Commercial insurance is back from the brink

Mar 24, 2008

Miami-Herald--Mar. 24, 2008

It’s not the good old days again — before eight hurricanes slammed into Florida between 2004 and 2005 — when plenty of insurers were willing to write commercial coverage and rates were relatively low.

But there has been some improvement since the commercial crisis erupted in the summer of 2006, when rates shot up, policies offered skimpy coverage, many insurers refused to write new policies and some companies canceled policies outright.

Commercial insurance rates have fallen 20 percent to 30 percent in the past year, agents and brokers say. What’s more, they’re seeing competition among insurers for the first time in two years.

Insurers ”had a profitable underwriting year in 2007. Those companies that want to stay in the game are dropping rates,” says Fausto Alvarez, a partner at HBA Insurance Group of Miami.

One key reason that commercial insurance rates have dipped is that the cost of back-up insurance, which insurers buy to cover some of their losses, has dropped.

”This is the first time in a long number of years that we have supply exceeding demand,” says Jim Massie with the Reinsurance Association of America in Tallahassee.

The dip in rates is benefiting businesses like Terranova, a developer and owner of shopping centers and malls.

Stephen Bittel, Terranova’s chairman, says insurance costs have dropped 30 percent to 40 percent on the company’s portfolio of properties.

But even after two quiet storm years, insurers haven’t forgotten that Florida can be a magnet for hurricanes.

”Location is more of an issue than age,” says Bittel. “Anything east of U.S. 1 is more costly to insure.”

Bittel has turned to the state-run insurer and even Lloyds of London to find windstorm coverage on properties closer to the coast.

Construction remains a concern for insurers. Many insurers shy away from older construction that doesn’t meet today’s stricter building codes. That’s pretty much any structure that hasn’t been updated in the past 10 years.

Here’s a look at how some agents and businesses are dealing with the current commercial insurance market:


Bruce Taylor, head of Van Ameringen’s Insurance and Financial Services in Boca Raton, works mostly with commercial carriers regulated by the state. But this year, he is seeing aggressive interest from the surplus lines market.

Surplus lines companies are approved to sell insurance in Florida, but the companies’ rates and policy forms aren’t regulated by the state.

Normally, surplus lines companies take on the properties other insurance companies won’t touch, but premiums are usually steeper.

Four new surplus lines companies interested in writing commercial coverage were approved by regulators last year. One is Ironshore Insurance, which wants to write commercial policies for properties in coastal areas of the state.

Taylor says the surplus line carriers account for a healthy portion of the extra capacity in the market these days. Many businesses are comfortable using a surplus lines carrier as long as it has a high financial strength rating from A.M. Best, the well-regarded Oldwick, N.J., rating agency.

One indication these surplus lines carriers are eager to write policies in Florida: ”I get lots of calls, and bids are delivered right away,” Taylor says.


In 2006, Baptist Health South Florida accepted a $75 million deductible and a minimal amount of insurance coverage so it could pay a manageable premium.

But now, the largest private employer in South Florida with five hospitals in Miami-Dade is enjoying something of a respite.

”We would expect a 20 percent reduction in the premiums we’re paying. But there is still limited capacity for property insurance in the worldwide market,” says Suzzanne Thomson-Quintero, Baptist’s assistant vice president and special counsel for tax, insurance and privacy.

”We’re still the best house in the worst neighborhood,” says Quintero, who is helping negotiate the hospital’s coverage, which needs to be in place by late April for the coming year.

This year, Baptist plans to spend about $17 million on mitigation and efforts will include making sure construction can withstand a Category 5 storm. That would exceed the standards of the current Miami-Dade building code. The company spent $7 million in 2007 that covered reinforcing walls, improving drainage, adding more permanent shutters and protecting atriums.

Even with all the money it has put into mitigation, Baptist can’t buy enough insurance to cover all its exposure. Quintero expects the hospital system will buy about $300 million of coverage for about an $8 million premium. That’s double the coverage for the same price it paid in 2007.

But it’s hardly adequate coverage considering the hospital has about $2 billion in exposure.

Quintero and the Baptist team have quite a shopping task ahead of them. The hospital will put together that coverage from 20 to 30 different insurers, including firms in Bermuda and syndicates at Lloyds in London.

”Five years ago, we didn’t have to do that. We could do it with one or two carriers,” she says.


The Miami-Dade developer of community shopping centers located throughout South Florida and as far north as Ocala has seen rates go down. But hurricane coverage is still hard to find.

For properties located east of I-95, ”we’re still stuck in the windstorm pool,” says John Breder.

Citizens Property Insurance, the state-run pool, does provide minimal coverage but that’s about it. Breder complains the policy limits are extremely low — just $1 million right now. ”That doesn’t help me if I have a $5 million building,” he says.

Coverage is also limited. Citizens policies don’t cover other structures, such as a sign outside a shopping center. [See box]

Landlords tend to pass on insurance costs, maintenance and property taxes, in the per-square-foot rate or fees. But Breder points out that tenants don’t have bottomless pockets:

“For instance, if the tenant can only afford $30 per square foot and if I can keep my pass-through charges down to $5 per square foot, I am making $25 per square foot. But many of these numbers have doubled in recent years. Then, I’m getting only $20 per square foot.

“Tenants can only afford so much. Suffice it to say, insurance costs and property taxes are clobbering everyone in this state.”