The storm coming for Florida’s insurance market

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It will take years for Florida to recover from Hurricane Ian. For many Floridians, there won’t be a recovery.

Officials have linked around 80 deaths to the storm and subsequent flash floods — a tally that’s expected to climb in the coming days. Hundreds of thousands of people are still without power. Entire communities have been wiped out by what Sen. Marco Rubio (R-Fla.) has labeled a “character-altering event” that will force the state to reckon how its communities are built and financed.

Fixing the state’s tattered insurance marketplace will be central to those discussions.

The cost of property coverage in Florida was nearly three times more than the national average before Hurricane Ian made landfall. Huge losses — exacerbated by natural disasters requiring tremendous payouts — sent six of the state’s smaller insurance carriers into insolvency earlier this year. The destruction caused by the latest storm will only send the rates offered by private carriers even higher, which will likely push more homeowners into coverage offered through Citizens Property Insurance Corp., Florida’s state-backed insurer of last resort.

That doesn’t take into account those who’ve already lost everything and won’t be extended a lifeline to rebuild. More than two-thirds of the homes in the nine counties that President Joe Biden has designated a federal disaster area aren’t covered under the government’s National Flood Insurance Program. While federal disaster assistance assures support for modest repairs and short-term emergency costs, it won’t make them whole.

“Florida is already having a problem with [insurance] availability. It’s having a problem with affordability. And it’s having a problem with reliability when insurance companies are going insolvent,” Nancy Watkins, a principal at Milliman actuarial consultants, told Tom Frank of E&E News. “All three of the pillars of a sustainable market are under threat.”

The timing of the crisis is particularly brutal given Florida’s recent efforts to attract big financial institutions and new development to its business-friendly confines. The state’s comparative affordability and livability to cold and bureaucratic northeast cities has been central to the sales pitch.

Earlier this year, Gov. Ron DeSantis, a Republican heavyweight who’s widely believed to be planning a presidential run in 2024, sought to remedy the state’s flagging insurance market by spearheading a $2 billion reinsurance program to tamp down costs. State regulators later designated Citizens as a financial backstop for any insurance company that can’t pay off its claims.

Paying for that could come at a tremendous expense.

“If Florida gets hit with one (or more) big storms and Citizens can’t pay its claims of those of other carriers, guess who’s on the hook? Yep, nearly every Floridian with an insurance policy,” POLITICO’s Gary Fineout reported in July, eight weeks before meteorologists spotted Ian forming near the Lesser Antilles. “That’s because the law allows Citizens to add a surcharge, derisively known as a hurricane tax, to the bills of its customers and eventually customers of other insurance polices, such as auto, to pay off its debts.”

DeSantis is already facing tough questions about what comes next.

More from Tom: DeSantis danced around a question about whether Citizens insurance has enough money to pay Ian-related wind claims. Instead, he emphasized the storm’s damaging floods, which are usually covered by the federal government.

‘We are looking at a lot of flood claims,’ DeSantis said, adding that Citizens should be able to pay Ian claims without charging a special assessment on its own policyholders, or on all insurance policies in the state except for medical and malpractice coverage.

Watkins said disputes and litigation will arise when property insurers like Citizens deny claims because they say damage was caused by flooding — which they don’t cover.

‘In a litigious environment like Florida, that could be a perfect storm on top of a perfect storm,’ Watkins said.”

IT’S MONDAY — Our thoughts are with everyone in Florida. What else should we be writing about? Send us your tips, story ideas, questions or feedback at [email protected] and [email protected].

