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By Latisha Nixon-Jones, Jacksonville University 

Imagine saving for years to buy your dream house, only to have surging property insurance costs keep homeownership forever out of reach.

This is a common problem in Florida, where average insurance premiums cost homeowners an eye-watering US$6,000 a year. That’s more than triple the national average and about three times what Floridians paid on average for insurance premiums in 2018.

What’s more, several major insurance carriers have left the state over the past year, leaving residents with limited alternatives.

As a law professor who specializes in disaster preparedness and resilience, I think it’s important to understand what’s driving costs higher – not least because other states could soon face a similar predicament.

Three primary factors are driving the insurance challenge. First, natural disasters are becoming more common and costly. Second, the price of reinsurance is skyrocketing. And finally, Florida’s litigation-friendly environment compounds the issue by making it easy for customers to sue their insurers.

Disasters, like sea levels, are on the rise

With its location on the beautiful-yet-hurricane-prone Gulf of Mexico, Florida has long been vulnerable to the elements. Natural disasters cost the state $5 billion to $10 billion every year, the federal government estimated in 2018, the last year for which data was available.

Yet that likely understates the case today, since disasters have only become bigger, more common and more expensive since then. For example, climate change has made oceans warmer, which research suggests fuels stronger, more intense hurricanes.

As a result, Florida has experienced billion-dollar disasters an average of four times annually over the past five years – up from about one each year in the 1980s.

This surge in disasters doesn’t just put lives at risk; it also wreaks havoc with the insurance market, as carriers are inundated with claims from one catastrophe after another. This makes it harder for them to turn a profit or obtain reinsurance to protect their stakeholders.

Why reinsurance matters

Insurance companies, in essence, make money two ways. First, they pool risk among policyholders. Risk-pooling is the practice of taking similarly situated individuals or properties, grouping them together, and charging similar prices for insurance since they face the same risk.

Second, they reduce risk by acquiring reinsurance. Reinsurance acts as a safeguard for insurance companies – it’s essentially insurance for the insurers. Reinsurers pledge to cover a specified portion or type of insurance claim – for instance, catastrophic hurricanes – which provides a layer of financial protection.

The new era of climate disasters has thrown a wrench into the process. Reinsurance companies, grappling with a surge in claims due to more frequent and severe disasters, have found themselves forced to raise their premiums for insurance carriers. Carriers, in turn, have passed the burden to policyholders.

To try to navigate these challenges, some companies have chosen to limit coverage for specific types of damage. For example, some insurance companies in Florida will no longer offer hurricane or flood coverage. And in extreme cases, insurance companies have withdrawn entirely from the state.

Understanding this complex relationship between insurers, reinsurers and policyholders is key to understanding the broader implications of the Florida insurance crisis. It underscores the urgent need for comprehensive solutions and collaborative efforts to address evolving challenges in the insurance ecosystem.

Learning from Florida … one way or another

Florida isn’t taking all this sitting down. In December 2022, state lawmakers responded to growing property market instability by passing Senate Bill 2A, a package of insurance reforms.

One major part was a rule change designed to discourage policyholders from suing their insurers. Previously, Florida law let insured individuals recover attorney fees if they secured any amount through litigation against their insurer.

The idea is that making this change will discourage needless lawsuits. However, my research as an environmental justice professor shows that attempts to exclude attorneys from the negotiation process often lead to more expensive litigation and less access to justice.

The bill also restricts assignment of benefits, a mechanism that permits third-party entities like roofing companies to negotiate with insurance companies on behalf of Florida residents. While assignment of benefits increased advocacy, it was also linked to skyrocketing claims costs.

The balancing act between providing ample opportunities and containing costs has sparked debate among justice advocates. Florida’s legislative response reflects an ongoing effort to strike an equilibrium, ensuring fairness and accessibility while addressing the challenges faced by both insurers and policyholders.

Florida’s actions to address the property insurance crisis raise a critical question: Will the state serve as a blueprint for disaster-prone regions, or act as a cautionary tale? After all, states such as California and Louisiana have also seen insurance companies withdrawing from their markets. Will their legislatures draw inspiration from Florida’s?

For now, it’s too early to tell: The policies have only been in place since the latest round of hurricanes. But in the meantime, the rest of the U.S. will be watching – especially policymakers who care about resilience, and those who want to make sure vulnerable populations don’t get the short end of the stick.

