Florida property insurance rates may spike. Here’s why

Florida's property insurers are facing a number of industry-wide issues that are affecting their bottom lines.
Florida property insurance rates may spike, in part because of lingering Hurricane Irma claims. Pictured is Tom Moore Tom Moore working on his home in Duck Key, Florida in 2017. [Times file (2017)]
Florida property insurance rates may spike, in part because of lingering Hurricane Irma claims. Pictured is Tom Moore Tom Moore working on his home in Duck Key, Florida in 2017. [Times file (2017)] [ EVE EDELHEIT | Tampa Bay Times ]
Published Aug. 17, 2020

Florida’s property insurance market is ready for hurricane season after a tumultuous start to the year. But ratepayers may be in for rougher seas.

Several Florida insurers filed for premium hikes ranging from 15 to a little more than 31 percent this summer. A number of trends within the property insurance market — including increased costs for reinsurance and the ongoing issue of water damage litigation — are driving up rates.

Despite the ballooning costs, experts said, Florida insurance companies are well positioned to handle 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 Information Institute.

Nearly 10 insurers asked state insurance regulators for rate increases of at least 15 percent. Southern Fidelity Property & Casualty asked for a rate increase of just more than 31 percent. National Specialty Insurance Co. requested a 28 percent hike, while Capitol Preferred Insurance Co. asked for a 26 percent increase. National Specialty was approved, while Capitol Preferred and Southern Fidelity are still pending.

The leading cause of the premium increases was a spike in reinsurance prices.

Reinsurance is coverage insurance companies buy to help them pay claims, and it makes up a significant portion of customers’ premiums. This year, reinsurance prices jumped because of a shift in the market.

After the 2008 financial crisis, Wall Street investors began putting money into insurance-linked securities. If there was a catastrophic event such as a hurricane, the funds would pay for claims, said Paul Handerhan, president of the Federal Association for Insurance Reform. This kept private insurers’ reinsurance prices low because they had to compete with the prices of the securities.

“That’s changed,” Handerhan said. “The market has tightened up. Some of that capital has receded, and you’ve seen the traditional reinsurers take this opportunity to try to recoup some of those profits.”

Storms were also a significant factor.

Under Florida law, claims for a named storm can be submitted for up to three years after it hits. Claims from Hurricanes Irma and Michael in particular have put pressure on insurers, Friedlander said. As of December 2019, the most recent data available, Hurricane Michael caused $7.9 billion in insured losses, while Hurricane Irma, according to claims data as of January 10, caused $17.4 billion in insured losses.

“There was a lot of claim activity particularly last year, two years out from (Hurricane Irma),” Friedlander said. “Those losses hit the books of these carriers.”

In June, the Florida Hurricane Catastrophe Fund increased the funds it expects to pay for Hurricane 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 insurers with paying claims after the industry pays $7.74 billion in claims.

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Compounding these is a nearly decade-old issue insurers say they can’t shake: litigation stemming from water damage claims that aren’t related to storms. Insurers have long said that they face increasing costs from litigation over the disputed price of residential water damage repairs. The companies blame unscrupulous contractors and the lawyers who work with them for using the courts to garner attorney fees and higher prices for repairs that weren’t caused by hurricanes.

Citizens Property Insurance Co., the state-owned insurer of last resort, previously requested an 8.2 percent premium increase in December 2018 because of this issue, later downgrading it to a 2.3 percent hike. Legislation that went into effect last year curbs attorney fees for the litigation.

Related: Citizens Property Insurance downsizes rate hike following legislation

Michael Carlson, CEO of industry group the Personal Insurance Federation of Florida, said lawsuits filed up until the law went into effect last July put pressure on insurers, as did a new burgeoning version of the issue.

“The problem is a structural problem in the property (insurance) market,” he said. “If it’s unchecked, 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 four our five years,” he said, “reinsurance rates (will go down),” taking premiums with it.

Despite the issues, experts said, widespread insolvency because of these issues is likely not on the horizon.

Earlier this year, the state’s property insurance industry was plagued by a ratings crisis as nearly 20 Florida insurers were threatened with decreases in their financial health ratings. Demotech Inc., one of the major insurance rating companies, said it was concerned with the companies’ ability to pay claims. It did not release the list companies potentially affected by the downgrades.

Several of these companies shed policies or merged with other more stable firms.

Tampa-based HCI Group, for example, agreed to absorb all 43,000 policies from St. Petersburg’s Anchor Property & Casualty Insurance Co. Demotech previously warned it would downgrade Anchor’s rating from an “A,” exceptional, to “M,” moderate.

The mergers and rate increases stabilized the Florida industry, the Insurance Information Institute’s Friedlander said

“There were some bumps in the road there, but it’s in a much better financial position than last year when we saw the ratings decreases,” he said.

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