The purpose of reinsurance is to protect insurance companies from excessive losses due to claims. In Florida, however, reinsurance has been insufficient due to losses associated with hurricanes. Therefore, insurance companies are increasing insurance rates while not renewing some policies to reduce risk.
For example, 2017’s Hurricane Irma was estimated to cost $9 billion. Insurance companies ended up paying out $17 billion. Hurricane Michael in 2018 cost another $7.9 billion in losses for insurance companies.
Customers Are Feeling the Pressure
The rate hikes resulting from natural catastrophes are causing insurance companies to act. Raising insurance premiums has not been sufficient to make up for losses. Areas frequently in the path of storms are proving cost-prohibitive while companies are not bringing in enough cash flow to cover the losses.
Earlier this year, Capitol Preferred Insurance Company received approval from the state to drop approximately 23,800 unsustainable properties in addition to raising rates. The firm squarely pointed to reinsurance costs as the reasoning for this, stating that they would need to increase prices by 47% in some cases to continue doing business. That rate was later reduced to 36.5%.
The average rate increase across Florida is 33.5% among all insurance companies. One insurer, Security First, raised premiums 12.8% after seeing a 17.5% increase in their reinsurance rates. The company also dropped 5,000 homeowner policies.
Other companies may not be dropping policyholders, but none are lowering their rates. Among the companies raising rates:
Velocity Risk 28%
National Specialty Insurance Company 28%
Edison’s Insurance Company 22%
Universal Property and Casualty 12.4%
People’s Trust 10.9%
Florida Family 6.5%
High-Risk Areas Are Being Closed
Many insurance companies are not providing homeowners insurance policies in high-cost ZIP codes at higher risk for hurricane damage. The scarcity of insurance companies willing to issue policies in certain high-risk areas will probably result in higher rates for homeowners insurance.
Citizens Property Insurance Company, the state-owned insurer, plays a large role in this area. They are now the second-largest insurer in Florida. Citizens is a non-profit, tax-exempt, government entity that provides property insurance to eligible Florida property owners unable to find insurance coverage in the private market.
The Sunshine state’s significant losses due to hurricanes are catching up with insurance providers. To adapt, insurance companies are raising rates and not renewing some policies to lower their risk.
Now is a good time for homeowners to consult their insurance agent to understand how these insurance industry changes could affect them in the future.
ABC Dennis Insurance
ABC Dennis Insurance is an independent insurance agency established in 1997 that provides homeowners insurance to its customers. If you have not reviewed your insurance coverages this year, please call our office at (813) 949-7765 or email us.
Besides homeowners insurance, we can help with all your insurance needs. As an independent agency, we find the best insurance coverage with the most competitive rates.