About the Author:

Latisha Nixon-Jones, Associate Professor of Law, Jacksonville University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By Jose Caballero, International Institute for Management Development (IMD) 

Venezuela is engulfed in a political and economic crisis, which has forced over 6 million people – some 20% of the population – to flee the country since 2015. The mass exodus began when Venezuela’s economy collapsed, giving rise to rampant inflation, political turmoil and pervasive violence.

Over 80% of those who have left Venezuela have set up a new life in 17 countries across Latin America and the Caribbean. According to a recent report, these displaced migrants are having a positive effect on the economies of their host countries.

Between 2017 and 2030, migrant workers will boost the economies of their host countries by 0.10%–0.25% on average each year. The report, which was published by several leading international financial institutions and the UN Agency for Refugees, focuses on Venezuelan migrants but also covers Cubans and Salvadorans, among others.

The economic impact of migrants in Latin America is significant. But their integration into local job markets and society is poor. The economic benefits derived from migrants across Latin America could be even greater if they are given better access to jobs.

Boosting economic growth

Migration has clear economic benefits for local economies. It leads to an expansion of the workforce, thereby alleviating labour shortages and enhancing economic output.

Migrants bring a diverse range of skills and specialised knowledge to their host countries, which can improve the overall skill level of the local workforce. Their productive capabilities bridge skill gaps in local labour markets and heighten overall productivity.

Most migrant workers will also pay income tax, which increases government revenues. In Colombia, for instance, the income tax contribution of Venezuelan migrants in 2019 was approximately US$38.7 million (£30.1 million), equivalent to 0.01% of Colombia’s GDP.

And when migrants gain employment, they will spend their wages in the host country and create new demand in various other sectors. Greater demand leads to higher growth, which in turn attracts more investment and increases employment opportunities both for local people and migrants.

Underemployed

However, xenophobia and discrimination prevent many migrants from finding jobs in Latin America and integrating into society. According to the report, roughly 30% of the migrants residing in Chile, Colombia and Peru experience discrimination because of their nationality.

Thus, many migrants are forced to take jobs within the informal sector. Over 50% of migrants in Latin America work informally compared to 44.5% of locals.

Migrant workers also often earn lower wages than their local counterparts. In Colombia, the average monthly salary of locals with post-secondary school education is US$1,140. Venezuelan migrants with the same level of education earn just US$644 per month.

Despite this, immigrants still outperform the native-born population in their labour force participation and employment rates. Yet many of the migrants who are in formal employment are overqualified for their roles. In Chile, for instance, 34% of highly educated locals are overqualified for their jobs, compared to over 60% of migrants.

Migrants are often mistakenly assumed to be exclusively low-skilled workers. But the Venezuelan migrant crisis has seen many highly skilled people flee the country too. For example, 65% of the Venezuelans living in Chile and 48% residing in Ecuador have post-secondary school education.

However, most Venezuelans have not officially validated their academic credentials in their host countries. In fact, only 10% of those residing in Chile have completed the certification process.

Many migrants are unaware of the process so lack sufficient documentation about their qualifications. And the complexity of the process also demands investment that many migrants may not have the resources to cover.

To further enhance productivity in Latin America, it is essential to integrate migrant workers into professions that allow them to use their skills.

Access to services

Several other factors hinder the integration of migrants into society across Latin America. The report indicates that migrant workers have significantly lower access to health insurance relative to the native-born population. In Colombia, for example, 96% of local workers have access to health insurance, compared to just 40% of migrants.

Similarly, there are often barriers limiting access to education for migrants. Foreign-born residents and their family members have the right to access public primary and secondary education in the majority of South American countries. But school attendance rates are lower among displaced children than among native children, while the propensity for dropping out of school early appears to be significantly higher among migrant children.

Some people argue that immigration comes with costs, such as the perceived notion that migrants deprive locals of jobs. Nevertheless, the contribution of migrants to Latin American economies underscores the potential benefits. Improving their access to labour markets is thus a crucial tool for fostering long-term growth in Latin American economies.

About the Author:

Jose Caballero, Senior Economist, IMD World Competitiveness Center, International Institute for Management Development (IMD)

This article is republished from The Conversation under a Creative Commons license. Read the original article.