Hurricane Ian threatens to wreak havoc on property insurance

Hurricane Ian is speeding towards the Gulf Coast of Florida at a dangerous time for property owners in the state who have been weathering an insurance crisis that could cause a Category 3 storm.

In the past few years, numerous insurance companies in Florida have closed their doors due to a slow-moving collapse of the industry, forcing rates to spike and property owners to turn to the state-owned insurer of last resort.

Florida's property insurance market was the most volatile in the U.S. before Hurricane Ian formed and will likely become even more unstable in the wake of the storm, according to Mark Friedlander, a director at the Insurance Information Institute in Florida.

Insurers were allowed to be overrun by claims or operate with little financial responsibility and oversight due to flaws in laws and regulations. These issues have resulted in problems in the market that have shepherded many insurers toward closure or left them on precarious financial footing.

Since January 2020, a dozen insurance companies in Florida have gone out of business. Six were declared insolvent this year. A court found that FedNat Insurance Co. would need to be liquidated because of ongoing financial troubles, leaving 56,000 policies canceled.

Nearly 30 Florida insurance companies are on the state regulator's Watch List due to financial instability, and a major storm could make it harder for people to insure their homes and collect on claims.

According to National Hurricane Center data, more than 1 million homes in the Florida Gulf Coast have been threatened by Hurricane Ian, which has a potential reconstruction cost of more than $258 billion, according to the National Hurricane Center data analyzed by CoreLogic, a company that specializes in property information and analysis.

The insurance crisis is a result of countless roofing scams in which contractors and attorneys file numerous fraudulent damage claims on behalf of homeowners and force insurance companies to settle, NBC News previously reported. A series of loopholes in state law and a string of court decisions allowed them to proliferate allowed the mess to be compounded, insurers and government officials say.