Best's Review


Catastrophes: Climate Change
Weather Alert

The rising severity and intensity of natural catastrophes, amplified by climate change, in California, Florida and Texas have brought about some insurance, regulatory and building code changes in those states. Special Risk Section sponsored by Lexington Insurance.
  • Lori Chordas
  • June 2020
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BLAZING INFERNO: Massive wildfires raged across parts of Northern California in 2017, including the Kincade Fire that severely damaged several wineries in Sonoma Valley.

TROUBLED WATERS: Heavy rains and rising waters from the Buffalo Bayou River flooded parts of the greater Houston area during Hurricane Harvey in 2017.

INFLICTING DAMAGE: Hurricane Michael brought widespread destruction and flooding to Mexico Beach, Florida when the Category 5 storm made landfall on Oct. 10, 2018.


The Catastrophe Special Section is sponsored by Lexington Insurance. Click on the microphone icon to listen to the Lexington Insurance podcast.


Key Points

  • Costly Catastrophes: The number of billion-dollar natural catastrophes continues to rise in the United States.
  • Weathering the Storm: Population growth, climate change and other factors are driving a rise in those events in states such as California, Florida and Texas, and spurring the need for legislation and reform.
  • Fighting Back: Some states are implementing new building codes, while others are making changes to their private flood insurance market or requiring homes to be built with flame retardant features to withstand wildfires.


Over the years, Florida, Texas and California have been especially hard hit by record-breaking natural perils, which have been amplified by climate change.

Those events have driven a number of insurance, regulatory and building code changes in those states.

Several global trends are “colliding to create the perfect storm” for growing accumulation of hurricanes and other natural catastrophe risks, said Mohit Pande, head of property underwriting at Swiss Re. Among them, he said, are economic growth and urban development in low-line coastal regions, flood plains and wildfire urban interfaces, along with climate change, which is fueling the intensity of natural disasters and driving a rise in secondary perils such as floods, droughts and wildfires.

Last year, natural catastrophes, driven in part by changing weather patterns, caused overall losses of $150 billion, including insured losses of about $52 billion, according to Munich Re.

Experts say that's only the beginning.

Within the next five years, the threat of climate change could potentially cost some of the world's largest companies $1 trillion, according to estimates by environmental nonprofit CDP North America.

Although the science of climate change and its impact on natural catastrophes remain somewhat nascent, experts point to a number of probabilities linking the two together.

Warmer temperatures are intensifying precipitation and floods, while changing wind patterns have been shifting the threat of tornadoes from what's known as Tornado Alley in the Great Plains to Dixieland states such as Alabama, Tennessee and Mississippi, said Dr. Peter Sousounis, vice president and director of climate change research at risk-modeling solutions provider AIR Worldwide.

Colorado State University researchers pin this year's projected rise in hurricanes on warmer sea temperatures and the absence of El Nino.

Last year marked the seventh year in the past decade with 10 or more $1 billion-plus weather climate events, including powerful tornadoes in Texas and Ohio, Hurricane Dorian that hard-hit the Bahamas and Typhoon Hagibis in Japan, according to CoreLogic's 2019 Natural Hazard Report.

The good news is that global insured losses are estimated to be around $56 billion in 2019, down from $93 billion in 2018 and below the annual average ($75 billion) of the previous 10 years, according to Swiss Reinsurance Institute.

Best's Review takes a closer look at some of the recent reforms put in place in the aftermath of several high-loss events in the three states.

Mohit Pande, Swiss Re

Economic growth, urban development and climate change are “colliding to create the perfect storm” for growing accumulation of natural catastrophe risk.

Mohit Pande
Swiss Re


After Hurricane Andrew barreled down on Miami-Dade County on Aug. 24, 1992, racking up more than $15 billion in claims payouts, the historic storm revealed deficiencies in Florida's existing building code compliance and enforcement process.

Ten years later Florida legislators implemented the first statewide building code mandating new structures be built to withstand hurricane-force winds and include features such as storm shutters and impact-resistant windows.

Since then, a number of amendments have been made to the Florida Building Code, including a new directive that, beginning on Jan. 1, 2021, will require a sealed roof deck as a secondary water barrier on all new structures.

Today Florida's uniform building code is among the strongest in the nation, and the rising severity of catastrophes across the state is continually testing the resiliency of those standards.

Recent storms like Hurricane Irma in 2017 and Hurricane Michael in 2018 have proven that the codes are up to the challenge, said Arnie Mascali, president of Brown &Brown subsidiary Procor Solutions.

While Michael brought winds “stronger than what's required for [testing the] buildings,” both Irma and Michael revealed the damage water intrusion causes when roof cover is lost, Anne Cope, chief engineer at the Insurance Institute for Business &Home Safety Research Center, said.

In response, the Federal Emergency Management Agency has made additional recommendations for homes built after the first adoption of the Florida Building Code in 2002, including enhanced wind resistance of roof coverings, a secondary underlayment system to prevent water intrusion and improvements to the performance of asphalt shingles.