Driving The Day

Acting FDIC Chair Martin Gruenberg will speak at an American Bankers Association event at 9:30 a.m. … Financial Stability Oversight Council meets at 2:30 p.m. .… Vice President Kamala Harris and Treasury Secretary Janet Yellen lead a forum on economic development in minority communities on Tuesday … Job openings data out Tuesday … Federal Reserve Board Governor Philip Jefferson speaks on Tuesday … Fed Governors Lisa Cook and Chris Waller speak on Thursday …

NO MORE MR. NICE GUY — Our Ben White: “Federal Reserve Chair Jerome Powell is going where no central bank chief has gone in decades: whacking the economy and risking a recession right before a heated election … It’s a rare moment for a Fed chair to toss aside all political considerations and ignore frantic investors. But Powell is facing the worst inflation spike since the Reagan administration — a problem that Fed critics say he helped create by downplaying price surges last year — and is racing to prevent worse pain in the coming months. If he’s unable to do that, it could cement a legacy of failure that he deeply wants to avoid.”

IT’S NOT JUST POWELL — WSJ’s Tom Fairless on what central banks’ interest rate push means for government borrowing: “Central banks and governments are on a collision course … If central banks continue to raise interest rates, they will raise the cost of servicing government debt and could put millions of people out of work.”

TRUMP’S SPAC COULD GET WHACKED — Our Declan Harty: “Big investors are starting to eye the exits on the $1.3 billion bid to take former President Donald Trump’s new social media startup public … Major backers are questioning whether the financial riches that first attracted them to the transaction are still strong enough to hold their interest in a deal fraught with troubles.”

MATH — Our Brian Faler: “Democrats’ plan to waive taxes on student loans forgiven under President Joe Biden’s initiative will probably cost the government tens of billions of dollars — though you won’t find that in official estimates.”

CONGRATS — Our Caitlin Emma: “The House passed a short-term government funding patch on Friday, sending the measure to President Joe Biden hours before a shutdown would’ve kicked in at midnight.”

Ukraine

CONDEMNATION — POLITICO’s Kelly Hooper and Bryan Bender: Biden on Friday “strongly condemned Russian President Vladimir Putin’s declaration that four provinces of Ukraine will become Russian territory based on referendums that took place this week.”

— Our Victoria Guida and Katy O’Donnell on Treasury’s new sanctions against Russian officials and their allies: “Treasury’s sanctions arm said it would also target ‘entities and individual jurisdictions outside Russia that provide political or economic support for Russia’s illegal attempt to annex Ukrainian sovereign territory.’ That means providing aid for the attempted annexation or to Russia’s military, attempting to evade U.S. sanctions on Russia and its ally Belarus, or providing help to previously sanctioned Russian companies and individuals.”

STAKES ARE HIGH — Our David Cohen: “Defense Secretary Lloyd Austin said he expects President Vladimir Putin to continue to suggest he might use nuclear weapons in Russia’s war with Ukraine — and that it is possible he could actually do so.”

MATERIAL CONSEQUENCES — WSJ’s Yuka Hayashi: “Sharp rises in food and fertilizer prices caused by the war in Ukraine are creating the worst global food crisis since at least 2008, putting the lives and livelihood of 345 million people in immediate danger, the International Monetary Fund said Friday.”

Regulatory Corner

MOVEMENT ON MERGERS? — Two developments on Friday led to optimism from regional bank allies that some big pending merger deals might be on track to go through. First, U.S. Bancorp and MUFG Union Bank announced an agreement with the Justice Department on divestments, a key step for U.S. Bank’s proposed acquisition of the core retail operations of the Japanese-owned institution. The banks still need approval from their regulators, but this is a sign that things are going in that direction.

Second, the Federal Reserve and FDIC said they would be coming out with guidance for banks with more than $250 billion (but aren’t considered important to the global financial system) on how to further develop their plans for how they’d break themselves up in the event of bankruptcy. This bolstered expectations that regulators would impose new requirements on this category of lenders through a rulemaking rather than imposing conditions through the merger process. — Victoria Guida

MORE STERNLY WORDED LETTERS — Policymakers are still scrapping over the payment and banking industries’ adoption of a new merchant category for gun stores. Senate Republicans led by Sens. Bill Hagerty (R-Tenn.) and Tom Cotton (R-Ark.) are taking Amalgamated Bank to task for leading the push for an international standards-setting body to establish a gun store merchant code, claiming the progressive bank has forced “radical and discriminatory policies on the entire financial system.” Meanwhile, a coalition of blue-state attorneys general have penned their own letter applauding the code’s potential usefulness to “thwart mass shooting events before they occur.”

