Insurance rates in Florida keep rising, with or without hurricanes

Nov 16, 2010

The following article was published in the Daytona Beach News-Journal on November 15, 2010: 

Insurance rates in Florida keep rising, with or without hurricanes

By Tom Knox

 Robert W. Elton’s property insurance has more than doubled in five years.

He has obtained quotes from other insurance companies, but they were no cheaper. Now, he pays about $2,500 a year to insure his home on the Halifax River. The local attorney lives far from South Florida’s hurricane haven but still has to pay steep increases.

“A lot of companies have stopped writing in Florida,” Elton said. “If they want to cut their losses they should stop writing in South Florida, not all over the state.”

Florida homeowners haven’t dealt with a big hurricane since 2005, but property insurance rates continue to climb.

As residents wonder why rates go up in spite of the lack of storms, insurance executives are forced to explain the costs to customers already shaken by a poor economy.

Why, customers ask, are premiums skyrocketing by double digits for no apparent reason?

Critics say it’s simple price gouging, a desire of insurance companies that embellish fraud as an excuse to jack up rates. Insurance executives say it’s a mix of unprecedented deception by insurance adjusters and customers, and recent rules unkind to the industry.

No matter what’s to blame, it’s clear homeowners won’t get a break on their insurance prices anytime soon.

From January through August this year, 50 homeowners insurance rate increases were approved in Florida with an average increase of 12.5 percent, according to documents provided by the state Office of Insurance Regulation. The increases were for multi-peril insurance.

The increases ranged from as little as one-10th of 1 percent to as much as 29 percent.

“Fifty-two Florida-based property insurers lost $153 million through the third quarter of 2009 with no storms,” said Dick Brown, president and CEO of local insurance agency Hayward Brown, citing numbers from the Florida-Based Property Insurers CEO Group.

Jeff Grady, president of the Florida Association of Insurance Agents, said, “I think it’s about as bad as it can get right now.”

A lack of hurricanes doesn’t mean there’s been no problems for insurers. Other factors — sinkholes and rising wind mitigation claims, for example — have aided the high costs, insurers say.

“In the past three years, the losses in the industry … show that the cost of nonhurricane losses has gone up about 65 percent,” said Werner Kruck, senior vice president of Ormond Beach-based home insurer Security First.

Sinkhole claims have surged and companies haven’t been able to keep up.

The state-run Citizens Property Insurance collected $19.6 million in premiums for sinkhole coverage last year, but paid nearly $100 million in claims for sinkhole-related losses.

Grady said widespread fraud in sinkhole claims has helped to gut the surplus of some companies.

Insurers must spend thousands of dollars to prove it isn’t a sinkhole to avoid paying claims, and public adjusters use the cost to encourage claimants to file and hope the company just agrees to avoid the hassle, he said.

Property owners who put shutters on their windows and add other protection to protect their home against storms have added to costs, insurers say. The 2007 mandate caused a 60.1 percent increase in the average credits for multi-peril policies between the fourth quarter 2007 to the second quarter 2009.

But Bob Hunter, director of insurance at the Consumer Federation of America, doesn’t buy the widespread fraud argument.

“The idea that fraud could pick up that much is just nonsense,” Hunter said. “The fact that there are no hurricanes doesn’t mean you shouldn’t have a big rate decrease, but it doesn’t mean you shouldn’t have a big increase, either.”

Reinsurance — what companies buy to defer part of their potential loss in case of a big claim, such as a hurricane — is widely available and not as costly as it once was.

But insurers’ widespread use of buying it from offshore, unregulated companies is driving costs up, Brown said.

State rules that pushed against large rate hikes have caused insurers to use reinsurance more than before, the Hayward Brown executive said.

“When national companies that have a lot of capital and don’t need to buy as much reinsurance left the state of Florida because they couldn’t get the rate they wanted and needed, it left us with Citizens and these Florida companies,” Brown said. “They had to buy a lot of reinsurance, or they couldn’t buy claims.”

With no storms, Brown said, reinsurance companies are “making off like bandits, and there’s nothing the state of Florida can do about it because they don’t regulate them.”

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