The Sunshine State has also been hard hit by a growing number of climatic disasters including droughts, wildfires and floods. For years Floridians looking for flood insurance had only one place to turn: the National Flood Insurance Program. As of Sept. 30, 2019, there were almost 83,000 private flood insurance policies in force in the state, according to Florida's Office of Insurance Regulation.

New developments regarding flooding include:

The Florida Office of Insurance Regulation has made the development of the private flood market a priority in the state, said OIR press secretary Karen Kees. The office encourages companies to participate as flood writers, helps facilitate the development of additional flood insurance options for consumers and has streamlined form and rate filing procedures to make products available on the market quickly.

Last June, Florida Gov. Ron DeSantis signed a bill that revises circumstances under which insurers issuing homeowners insurance policies must include a specified statement relating to flood insurance with policy documents at initial issuance and renewals.

The rising severity and intensity of floods and other natural perils in Florida are caused by several factors, including population growth, climate change and the state's history of natural variability, said Karen Clark, CEO of catastrophe modeler Karen Clark &Company.

In 2004 and 2005, Florida was hit by an unprecedented eight named storms, including hurricanes Wilma, Ivan and Charley. That period was then followed by a 10-year lull of land-falling hurricanes.

But the respite came to a screeching halt in 2016 with Hurricane Matthew, followed by Irma and Michael, “proving that a quiet period can suddenly become active again,” Clark said.

As of October 2019, Hurricane Michael resulted in more than 149,700 claims and more than $7.4 billion in estimated insured losses, according to OIR. However, nearly 10% of those claims remain open.

Displeased with the number of unresolved claims, subcommittees in the Florida Senate and House earlier this year considered a new wide-ranging consumer protection bill that would make more than 20 amendments to Florida's insurance regulations, such as requiring surplus lines insurers to pay or deny claims within 90 days and increasing the cooling-off period during which a consumer may cancel a contract with a public adjuster from three or five days to seven calendar days.

However, the bill failed to pass during the recent state legislative session that concluded March 13.

Over the years, there has been exponential growth in assignment of benefits litigation in Florida.

According to a release on Gov. DeSantis' website, there were approximately 90 property AOB lawsuits filed statewide in 2008, but by 2018, the number of lawsuits had increased by more than 19,000%.

Florida law permits homeowners to sign over their rights to contractors or auto repair shops so they can receive direct payment from an insurer. However, often the amount of those claims are disputed and wind up in court.

While increasing AOB litigation has become a taxing burden on first-party insurers, it's also saddling some state property owners with rising homeowners insurance premiums.

Last May, DeSantis signed into a law the Insurance Assignment Agreements bill that establishes a series of reforms that address AOB abuse.

The legislation gives an insured 14 days to rescind an assignment without penalty, and gives the insured 30 days to rescind the assignment if the assignee has not begun substantial work during that 30 days. Also, assignees are required to provide a copy of the assignment agreement to the insurer within three days.

The rule also places a $3,000, or 1% of Coverage A, cap, whichever is greater, on emergency repair AOB invoices.

Experts expect AOB costs to drive some rate increases in the industry this year.

AM Best in its Feb. 3 Best's Journal report projected June reinsurance renewals to increase 15% to 20% on the heels of rising AOB and other litigation costs and loss creep from prior storms.

The rising cost of reinsurance has already led several of the state's homeowners insurers to request rate increases earlier this year, some by as much as 28%.

Arnie Mascali, Procor Solutions

Catastrophes are continually testing the strength and resilience of states’ building codes, and storms like Hurricane Irma and Hurricane Michael proved Florida’s statewide building standards are “up to the challenge.

Arnie Mascali
Procor Solutions


In 2017, Hurricane Harvey dumped trillions of gallons of water on Texas, flooding large swaths of Houston, Beaumont and other areas of the state.

The U.S. Environmental Protection Agency reports that over the past century, average annual rainfall in the eastern two-thirds of Texas has continued to rise. Harvey eclipsed those average amounts to become a 1,000-year flood event, signaling the need for tougher flood-risk mitigation requirements and changes to the state's private flood insurance market.

Nearly 400,000 homeowners lacked flood insurance at the time of the storm, leaving losses largely on the shoulders of the already financially troubled National Flood Insurance Program, which is part of FEMA.

The Insurance Information Institute reports FEMA paid out $8.9 billion in claims filed by 76,000 NFIP policyholders living in the Harvey flood zone.

Flood insurance sales in the state rose 18% from July 2017 to May 2018, according to FEMA.

Also on the heels of the mammoth storm have been a number of changes by state regulators to improve resilience and recovery after hurricanes and floods, including:

House Bill 1900, which was passed last spring during the only state legislative session to be held since Harvey, allots policyholders additional time to determine final repair costs and permits them to work with the Texas Windstorm Insurance Association if its estimates aren't enough to cover the repair, said Texas Department of Insurance press secretary Jerry Hagins. Also under the new rule, he said, TWIA policyholders have more time to request an appraisal to resolve payment disputes.

