No hurricanes, so why aren’t premiums going down?
So what gets your dander up? Taxes? Politics? Insurance? The answer is D, all the above. Logic flies out the window when we try to understand these three.
For the past three years, we have been safe and sound in the great state of Florida, avoiding the “inevitable” hurricane that was promised by so many experts and computers. It appears the great gurus were wrong but so far we haven’t seen any relief from high premiums we have become accustomed to. It’s similar to the airline industry. When the price of fuel caused new innovative ways for the airline industry to justify charging for baggage and snacks, we became accustomed even as fuel prices lowered.
So what gives? Why are we still paying so much? Like oil and water, insurance and politics don’t mix. Free enterprise and competition can and does work but with legislative regulation strapped to it back, the industry can only do so much. Insurance carriers are required to file their rates with Florida’s Office of Insurance Regulation. An insurance carrier is only allowed to charge “state approved” rates within a defined range. The state sees this as a good thing and protecting Floridians from insurance carriers charging too much after a catastrophe in an effort to refill the coffers. On the other hand it forces carriers to hold the rates high in preparation for the next catastrophe. You see, we can have 10 years of no hurricanes but in year 11, the “big one” could wipe out the past 10 years of profits and then some. That’s what happened in 2004 and 2005.
Reinsurance premiums also play a role. Reinsurance is another form of insurance protection that insurance carriers purchase, to minimize their risk just as you and I would when purchasing homeowners insurance. If reinsurance rates remain high, they are passed along to the consumer. Reinsurance is where the “big money” is. It is a vital tool for the insurance system to work correctly and will directly affect your wallet. Reinsurance dollars are affected by worldwide events and not limited to just Florida hurricanes. I know, you’re reaching for the Advil, but this is relevant material.
Our governor didn’t help Florida’s cause when he was successful implementing an assessment on insurance carriers doing business in Florida. If and when the “big one” hits, insurance companies selling property insurance in Florida will have to pony up and help bail out the state in the event Citizens Insurance Co., your taxpayer-owned insurance company, and ticking time bomb, or the Florida Guarantee Fund cannot meet its obligations. This means carriers will pay their own claims and immediately become a bank for the State of Florida. That sucking sound you hear is the insurance industry high tailing its butt out of Florida and leaving just a few players keeping premiums high.
You know what will make you even madder? Texas, Louisiana and Mississippi aren’t experiencing these issues. Chuck, quit sticking pins in your State Farm voodoo doll and attract free enterprise instead of finding ways to run it out of Florida.
Andy Gregory, a co-owner and president of Des Champs & Gregory, Inc., with offices in Bradenton and Lakewood Ranch, specializes in commercial property and casualty insurance and can be reached at (941) 748-1812 or by e-mail at email@example.com.