The trio of hurricanes that punished
Florida in 2005 left physical, emotional and economic scars that will be felt for years to come.
In the wake of that season, which spurred
25 additional named storms, the Florida
property insurance industry was left in dis-array, and the state’s hurricane catastrophe
fund was stretched beyond expectations.
Meanwhile, Florida property-owners,
struggling to pay ever-increasing insurance
premiums, demanded relief.
As the calendar inches closer to the 2007
hurricane season, what core property
insurance issues remain, and what actions
are under way to mitigate the crisis?
“The core issue at hand is the lack of
property windstorm coverage available
from the private insurance marketplace,”
says Mike Colon, a producer at Hilb, Rogal
& Hobbs of Tampa. “But sweeping changes
are about to take place.”
Smart Business spoke with Colon about
the rapidly changing landscape of Florida’s
property insurance industry.
Where does the Florida insurance crisis
stand today?
The 2005 hurricane season set a new
record with 28 named storms. The estimated damages caused by hurricanes Katrina,
Wilma and Rita was more than $60 billion.
Because of this, reinsurance costs for private insurers have risen significantly. In
January 2006, pricing from reinsurers
increased by 40 percent, and by July 2006,
pricing was up more than 100 percent. This
resulted in a lack of property windstorm
coverage available from the private insurance marketplace and the rising costs
insureds are faced with today when trying
to obtain this coverage.
As reinsurance rates for private insurers
rise, higher pricing and higher deductibles
for windstorm coverage get passed along
to insureds. Sometimes, these same insurers will not offer windstorm coverage at
renewal to existing policyholders as they
attempt to cut back on their capacity in
Florida. We are seeing more private insurers not having the capacity to write wind-storm coverage in Florida.
How will the Senate hurricane package
impact the property insurance industry and
bring about lower premiums for property
owners?
Sweeping changes are about to take
place. This legislation repeals the planned
rate increases by Citizens Property
Insurance Corp. and freezes any further
rate increases during 2007. The legislation also increases available capacity of
the state’s Hurricane Catastrophe Fund
(CAT) to $33 billion from $16 billion.
Insurers must in turn pass these savings
on to their insureds. Additionally, the new
law bans ‘cherry picking’ by primary
insurers that previously wrote auto insurance but did not write homeowners policies in Florida.
How does the insurance industry interact
with Florida government?
As a result of the recently passed legislation, private insurers will be allowed to buy
state-backed reinsurance at below-market
rates to cover their risks in the event of a
hurricane. This is expected to produce
average rate savings of 25 percent. It also
provides insurers access to more state
money to help them pay claims should another major hurricane or storm season
strike. In addition, Citizens’ rates are no
longer required to be noncompetitive with
the private insurance marketplace.
How can property owners help control insurance costs?
One of the best ways for insureds to
reduce their property insurance costs is
through proper construction and retrofitting to make their properties more hurricane-resistant. By protecting their properties against the potential damage of future
storms, insureds can thus expect to pay a
lower premium on their property policy.
This loss-control measure helps to reduce
damage during a storm and in turn reduces
the cost of a disaster and the cost to insure
the potential damage.
Another way insureds can help themselves is to provide their insurer with as
much COPE (construction/occupancy/protection/exposure) information as possible.
This includes the type of construction, year
built, number of stories, fire and security
alarm system information and other facts.
This information makes a huge difference
in the rating process and does help reduce
costs to the insured.
What is the prognosis for Florida property
insurance in the future?
In the short term, the sweeping legislative and industry changes on the horizon
will bring about much needed relief to
policyholders in Florida. As these
changes carry some risk, it is not a certainty how long it will last. For example,
two years ago, insurance companies
burned through the state’s CAT Fund.
Most insurance companies are charged
to make up that difference with insurers
passing those costs on to policyholders.
Now that Citizens’ rating methodology is
more competitive with private insurers,
there is a chance that this may prevent
more private insurers from entering the
market place.
MIKE COLON is a producer for Hilb, Rogal & Hobbs of Tampa.
Reach him at (813) 261-7980 or [email protected].