ESG — Our Jordan Wolman: “A group of Republican attorneys general from 17 states is assailing acting Comptroller of the Currency Michael Hsu over his focus on climate risk in the banking industry, accusing him in a letter of participating in efforts “to turn the financial system, and federal financial regulators, into environmental regulators.”

Fed File

LIGHT TOUCH — Our Victoria: “Federal Reserve Governor Michelle Bowman on Friday warned about the risk of over-regulation of large banks, planting a flag with her views as newly installed regulatory czar Michael Barr considers toughening rules on the industry.”

THE CRISIS COULD GO GLOBAL — FT’s Colby Smith: “The second-in-command at the Federal Reserve said the US central bank was paying attention to tumult in global markets caused by monetary policy tightening, but insisted rates must still keep rising to combat inflation.”

CASH, THE ONCE AND FUTURE KING — Bloomberg’s Katherine Greifeld: “With the US Federal Reserve cranking interest rates ever higher, cash has become a bona fide asset class for the first time in decades.”

Economy

IT WON’T GO AWAY — NYT’s Jeanna Smialek and Ben Casselman: “The Federal Reserve’s preferred inflation gauge remained elevated in August, data released on Friday showed, further evidence that the central bank is contending with a stubborn problem as it tries to choke off the worst inflation in four decades.”

The data is confounding. Even as borrowing costs spike, factories have increased their pace of investment in new equipment. Thursday’s initial jobless claims were the lowest reported since April. Consumers are feeling more confident and less worried about inflation as gas prices fall.

Setting that aside, J.P. Morgan Asset Management Chief Global Strategist and Head of the Global Market Insights Strategy Team David Kelly is warning that “the U.S. economy is teetering on the edge of recession.”

AND KELLY’S NOT ALONE — WaPo’s Rachel Siegel and Rachel Lerman: “All the major stock indexes closed out the month on a bleak note, and the Dow Jones industrial average was down 5.4 percent for the third quarter, which ended Friday. The housing market is cooling off, with the highest mortgage rates in 15 years discouraging aspiring buyers. Retailers are already starting to discount items for the holidays, hoping to attract increasingly budget-conscious shoppers.”

— NYT’s Dealbook team: “Technology stocks have long been seen as the market’s most rewarding but riskiest investments. Bonds have the opposite reputation. This year, both have ended up in the same place — deep in the red.”

— WSJ’s Hannah Miao: “U.S. stocks have a spotless eight-decade record of rising after midterm elections, but investors and strategists are skeptical over whether November races will spark a rebound in this year’s bruised markets.”

TOUGH CALLS — FT’s Owen Walker: “Senior Credit Suisse executives spent the weekend reassuring large clients, counterparties and investors about the Swiss bank’s liquidity and capital position in response to concerns raised about its financial strength.”

FROM ON HIGH — NYT’s Adam Liptak: The Supreme Court’s new term is loaded with “significant cases on its business docket, which could influence how companies are regulated, conduct diversity hiring, and more.”

Jobs Report

Matt Homer, a former executive deputy superintendent of the New York Department of Financial Services’s Research and Innovation Division, has joined Tusk Strategies as a senior advisor to the firm’s crypto and fintech practice. Tusk’s head of crypto and fintech Eric Soufer has been promoted to partner.

The Financial Technology Association has hired former Bank Policy Institute executive Angelena Bradfield as its new head of policy and government relations.

Fly Around

Consumer prices in the countries that use the euro as their currency rose at an annual rate of 10 percent in September, again reaching the highest level since the creation of the euro more than two decades ago. — NYT’s Patricia Cohen and Melissa Eddy

OPEC+ is set to consider Wednesday its most drastic reduction of production since the pandemic began in order to help prop up falling oil prices, a move that could put pressure on global economic growth. — WSJ’s Benoit Faucon and Summer Said