Hagins said also during last year's legislative session, several laws were passed that now require homeowners insurers to indicate in their policies if flood is not a covered peril, and allow surplus lines companies to write flood insurance without requiring two rejections in the regular market.

While industry experts laud those measures, some point to the need for additional overhauls in the disaster-prone state, including a statewide building code and uniform minimum construction standards.

A recent review of coastal Texas building codes by the Insurance Institute for Business &Home Safety revealed gaps that could leave one-third of homeowners living in coastal counties at risk if mitigation efforts and modern building codes aren't developed.

Texas, unlike Florida, lacks a statewide building code, leaving the adoption and enforcement of those standards up to city and county officials.

While 21 cities surveyed in the IBHS study have adopted a code, only 20% of counties have adopted a standard, leaving more than 840,000 residents in areas outside city limits with no adopted residential building code, according to Cope.

She said that is driving the need for more investment in mitigation “to bridge the gap and help vulnerable coastal communities build stronger.”

State insurance regulators hope new construction standards set to go into effect later this year will help to close that gap for coastal homeowners.

Earlier this year, the Texas Department of Insurance announced it was moving to newer standards that will provide greater windstorm protection to homes and buildings built along the Gulf Coast. The standards, designated for new structures or property repairs by owners seeking insurance coverage from the TWIA, were set to begin on April 1. But because of business disruption caused by the COVID-19 pandemic, TDI has decided to push back the start date to Sept. 1.


In 2017 and 2018, wildfires razed northern areas of California.

The Tubbs Fire ravaged more than 36,000 acres of land, destroyed more than 5,600 structures and claimed 22 lives in 2017, according to the California Department of Forestry and Fire Protection. The fire's destructiveness was surpassed the following year when the Camp Fire became the deadliest and most destructive wildfire in state history and was the single costliest global natural disaster for insurers in 2018.

Thomas Holzheu, Swiss Re's chief economist for the Americas, points to warmer temperatures and housing growth in wildfire urban interfaces as fueling the rise in those and other recent wildfires.

Since 2017, fires across the state have set off a domino effect that includes some insurers pulling out of the market, a reduction in capacity, and a rise in homeowners insurance prices and policy nonrenewals.

In 2018, nonrenewals in eight counties, including Sierra and San Diego, climbed by 10%, according to the California Department of Insurance.

But out of the ruin of the fires have come some big changes designed to aid homeowners living in fire-prone areas:

In December 2019, California Insurance Commissioner Ricardo Lara issued a mandatory, year-long moratorium, set to expire on Dec. 5, that prohibits insurers from issuing nonrenewal notices to nearly one million policyholders living inside or next to the perimeter of a state-declared wildfire disaster. Lara issued the moratorium amid growing evidence that homeowners insurance has become more difficult for Californians to obtain from traditional markets, forcing them into more expensive, less comprehensive options such as the California Fair Access to Insurance Requirements Plan, the state's insurer of last resort.

The FAIR Plan has also recently undergone some changes, including an order by Lara last year calling for the plan to offer a comprehensive HO-3 policy in addition to its current fire-only policy; expand residential coverage limits from $1.5 million to $3 million; and offer consumers a monthly payment plan and the ability to pay by credit card or electronic funds transfer, all without fees.

California wildfires continue to rack up large losses for insurers, including more than $12 billion from the November 2018 fires, according to the California Department of Insurance.

State homeowners insurers, in turn, have been implementing re-underwriting measures, filing rounds of rate hike requests and exiting fire-prone areas “where not restricted by recent legislative changes,” according to an April 6 Best Market Segment Report.

The authors of the report said many insurers are also continuing to reevaluate their wildfire underwriting strategies and enhance their reinsurance programs to limit exposure concentrations.

While improvements have been made to bolster the resilience of those structures, Cope, of IBHS, said even more needs to be done to the state's building codes to protect homes in fire-prone areas.

“Unlike Florida with its strict adoption and enforcement of a uniform building code, and Texas that has yet to adopt a statewide mandate, I believe California lies in the middle with its history of good building codes for wind and earthquake perils and the challenge of the increasing severity and limited code provisions for wildfire,” she said.

State legislators are hoping to change that. Last October, California passed several bills that encourage communities to adopt standards for making homes and their surroundings more fire resistant.

One of the new rules encourages home hardening efforts through a California Wildfire Mitigation Financial Assistance Program for communities in forest and brush areas across the state, while another creates statewide defensible space requirements to reduce wildfire risks in communities.

Gov. Gavin Newsom also signed into law last year legislation that creates a single rule to be used in determining the value of property damage for total and partial losses in insurance policies. Prior to the new rule, state homeowners were paid the actual cash value of their home in the event of a total loss. Now insurance payouts for a total or partial loss are based on the cost to repair, rebuild or replace a property, minus a “fair and reasonable” deduction for physical depreciation based on its condition at the time of an event.

Lori Chordas is a senior associate editor. She can be reached at

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