Written for Florida Insurance Council members by John Rollins of Rollins Analytics in Newberry, Florida

Property market conditions in Florida are poor by several economic measures.  Citizens Property Insurance Corporation, a risk pool backed by nearly all Florida taxpayers, remains the largest property insurer in Florida yet is billions of dollars underfunded for major hurricanes.  Many national insurers are overexposed in Florida, and reducing their market commitment.  Florida-based property insurers have stepped into the breach and collectively written millions of policies since the 2004-05 hurricanes. Florida-based insurers now face a one-two punch of increasing claims costs and declining premiums. This has resulted in the loss of precious claims-paying capital (surplus) and even some insolvencies.

Average premiums per policy have declined over 20% since 2007 and are still dropping. Florida insurers are getting paid over 20% less now for taking roughly the same risk they did when they paid out over $30 billion to rebuild the state after the hurricanes of 2004-05.

Florida-based insurers are currently paying out over $1.20 for every premium dollar written – not a path to success in any business.  The losses have eroded their policyholder protection reserves by over $100 million in 2009 alone.  These losses are driven by several factors.

One major factor behind the premium decline is wind loss mitigation credits of up to 90% per policy.  These credits are aggressively marketed by some inspection firms; a few bad apples perform sloppy or even fraudulent work, misleading consumers to think their homes are much safer than they may actually be.  Expected hurricane losses have not declined proportionately with premiums.

Insurers and the Florida Hurricane Catastrophe Fund continue to face mounting reopened Hurricane Wilma claims, often driven by aggressive public adjusters.  All Floridians pay when a few milk the system. The FHCF is still struggling to close claims from five seasons ago, recently asking for an additional $700 million funded by an increase and extension of the current assessments - hurricane taxes added to nearly all insurance policies - to the year 2016.  Check the front page of your home, auto, and business policies to see how much you are paying.

Finally, sinkhole claims often based on minimal evidence of damage continue to mount and spread around the state, again abetted by public adjusters.  Insurers must spend thousands on geologists and engineers to investigate small cracks and often pay tens of thousands in “replacement costs” to  homeowners who never repair their properties, as current law – unlike that of any other state - prohibits “holdback” of any claim amount until the repair is actually contracted.

Fortunately, legislators have addressed most of these cost drivers in CS/SB 2044, CS/SB 2108 and CS/HB 477. These initiatives improve the wind mitigation inspection process and paperwork, allow insurers to quickly agree with regulators on the proper rate adjustments for reinsurance costs and claims trends each season, tighten the neutral evaluation process for sinkhole claims, and bring Florida law back toward other states regarding management of replacement cost claims.

Most consumers will never get a warm, fuzzy feeling about paying for property insurance.  But we Floridians need to make sure an insurance promise on our largest asset – our homes – is real and strong when bad luck or disaster strikes.  Your legislators are making a good start in returning the market, particularly our hometown insurers, to stability and health.