Sun Sentinel House Keys Blog: Florida’s property insurance market since Wilma

Oct 25, 2010

The following article was posted to the Sun Sentinel House Keys blog on October 25, 2010:


Florida’s Property Insurance Market Since Wilma


By Julie Patel

The fifth anniversary of Wilma on Sunday led insurance experts to reflect on the health of the market since the storm created a property insurance crisis.

In the 2006 gubernatorial campaign “the number one issue was the affordability and availability of insurance,” Bob Ricker, an insurance consultant and former director of Citizens Property Insurance said at an insurance symposium last week. “Fortunately, that’s now back way down on the list.”

Some speakers at the Office of Insurance Regulation event said the market is improving thanks to five years without a hurricane hitting the state and other factors. Many said the state needs to do more to allow insurers to build up their claims-paying reserves.

The Insurance Information Institute, a research group that represents insurers, released a recent report that says Wilma’s legacy includes new and reopened claims being filed years after the hurricane.

“The winds of Wilma are still blowing,” the group wrote.

Claims filed years after storm

Several panelists at the OIR symposium blamed the hurricane claims on the growth of public insurance adjusters, who are hired by policyholders to represent them in claims disputes with insurers.

Some insurers report they’re still getting about 50 new claims a month for Wilma, according to the insurance institute. Several companies overwhelmed with Wilma claims folded in the past few years.

Some panelists pushed for limiting the time policyholders have to file hurricane claims to two to three years after the storm – similar to a provision in a bill that was vetoed by Gov. Charlie Crist this year.

John Auer, president of American Strategic Insurance in St. Petersburg, said public adjusters are “bleeding” the industry and they’re also fueling an increase in sinkhole claims. “There’s very little question in my mind that sinkhole claims are up because Wilma is winding down and they’re looking for some other source of revenue,” he said.

David Beasley, president of the Florida Association of Public Insurance Adjusters, defended his industry. “All we do is insure that homeowners are fairly paid for the damages they have suffered in covered losses under their insurance policies,” he wrote in an email. “If the insurance companies were paying these claims fairly to begin with, then public adjusters would not be successful.”

Rate hikes still coming

Regulators approved rate increases for dozens of insurers since early last year. Some panelists said allowing insurers to raise rates ensures they can pay claims.

“There has to be flexibility in regulation and rating,” said Missy Shelley, of Florida Farm Bureau insurance. “Rate increase caps in theory sound good but I think they’re detrimental both to the carrier and also on the deep end to the consumer.”

Some said rate hikes should be spread out over a few years to give consumers time to plan for them.

Ricker said rates can’t be increased too much, too quickly or “you’ll face the same political blow back” that led to a sweeping law in 2007 that helped lower rates, Ricker said. The law was passed after the 2004 and 2005 hurricane seasons when some policyholders’ premiums doubled or tripled.

John Seo of Fermat Capital, which manages catastrophe bond investments, said investors like to see signs of a market improving but they don’t need dramatic changes to happen quickly.

“We understand it’s a big ship” that can’t turn too quickly, Seo said. “Some people will fall over the railing if you do.”

Investing in Florida’s property insurance market

Florida-only insurers have largely taken the place of national insurers that scaled back their risk in Florida dramatically since Wilma, according to data from the insurance institute.

State Farm’s total premiums decreased by 92 percent from 2005 to 2009, Allstate’s by 64 percent and Nationwide’s by 52 percent, according to the group. But the total premiums grew for USAA by 33 percent and Universal Insurance Co. of North America by 38 percent. State-backed Citizens Property Insurance’s premiums also grew by 55 percent.

Some have asked why investors would want to risk their money in Florida for a profit margin that’s often as low as 3 percent when they could lose it all after the next major hurricane.

Seo said investors are doing the same thing with investments in emerging markets and getting paid about that much.

“There’s a lot of money out there to invest,” he said. “I wouldn’t question the motives of the investor base out there.”

Some speakers said what will also help Florida’s market is that property owners abroad who did not buy insurance are now starting to. That will allow companies that sell catastrophe back up coverage to Florida insurers to balance that with catastrophe risks in other parts of the world.

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