Florida insurance market still a house of cards despite slow hurricane season
By MICHAEL PELTIER
November 29, 2009 at 8 p.m.
TALLAHASSEE — As the 2009 hurricane season uneventfully draws to a close at 12:01 a.m. Tuesday, insurers, regulators and state officials are looking ahead to bolster the house of cards that is Florida’s property insurance market.
Private insurers have had another year with no hurricanes, yet many remain on shaky financial ground as they weather non-hurricane losses and stormy investment markets that have hindered efforts to rebuild surpluses necessary to pay claims from the next big storm.
State regulators have begun to take action against financially vulnerable companies and ratchet up rates at the state-run insurance pool that has become the largest insurer of property in Florida.
Elected officials are eyeing what is politically possible in the short-term to fine-tune a statewide program that provides incentives for owners to hurricane-proof their homes and reduce the state’s exposure to a catastrophic hurricane.
Consumers, meanwhile, are seeing promises that rates would drop largely unfulfilled. Instead, they were more likely to see cancellation notices as insurers pull back or get shut down.
“We’ve gone down the road of cheap insurance,” said Jeff Grady, president and CEO of the Florida Association of Insurance Agents. “The key to having insurance is being able to pay the losses. … I think the cheap insurance crusade of our governor and others is wearing thin.”
Good news: No hurricanes
Looking back, the most obvious characteristic of the 2009 hurricane season was its relative calm.
The slow season couldn’t have come at a better time. Already cash strapped, lawmakers in May rolled back the state’s exposure to hurricane damage by reducing the upper limit of state responsibility by $2 billion. The shedding will continue for the next several years, with the state dropping all $12 billion in additional hurricane exposure by 2014.
Such a ceiling was theoretical at best because given the disastrous credit markets, state officials would have been able to use bonds to cover a $16 billion storm — far from the $24 billion for which the state was on the hook.
National insurers pull back
Marked by a series of withdrawals and belt-tightening, 2009 wasn’t a banner year for expanding the state’s private insurance market.
Nationwide Insurance announced it wasn’t renewing 60,000 policies as it continued to lower its exposure in the state.
Regulators in October took over American Keystone Insurance Co., which was placed in receivership and liquidated following unsuccessful attempts to shore up the 2-year-old company that insured 7,618 policyholders.
“It speaks to how badly this market has been over-regulated,” Grady said. “Since the ‘05 hurricanes, (regulators) have dropped a few hundred pages of laws that have choked the life out of companies that have left and continue to hamper those that remain.”
While Florida regulators said enough is enough for American Keystone, they continue to work with State Farm Florida Insurance in efforts to keep the big insurer from packing its bags, a gauntlet it laid down in January after being denied rate increases it says it needs to handle the risk.
“Our financials were deteriorating even without a storm,” said Justin Glover, State Farm spokesman. “A storm would have just accelerated that decline. Our rates are still woefully inadequate.”
In recent weeks, negotiators from both sides have said they are optimistic that a compromise can be reached that would give the company some of the rate relief it says it needs and allowing it to trim its book of business and shed itself of riskier policies.
State Sen. Garrett Richter, R-Naples, and chairman of the Senate Banking and Insurance Committee, said lawmakers will focus next spring on again trying to make the Florida market more attractive to established insurance providers, including State Farm.
“There seems to be growing support for making it easier for well-capitalized companies to do business in this state,” Richter said.
Lawmakers also are likely to look at mitigation discounts given to homeowners who hurricane-proof their homes. The program, begun with much fanfare, has become unwieldy as the state tries to combat fraud and shrinking premiums.
“The wind mitigation credits have done what they were supposed to do, bring down the premium,” said Dan Dannenhauer, chairman of the Five County Insurance Agency. “The problem is, the premium is now lower than a low-loss year and loss ratios have skyrocketed.”
Citizens begins to reduce
While some insurers struggle to gain market share, the state’s largest property insurer is trying to get smaller.
With 1.1 million policyholders, state-run Citizens Property Insurance Corp. is taking steps to make its rates more actuarially sound and by doing so encourage private companies to re-enter the market. At least that’s the plan.
Earlier this year, lawmakers approved measures allowing Citizens to raise its rates. About 300,000 homeowners living in high-risk areas and getting their wind insurance from Citizens Property Insurance will see their rates increase 5.2 percent beginning in January. Commercial property owners will see rates climb about 9 percent.
The rate hikes are the first of many as Citizens phases in higher rates.
Policy-makers are trying to get rates back to where actuaries say they should be by allowing regulators to boost Citizens’ rates up to 10 percent a year. The effort, though too slow for critics, is at least a step in the right direction, local agents say.
“There is a good dialog now on what needs to be done,” said John Pollock, agency president for insurer BB&T-Oswald Trippe in Fort Myers. “Lawmakers are saying they can’t increase rates by 30 percent, even if that may need to be. Instead, they are saying, ‘Let’s think about the things we can do.”