Hurricane Ian, the Category 4 storm which recently swept through Cuba, Florida and the Carolinas, is proving to be the most destructive in Florida’s history. With 105 out of the 113 confirmed fatalities having occurred in the Sunshine State, Ian is the deadliest storm to hit Florida in almost 100 years. It is also shaping up to be one of the most devastating hurricanes in United States history, with estimates putting the total economic damage at well over $100 billion across the country’s southeast.
On top of this immediate destruction of life and propriety, there is also the long-term damage done to farmland critical to US food supply. Florida is a key source of food for the United States, producing everything from vegetables and livestock to dairy, fruit and honey. Ian’s devastation of huge swaths of agricultural land as well as its timing during the planting season will cause its catastrophic effects to be felt long after its passing.
There could hardly be a worse time for such a blow to food production. Across the world, the price of even the most basic products is soaring, fueled by widespread droughts, war in Europe and global financial chaos. In some cases, such as Florida’s famous orange-growing industry, the effects of Ian will be added to an existing list of problems. Before the storm, Florida was already expected to deliver its smallest crop of oranges since World War II due to the ravages of “citrus greening”, a bacterial infection which is sending shivers down the spines of the 76,000 Floridians whose jobs depend on growing oranges.
In recent years, such examples of production collapse have gone from being rare exceptions to becoming the norm, making some wonder about Florida’s long-term food production viability.
Americans might be hardwired against such pessimism, but foreign observers have argued that the storm may well mean the end of Florida as an appealing destination for living and investment. The frequency with which catastrophic natural phenomena are affecting the state has soured its housing market, once so attractive to millions of American retirees, and made insuring properties a headache. Expecting more claims than in other parts of the country, insurers have upped both the prices and the requirements on their policies, making insurance in Florida hard to obtain and expensive to maintain.
Last year alone, insurers had to pay almost one billion dollars in claims to Floridians, which was more than the previous two years combined. Those sums will be completely dwarfed this year, with the industry looking at a bill worth $63 billion, a staggering amount that is sure to push some companies out of business. In fact, Ian will only accelerate a trend already on its way: since the beginning of 2020, a dozen Florida insurers closed shop, with half of those defaults coming in 2022.
While the woes of the insurance industry in Florida are likely to continue, overly grim predictions may prove to be premature. Yes, insurers are struggling to adapt quickly to a new risk environment dominated by the effects of climate change. Increasingly frequent and severe extreme weather events, crop-devastating droughts and wildfires, and a generally more hostile environment are quickly forming a reality for which many insurance companies are simply not equipped.
However, the insurance industry is unlikely to fail completely. After all, people need insurance now more than ever in order to deal with this new normal. It is more likely that the insurance market will re-adjust to new conditions through a wave of consolidations. This will create a market in which a smaller number of larger players are better equipped to respond to the needs of their clients, as well as to resist shocks such as Hurricane Ian.
This trend towards consolidation is already visible around the world, where a number of high-profile insurance M&As from recent years suggest that such a wave of consolidation is well on its way. French mutual insurance giant Covéa, for example, acquired reinsurance company PartnerRe over the summer at a price nearing the €8 billion mark. Discussing the acquisition, Covéa CEO Thierry Derez specifically cited the new challenges posed by climate change as a reason for the move, with industry commentators pointing to the merger as Covéa’s way of ensuring its long-term stability in an industry rattled by insecurity and volatility. And given the historic and financially devastating hailstorms and droughts that hit its home market of France last summer, Covéa’s acquisition of PartnerRe underscores how mutual players must work together on a global scale to offer the secure, comprehensive coverage that clients need in this harsh new reality.
Italian insurer Generali is also looking to make a move, announcing a month ago that it is currently holding talks with US investment firm Guggenheim, with hopes to acquire its asset management business. In India, the life insurance business saw an important merger between Exide Life Insurance and HDFC Life that is expected to vastly expand the new conglomerate’s portfolio at a time when experts see no sign of slowdown for the consolidation trend.
Sink or Swim
The 21st century has brought tremendous change to the insurance business. The effects of climate change are no longer a threat of the future, but a constant danger of the present, as Hurricane Ian on one side of the Atlantic and the hottest summer in European history on the other have proven this year. An insurance industry which still operates under the rules of the old world is in need of a serious shake-up.
For Florida, therefore, there is still hope: the home insurance market was a mess before Ian because many small players were unprepared for the intensity and frequency of modern natural disasters. Now, this catastrophe could be the trigger for a deep evolution and transformation of the entire sector. The world has changed – the insurance business must change with it.
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