Florida’s home insurance market is all set for hurricane season after a troubled start to the year. But ratepayers might remain in for rougher seas.
A number of Florida insurance companies applied for premium hikes varying from 15 to a little more than 31 percent this summertime. A variety of trends within the home insurance market– including increased expenses for reinsurance and the continuous issue of water damage lawsuits– are driving up rates.
Despite the ballooning expenses, specialists said, Florida insurance provider are well positioned to manage storm claims this year.
“If you have insurance with a carrier in Florida, you are well-protected for the hurricane season,” said Mark Friedlander, Florida representative for nonpartisan industry group the Insurance Info Institute.
Nearly 10 insurance companies asked state insurance regulators for rate increases of at least 15 percent. Southern Fidelity Home & & Casualty requested for a rate boost of just more than 31 percent. National Specialized Insurance Co. asked for a 28 percent hike, while Capitol Preferred Insurance Co. requested for a 26 percent boost. National Specialized was authorized, while Capitol Preferred and Southern Fidelity are still pending.
The leading cause of the premium increases was a spike in reinsurance costs.
Reinsurance is coverage insurance provider buy to help them pay claims, and it makes up a substantial part of customers’ premiums. This year, reinsurance costs jumped because of a shift in the market.
After the 2008 monetary crisis, Wall Street financiers started putting cash into insurance-linked securities. If there was a disastrous event such as a typhoon, the funds would spend for claims, said Paul Handerhan, president of the Federal Association for Insurance Coverage Reform. This kept private insurance companies’ reinsurance costs low because they had to compete with the costs of the securities.
“That’s changed,” Handerhan said. “The marketplace has tightened up. Some of that capital has receded, and you have actually seen the standard reinsurers take this chance to attempt to recoup a few of those profits.”
Storms were also a substantial element.
Under Florida law, claims for a called storm can be sent for approximately three years after it hits. Claims from Hurricanes Irma and Michael in specific have actually put pressure on insurance companies, Friedlander said. Since December 2019, the most current data readily available, Typhoon Michael caused $7.9 billion in insured losses, while Typhoon Irma, according to claims data as of January 10, caused $17.4 billion in insured losses.
“There was a great deal of claim activity particularly in 2015, 2 years out from (Typhoon Irma),” Friedlander said. “Those losses struck the books of these providers.”
In June, the Florida Typhoon Disaster Fund increased the funds it expects to spend for Typhoon Irma claims from $6 billion to $6.5 billion, according to spokesman John Kuczwanski. The “Cat Fund” is a state-run trust fund that assists private insurance companies with paying claims after the industry pays $7.74 billion in claims.
Compounding these is a nearly decade-old issue insurance companies state they can’t shake: lawsuits coming from water damage claims that aren’t associated with storms. Insurance providers have actually long said that they deal with increasing expenses from lawsuits over the challenged rate of property water damage repairs. The companies blame unethical specialists and the lawyers who deal with them for using the courts to gather attorney costs and greater costs for repairs that weren’t caused by typhoons.
Citizens Home Insurance Coverage Co., the state-owned insurance company of last hope, previously asked for an 8.2 percent premium boost in December 2018 because of this issue, later on devaluing it to a 2.3 percent hike. Legislation that entered into impact in 2015 curbs attorney costs for the lawsuits.
Michael Carlson, CEO of industry group the Personal Insurance Federation of Florida, said lawsuits filed up till the law entered into impact last July put pressure on insurance companies, as did a new burgeoning variation of the issue.
“The issue is a structural issue in the home (insurance) market,” he said. “If it’s untreated, it’ll be an increasing cost to the companies and it’ll be an increasing cost on customers who have to pay the premiums.”
When will ballooned rates come down? The Federal Association for Insurance Reform’s Handerhan said that depends on the number and size of claims over the coming years.
“If we don’t have a storm this year and we don’t have another storm for another 4 our 5 years,” he said, “reinsurance rates (will go down),” taking premiums with it.
Despite the issues, specialists said, widespread insolvency because of these issues is most likely not on the horizon.
Previously this year, the state’s home insurance industry was afflicted by a ratings crisis as almost 20 Florida insurance companies were threatened with declines in their monetary health ratings. Demotech Inc., among the significant insurance rating companies, said it was worried about the companies’ capability to pay claims. It did not launch the list companies potentially impacted by the downgrades.
Several of these companies shed policies or combined with other more stable companies.
Tampa-based HCI Group, for instance, agreed to absorb all 43,000 policies from St. Petersburg’s Anchor Residential or commercial property & & Casualty Insurance Coverage Co. Demotech previously cautioned it would downgrade Anchor’s rating from an “A,” exceptional, to “M,” moderate.
The mergers and rate increases stabilized the Florida industry, the Insurance Info Institute’s Friedlander said
“There were some bumps in the road there, however it‘s in a better monetary position than in 2015 when we saw the ratings decreases,” he said.
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