To that, Taylor had an answer: dedicated partnerships between state and federal governments, as well as insurance and reinsurance agencies.

“Insurers and reinsurers can play a really important role in helping to make sure knowledge (on how to protect your home from things like hurricane-force winds) is taken up in things like building codes (and) insurance regulation,” Taylor said.

Still, in some areas, upgraded building codes are speeding up coastal gentrification as it has become too expensive for low-income or middle-class earners to rebuild to code.

“There are ways that insurance can make risks visible and help identify appropriate ways to reduce them that are cost-effective,” said Taylor, citing discounts for policyholders who implement windstorm risk reduction or add on flood policies. Furthermore, they said providing different types of capital to communities facing climate disasters – such as the catastrophe bond New York’s MTA issued after Hurricane Sandy flooded its infrastructure – can protect homeowners or the community as a whole against future damage by making available the funds to clean up and rebuild.

Finally, these companies have key knowledge and lines of communication with people they can utilize to help policyholders be aware of risk.  

“A lot of damages can be averted if people understand in advance what to do, and take steps to mitigate the risk,” they said.

Still, they added, “there’s a lot of interdependencies, there’s a lot of uncertainties.”