Florida lawmakers may prepare to act against rising property insurance rates, they may tackle insurance fraud allegations and they may be able to lure nervous reinsurers back into the crippled Florida market.
But the one thing they can’t do is change the weather.
Insurers believe that due to climate change, this is the new normal. They are finding that both catastrophic and non-catastrophic weather events are getting more and more intense every year.” Paul Handerhanpresident of the Federal Insurance Reform Association, a national nonprofit advocacy organization based in Fort Lauderdale.
The consequences of climate change are not only catastrophic – and increasingly costly – weather such as hurricanes and wildfires, but also more daily events such as storms that bombard residential and commercial properties with straight-line winds and hail.
Add to Florida’s rapid population growth, rising demand for high-risk areas such as coastal communities, rising construction and labor prices, and alleged abuse by contractors tempting policyholders to file bloated damage claims, and you have what one prominent insurance official calls a “total collapse of the market.” Florida in general.
The actuarial sound way to respond to the new normal is to raise rates, reduce coverage, or throw in the towel, as eight Florida property insurers have done since 2018. Just this week, three more companies asked state insurance regulators to approve the huge rate increases — Up to 49 percent of policyholders are not among the tens of thousands who have recently lost coverage entirely due to a failure to renew.
Over time, Handerhan said, property insurance coverage will become so expensive that only the very wealthy can “live in heaven.”
Job 1 of lawmakers meeting in a special session next week, Handerhan said, will secure as much reinsurance coverage for the remaining insurers in Florida by June 1, the start of the official hurricane season, 13 days later.
Reinsurers with access to large capital insure primary insurers to cover payments for catastrophic events that exceed the funds available to the primary companies. Without reinsurance, primary insurers cannot provide coverage in risky areas—which is the case for most of Florida.
“The most urgent and imminent problem is addressing the issue of reinsurance,” Handerhan, a real estate and casualty executive for 20 years, said in an interview Thursday.
“It has to be part of the agenda and it has to be meaningful. They have to introduce some comprehensive overhauls to provide an ample supply of reinsurance capacity, so that these insurers can complete their programs and have the reinsurance capacity they need to get them through this hurricane season.” “
This means lawmakers must tap into billions of dollars in the Florida hurricane disaster fund, Handerhan said. The so-called Cat Fund provides reinsurance coverage but likes to be stingy with it to keep a solid surplus on hand in case Florida suffers another Hurricane Andrew (1992) or a season of back-to-back hurricanes like the one that hit Florida four times in 2004 (Charlie, Francis, Evan, Jane).
Citizens Property Insurance Corp. has doubled down. , the state’s insurance company of last resort, more than doubled the size of policyholders in less than two years to accommodate customers stranded when insurers did not renew their policies or went out of business. On Wednesday, its board of governors authorized spending $400 million to purchase $4.25 billion in reinsurance coverage. That’s nearly double what I needed last year.
“This market is completely out of control, 100%,” he said. Barry GillowayThe President, CEO and CEO of Citizens during the Board of Governors meeting. “It all has to do with the total collapse of the Florida market in general, and that crash continues.”
Gilloway said the explosive growth in the state’s insurance company of last resort, caused by the massive decline in private coverage, has seriously spooked investors. He said it would be a “wonderful event” if citizens were able to obtain even a significant portion of the $4.25 billion reinsurance capacity they are seeking.
“We’ve been struggling, frankly, to get the interest of reinsurers, and they know that level of growth, we don’t know when it’s going to stop, how far it’s going to go,” Gilloway 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.
“That will be a determining factor, I think, in terms of whether the reinsurers in any way, shape or form reflect their position and ability to release capacity into the market.”
At the Federal Insurance Reform Association, Handerhan recommends tapping into the Cat Fund, reducing the state’s “quick cash boost factor” that charges a 25 percent surcharge on policies to keep Cat Fund cash flowing, and other measures to “address the symptoms” of the crisis.
The long view, he said, is that property insurance rates will remain high and will rise as modeling firms, which calculate potential losses in different scenarios for specific areas affected by certain events, are improving their accuracy.
These companies are making higher and higher estimates of both catastrophic and non-catastrophic losses, based on historical data that shows the costs of the new normal for severe weather.
But also, as lawmakers have widely emphasized, fraud increases mounting losses. Handerhan said the fraud often involved roofing contractors looking for “local” severe weather events and going there to encourage policyholders to file claims, whether or not the roof was apparently damaged by the weather event.
“They always find something,” he said. “It is almost impossible to refute it.”
Handerhan said insurers in Florida want to stop insuring older roofs, which would impose financial hardship on low-income and fixed-income residents who may not be able to afford to replace their roofs. This can “impose” the mortgage holder’s property insurance which typically costs two to three times the private market coverage and only covers the balance owed to the mortgage company. That could lead to an increase in foreclosures, he said.
“Fraud is a really problem…and it has a multiplier effect, especially for the most vulnerable,” Handerhan said.
“It’s going to get more expensive. People with the means can do it. It can get too expensive for others. This is Florida.”
Laura Castles Report via Florida Phoenix.
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