Winds of change Featured

7:00pm EDT February 28, 2007

The trio of hurricanes that punished Florida in 2005 left physical, emotional and economic scars that will be felt for years to come.

In the wake of that season, which spurred 25 additional named storms, the Florida property insurance industry was left in dis-array, and the state’s hurricane catastrophe fund was stretched beyond expectations. Meanwhile, Florida property-owners, struggling to pay ever-increasing insurance premiums, demanded relief.

As the calendar inches closer to the 2007 hurricane season, what core property insurance issues remain, and what actions are under way to mitigate the crisis?

“The core issue at hand is the lack of property windstorm coverage available from the private insurance marketplace,” says Mike Colon, a producer at Hilb, Rogal & Hobbs of Tampa. “But sweeping changes are about to take place.”

Smart Business spoke with Colon about the rapidly changing landscape of Florida’s property insurance industry.

Where does the Florida insurance crisis stand today?

The 2005 hurricane season set a new record with 28 named storms. The estimated damages caused by hurricanes Katrina, Wilma and Rita was more than $60 billion. Because of this, reinsurance costs for private insurers have risen significantly. In January 2006, pricing from reinsurers increased by 40 percent, and by July 2006, pricing was up more than 100 percent. This resulted in a lack of property windstorm coverage available from the private insurance marketplace and the rising costs insureds are faced with today when trying to obtain this coverage.

As reinsurance rates for private insurers rise, higher pricing and higher deductibles for windstorm coverage get passed along to insureds. Sometimes, these same insurers will not offer windstorm coverage at renewal to existing policyholders as they attempt to cut back on their capacity in Florida. We are seeing more private insurers not having the capacity to write wind-storm coverage in Florida.

How will the Senate hurricane package impact the property insurance industry and bring about lower premiums for property owners?

Sweeping changes are about to take place. This legislation repeals the planned rate increases by Citizens Property Insurance Corp. and freezes any further rate increases during 2007. The legislation also increases available capacity of the state’s Hurricane Catastrophe Fund (CAT) to $33 billion from $16 billion. Insurers must in turn pass these savings on to their insureds. Additionally, the new law bans ‘cherry picking’ by primary insurers that previously wrote auto insurance but did not write homeowners policies in Florida.

How does the insurance industry interact with Florida government?

As a result of the recently passed legislation, private insurers will be allowed to buy state-backed reinsurance at below-market rates to cover their risks in the event of a hurricane. This is expected to produce average rate savings of 25 percent. It also provides insurers access to more state money to help them pay claims should another major hurricane or storm season strike. In addition, Citizens’ rates are no longer required to be noncompetitive with the private insurance marketplace.

How can property owners help control insurance costs?

One of the best ways for insureds to reduce their property insurance costs is through proper construction and retrofitting to make their properties more hurricane-resistant. By protecting their properties against the potential damage of future storms, insureds can thus expect to pay a lower premium on their property policy. This loss-control measure helps to reduce damage during a storm and in turn reduces the cost of a disaster and the cost to insure the potential damage.

Another way insureds can help themselves is to provide their insurer with as much COPE (construction/occupancy/protection/exposure) information as possible. This includes the type of construction, year built, number of stories, fire and security alarm system information and other facts. This information makes a huge difference in the rating process and does help reduce costs to the insured.

What is the prognosis for Florida property insurance in the future?

In the short term, the sweeping legislative and industry changes on the horizon will bring about much needed relief to policyholders in Florida. As these changes carry some risk, it is not a certainty how long it will last. For example, two years ago, insurance companies burned through the state’s CAT Fund. Most insurance companies are charged to make up that difference with insurers passing those costs on to policyholders. Now that Citizens’ rating methodology is more competitive with private insurers, there is a chance that this may prevent more private insurers from entering the market place.

MIKE COLON is a producer for Hilb, Rogal & Hobbs of Tampa. Reach him at (813) 261-7980 or miguel.colon@hrh.com.