(The Center Square) – More than 60 mostly independent and often thinly capitalized property insurers are offering policies to 6.2 million homeowners in Florida, a state largely abandoned by major carriers after it was battered by hurricanes in successive years early in the century.
One-by-one, those independent insurers are seeking eye-popping rate increases in hearings before the Florida Office of Insurance Regulation (OIR), citing skyrocketing reinsurance costs, loss creep from 2017 and 2018 hurricanes, coastal flooding and excessive litigation in requesting across-the-board property insurance rate hikes.
The latest to do so is St. Petersburg-based First Community Insurance Co., operated by Texas-based Bankers Insurance Group, which submitted a proposed a 24.1% rate hike for its Florida homeowners, including thousands of policyholders in The Villages.
State law requires insurers appear before the OIR if they propose rate increases of more than 15%.
From 2013-19, only one did so. Since December, however, at least 10 insurers have requested rate hikes topping 15 percent. They include:
• Edison Insurance Co., nearly 22%;
• Velocity Risk, 28%;
• National Specialty Insurance Co., 23%;
• Capitol Preferred Insurance Co. (CPI), 26.2%;
• Southern Fidelity Property & Casualty (SFPCI), 31.1%;
• First Community Insurance Co., 24.1%.
The only rate increase approved by the OIR so far year is National Specialty Insurance Co.’s request for a 23% rate increase, initially submitted for 28%.
First Community Insurance cited rising reinsurance costs as one reason for its rate increase request. The company wants the rate to become effective for new policies Sept. 1, with an effective date of Sept. 21 for policy renewals.
The rate hikes would affect policies written before October 2018. Bankers Insurance LLC has been servicing all First Community policies since Nov. 1, 2018.
Numerous other carriers have filed for increases just under the 15% threshold. Security First, which initially sought a 17.5% increase, raised premiums by 12.8% and didn’t renew 5,000 policies.
Universal Property and Casualty, the state’s largest carrier, has filed for a 12.4% increase; People’s Trust, 10.9%; AIG, 9.6%; Florida Family, 6.5%; and FedNat, 5.5%.
The OIR approved in May Tallahassee-based CPI’s request to “shed” 23,800 policies it inherited from SFPCI in February 2019, leaving it with 84,000 Florida policies “to protect the best interests of the public and policyholders.”
CPI initially proposed a 47% increase, amended it to 36.5% and then 26.2% after the OIR issued a consent order May 12 allowing it to drop the 23,800 policies because the carrier “will continue to generate unsustainable losses” without the cancellations.
Florida’s insurance structure is based on “reinsurance,” essentially insurance for insurers, because many of the independents that emerged when major carriers abandoned the state after the 2004-05 hurricane seasons are thinly capitalized.
Many rely on private capital from hedge funds and other sources, essentially gambling against hurricanes.
After a decade without a landfall hurricane, Hurricane Irma in 2017 caused $17 billion in damage and Hurricane Michael in 2018 caused $12 billion in damage, ending an era of “soft pricing.”
Because Florida allows claims to be filed three years after an event, reinsurers are hedging bets by requesting carriers raise rates between 25%-45% to account for loss creep from 2017-18 storms.
To relieve pressure on the property insurance market, the State Board of Administration has agreed to issue $2.25 billion in bonds, with proceeds going to the Florida Hurricane Catastrophe Fund – a tax-exempt trust that lowers reinsurance costs for private insurers and funds the Citizens Property Insurance Corp., the state-owned insurer of last resort.
The state’s catastrophe fund has $11.4 billion in it, but it is allowed by state law to grow to $17 billion.