Florida lawmakers ready to act on soaring property insurance rates could respond to claims of insurance fraud and successfully lure jittery reinsurance companies into Florida’s crippled market.
But one thing they can’t do is change the weather.
“Insurers believe that because of climate change, this is the new normal. They are seeing catastrophic and non-catastrophic weather events increasing in severity every year,” said Paul Handerhan, president of the Federal Reform Association. of Insurance, a national nonprofit advocacy organization based in Fort Lauderdale.
The consequences of climate change include not only catastrophic – and increasingly costly – weather such as hurricanes and wildfires, but also more everyday events such as storms that batter residential and commercial properties from wind and hail in a straight line.
Add to that rapid population growth in Florida, high demand for high-risk areas such as coastal communities, higher prices for construction and labor, and alleged abuse by contractors. that prompt policyholders to file inflated damage claims, and you have what one prominent insurance executive calls “total collapse of the entire Florida market.”
The actuarial way to respond to the new normal is to raise rates, cut coverage, or throw in the towel, as eight Florida property insurance companies have done since 2018. Just this week, three more asked state insurance regulators to approve a high rate. increases – up to 49% on policyholders not among the tens of thousands of people who have recently lost coverage due to non-renewals.
Over time, Handerhan said, property insurance coverage will become so expensive that only the richest of the rich can “afford to live in paradise.”
The impending problem
Job 1 for lawmakers meeting in a special session that begins Monday, May 23, Handerhan said, is to secure as much reinsurance coverage as possible for Florida’s remaining insurance companies by June 1, the start of the official hurricane season, in 13 days.
Reinsurers with access to vast capital guarantee primary insurance companies to cover payments in the event of catastrophic events that exceed the primary companies’ available funds. Without reinsurance, primary insurers cannot afford to provide coverage in high-risk areas — which applies to most of Florida.
“The most pressing and imminent problem is to solve the problem of reinsurance,” Handerhan, a 20-year-old property and casualty insurance executive, said in an interview Thursday.
“It has to be on the agenda and it has to be meaningful. They must provide comprehensive reforms to provide a sufficient supply of reinsurance capacity, so that these insurers are able to run their programs and have the reinsurance capacity they need to get through this hurricane season.
Handerhan said that means lawmakers must take billions of dollars from Florida’s Hurricane Catastrophe Fund. The so-called Cat Fund provides reinsurance coverage but likes to be stingy to keep a strong surplus in case Florida suffers another Hurricane Andrew (1992) or a season of back-to-back hurricanes like the series that hit Florida four times in 2004 (Charley, Frances, Ivan, Jeanne).
Citizens Property Insurance Corp., the state’s insurer of last resort, has more than doubled its insured volume in less than two years to absorb customers left behind when their insurers failed to renew their policies or ceased their activities.
This week, its board of governors authorized the spending of $400 million to buy $4.25 billion in reinsurance coverage. That’s almost double what he needed last year.
“This market is completely, 100% out of control,” Barry Gilway, president, CEO and executive director of Citizens, said at the board of governors meeting. “It all has to do with the total collapse of the overall Florida market, and that collapse continues.”
Gilway said the massive growth of the state’s insurer of last resort, caused by the massive decline in private coverage, has seriously spooked reinvestors. It would be “an incredible event” if Citizens were able to land even a substantial portion of the $4.25 billion in reinsurance capacity it is seeking, he said.
“We’re struggling, frankly, to get reinsurers interested, knowing this level of growth, not knowing when it’s going to stop and how far it’s going to go,” Gilway said. “We are struggling to find reinsurers willing to provide this level of capacity.”
Gilway said the insurance industry is watching closely to see “if anything relevant” comes out of next week’s special session.
“It will be a determining factor, I think, as to whether reinsurers somehow reverse their position and release their capacity in the market.”
“It’s going to get more expensive. Affluent people can do it. It could become prohibitive for others. It’s Florida.
Portions of this story appeared on the website of the Florida Phoenix, a nonprofit news organization dedicated to covering state government and Tallahassee politics. You can visit them by clicking here.