Hurricane Milton has taken a heavy toll on families, property and businesses. But in the complex insurance market, the effects aren’t so straightforward.
As estimates of likely insured losses begin to firm up, the range of possible outcomes for the insurance industry is also narrowing. At this early stage, preliminary estimates of Milton’s insured damages suggest that a relatively larger proportion of the losses will be borne by reinsurers, and less so by primary insurers. These levels likely wouldn’t result in big losses for catastrophe bonds, which are specialized investments that typically bear the risk of loss when extreme events occur.
Fitch Ratings estimates that Milton’s insured losses will range from $30 billion to $50 billion, which would make it significantly more costly than Hurricane Helene, but wouldn’t rise to the level of Hurricane Ian in 2022. The Insurance Information Institute estimates Ian’s inflation-adjusted insurance losses at over $55 billion.
Whether the cost of reinsurance pricing continues to rise is also a pocketbook issue for many homeowners. A study by professors now at the University of Pennsylvania’s Wharton School and the University of Wisconsin School of Business estimated that the recent “reinsurance shock” added $375 in 2023 to premiums for homeowners’ policies in the top 10% of zip codes by disaster risk.
If reinsurance pricing remains steady, it means consumers probably won’t see much relief in their premiums. But an industry that proves it is better able to absorb a disaster of this scale without another big adjustment at least means things won’t get significantly worse.
