How Florida’s Risky Investments Could Deepen Its Climate Crisis

Florida is no stranger to the devastating impacts of climate change. Since 2017, the state has endured four major hurricanes—Irma, Michael, Ian, and Idalia—that have collectively caused nearly 300 deaths and resulted in hundreds of billions of dollars in economic losses. As the state continues to grapple with frequent flooding and increasingly severe hurricanes, a controversial new strategy has emerged: investing public pension funds in high-risk bonds that transfer risk away from insurance companies. This approach, spearheaded by Republican Gov. Ron DeSantis, has sparked significant debate and concern.

The Insurance Crisis in Florida

Florida’s property insurance market is in a state of turmoil. The frequent climate disasters have driven many insurance carriers out of the state, while others have become insolvent. In an effort to stabilize the market, Gov. DeSantis and the Florida legislature have implemented a series of reforms designed to protect consumers and reduce insured losses. These measures aim to curb what the industry calls “social inflation”—factors like fraud, unscrupulous contractors, and litigation that drive up costs.

However, these reforms have been criticized for shifting the burden onto homeowners. The insurance industry and its regulators have blamed increased costs on external factors, yet the reality is that consumers are being forced to pay higher premiums for less coverage.

Deregulation and Its Impact

Gov. DeSantis’s strategy includes significant deregulation to entice insurers back into the market. This has led to homeowners paying more for less coverage while insurers profit from soaring premiums. The state has also invested hundreds of millions of dollars in funds that provide insurance for insurance companies, essentially socializing the risk through high-risk, high-reward instruments known as catastrophe bonds.

This playbook is reflective of a broader Republican strategy to address home insurance crises nationwide. By denying climate change, blaming lawsuit abuse, and implementing market-friendly policies, these approaches have allowed insurers to reap exceptional profits while eroding consumer protections.

Legislative Changes and Controversial Reforms

On May 15, 2024, Gov. DeSantis signed a bill overhauling state energy policy, removing any mention of “climate change” from state law. This move was part of a broader effort to shift focus away from environmental concerns. Critics argue that this will exacerbate the state’s climate challenges and drive up costs for homeowners, who already pay three times the national average for property insurance.

During Hurricane Ian in September 2022, many homeowners saw their premiums skyrocket, with six insurers declaring insolvency by the year’s end. This forced many Floridians to turn to the Citizens Property Insurance Corporation, the state’s insurer of last resort. The number of homeowners relying on Citizens more than doubled in the two years leading up to Hurricane Ian.

The Role of Reinsurance and Legal Reforms

Gov. DeSantis’s policies include creating a $2 billion reinsurance fund and eliminating provisions that previously awarded automatic attorney’s fees to policyholders who win cases. These reforms are intended to reduce litigation costs and make it easier for insurers to access reinsurance. However, they have also limited homeowners’ ability to seek legal recourse when claims are wrongfully denied.

The reinsurance fund, known as Reinsurance to Assist Policyholders (RAP), uses taxpayer dollars to subsidize industry-related risks. Despite these efforts, premiums remain high, leaving consumers in a precarious position.

Financial Implications and Political Connections

The Florida Hurricane Catastrophe Fund (FHCF), which reimburses property insurers for hurricane losses, is under financial strain. The fund has plans to borrow up to $3.8 billion to stay solvent. Earlier this year, the Florida State Board of Administration (SBA), which manages the fund, announced it would sell $1.5 billion in municipal bonds to improve its financial condition. 

Gov. DeSantis and his political allies have benefited from significant contributions from the insurance industry. Between 2018 and 2023, DeSantis and his political action committee received nearly $4 million from insurance donors, including substantial sums from State Farm agents and property insurers participating in RAP.

In October 2023, DeSantis appointed two major donors to the Citizens Board of Governors, further cementing the ties between his administration and the insurance industry.

Banning ESG Considerations

The SBA board, chaired by Gov. DeSantis, banned environmental, social, and governance (ESG) considerations from Florida’s pension investment practices in August 2022. This decision prohibits considering climate-related financial risks in investment decisions, potentially undermining the long-term stability of pension funds.

Increasing Investments in High-Risk Bonds

The SBA has also increased its allocation to insurance-linked securities (ILS), complex financial instruments designed to transfer insurance risk. With a target allocation of 1 percent, these investments could total up to $2 billion. As of late 2023, $200 million of this allocation was exposed to catastrophe bonds.

Florida’s approach to managing its property insurance crisis involves significant risks and controversial reforms. By investing in high-risk bonds and deregulating the insurance market, the state aims to stabilize its insurance sector. However, these measures have come at a high cost to consumers and raise concerns about the long-term sustainability of Florida’s financial and environmental policies. As climate change continues to pose severe challenges, the state’s strategies will likely face increasing scrutiny and debate.
Florida’s risky investments in catastrophe bonds and deregulatory approach to property insurance may offer short-term solutions but pose significant long-term risks. The state’s strategy has drawn criticism for benefiting insurers at the expense of consumers, highlighting the complex interplay between politics, finance, and climate policy.