First, you cannot talk about this issue without talking about the 2017 Florida State Supreme Court case Joyce v. National Federated [1]. Basically, this made it much easier for policyholder plaintiffs to recover costs in insurance litigation, sometimes punitively so. If a court deems a case to have been likely to succeed from the outset, it can award up to 2.5 lodestar costs for attorney fees.
This is well-intentioned. It should encourage insurers to settle rather than go to court but it had the opposite effect because of how rife Flroida is for roofing scams and insurance fraud [2]. Basically, dodgy companies would offer to inspect your roof, find a fault and then file a claim to replace the roof. Nothing was really done to curb this fraud and, because of Joyce, it was unprofitable to fight these cases.
This compounds to Florida accounting for 76% of homeowner's insurance lawsuits but only boasts 9% of claims [3].
Third, the current Florida government has shown no interest in actually tackling this problem. One bill in recent years simply gave insurers $1 billion [4] for really nothing in return.
Fourth, a lot of issues are mistakenly attributed to climate change. Take the coastal erosion in Cape Cod [5]. People like to say "climate change" (to be clear, I 100% believe in man-made climate change) but really it's just a longstanding trend of coastal erosion that probably has almost nothing to do with climate change.
[1]: https://www.propertyinsurancecoveragelaw.com/blog/court-reaf...
[2]: https://www.nbcnews.com/news/us-news/roofing-scams-florida-p...
[3]: https://www.roofingcontractor.com/articles/97786-what-you-sh...
[4]: https://floridaphoenix.com/2022/12/16/desantis-signs-billion...
[5]: https://www.independent.co.uk/climate-change/news/cape-cod-h...
>> Using Florida as a case study, we show that traditional insurers are exiting high risk areas, and new lower quality insurers are entering and filling the gap. These new insurers service the riskiest areas, are less diversified, hold less capital, and 20 percent of them become insolvent. We trace their growth to a lax insurance regulatory environment.
>> We find that these new insurers would not meet [government-sponsored enterprise] eligibility thresholds if subjected to traditional rating agencies’ methodologies. We then examine the implications of these dynamics for mortgage markets. We show that lenders respond to the decline in insurance quality by selling a large portion of exposed loans to the GSEs.
As a former resident, this is comically on-brand for Florida (and granted, some other regulatory-captured states): allow business to do as it will, ignoring systemic problems, and then when the risk dice finally come up snake eyes exclaim "No one could have possibly seen this coming!"
Real estate properties in Florida are increasingly at risk due to climate change.
Established insurers ran their numbers and noped out of Florida quickly.
New low-quality insurers came in and filled the vacuum.
Established rating agencies looked at the new low-quality insurers and came to the conclusion that they are trash.
New low-quality rating agencies came in and declared those new low-quality insurers to be a-ok.
Lenders, fearful of being left holding the bag (from climate losses that are likely to bring down the low-quality insurers), sold mortgages in Florida to Freddie Mac and Fannie May (i.e., the GSEs, which are financial institutions that purchase mortgages en masse and implicitly backed by the US Government).
Freddie Mac and Fannie May bought those mortgages because the properties are insured by (low-quality) insurers declared a-ok by (low-quality) rating agencies.
As is usually the case, the government will be left holding the bag.