Progressive pulls back in Florida, overall outlook still unclear

Progressive insurance announced that it will be pulling back on homeowner insurance in Florida, in the latest effort to recover from the combined impacts of inflation and the surging cost of the climate crisis in certain states. But not all investors are convinced that improvements will come anytime soon. 

Progressive, one of the country’s largest insurers, will only renew home insurance policies for owner-occupied properties, cutting coverage for all landlord or investment property owners. The company also said it would revoke policies in “high-risk” areas, but did not specify where. The move would mean approximately 100,000 current policy holders will need to find new insurers by May of next year.

“We recently met with officials from the Florida Office of Insurance Regulation to inform them that we need to take certain actions to ensure we can be a long-term, viable property carrier option for” personal lines of insurance, the statement read.

The decision is the latest in a series of announcements from insurers who have decided to reduce or eliminate coverage for regions that are especially vulnerable to the ballooning costs of climate catastrophes. After disappointing second-quarter earnings drove share prices down at the fastest rate in decades, Progressive specifically cited the increasing costs of natural disasters, which had driven up claims for personal and commercial property damage alike. 

The decision to exit targeted costly regions altogether hypothetically could recover some of those losses. 

But investors were not convinced that there would be meaningful improvements any time soon. In a sharp departure from the impressive growth throughout the month, shares deepened a 6 day losing streak in the two days after the announcement, falling 0.24% to $138.97 on Monday while the S&P 500 Index improved marginally at 0.01%.

“You’re going to see more and more companies exiting markets like Florida and California,” said Kevin Heal, an analyst from Argus Research. 

Heal maintained Progressive’s buy rating after Friday’s news. But he also pointed out that the break-neck speed of home, car and insurance price increases through August did not show immediate signs of abating in Friday’s inflation report, and supported the higher-for-longer interest rate outlook shared by many economists. 

“These increases will be sticky,” said Heal, referring to soaring car and home prices that have rapidly driven up insurance costs. And while demand for car insurance tends to be resilient to increases in prices, Heal believes that could change if hiked interest rates continue to prop up personal financing costs or if there is a recession.