The State of Florida’s Insurance Market: Welcome to the Thunderdome
Below is a reprint of a recent agent’s newsletter from Olympus Insurance Company. Olympus is a leading provider of Homeowners Insurance in Florida.
The newsletter provides excellent insights into the current Homeowners Insurance crises. Olympus is a valued partner of our agency and we appreciate Olympus’s approval to share this confidential document.
State of Florida Market—Welcome to the Thunderdome
(from Olympus INK Newsletter, July 2020)
That’s right ladies and gentlemen, we have now entered an insurance gladiatorial arena where fraud, social inflation, hurricane losses, and reinsurance rate increases are mitigated through fierce exposure management action and rate filings.
To understand the current tumultuous state of the property market, we must first examine what exactly has happened in the Florida homeowners realm over the past rolling 12 months:
- 34 carriers (at least) filed for and/or took rate increases
- 22 carriers closed for new business either across the state or in specific counties
- 10 carriers implemented minimum “year of construction” changes either state-wide or county-specific
- 10 carriers implemented minimum “roof age” changes either state-wide or county-specific
- 9 carriers added water damage limitations
- 9 carriers changed their Coverage A minimums either state-wide or county-specific
Now let’s talk about why:
1. Significant reinsurance pricing increases due to the following:
- Global Catastrophe Activity
- According to Aon, the world’s leading reinsurance broker and intermediary, there were 409 natural disasters worldwide in 2019, including 158 flooding events and 114 severe weather events. They also noted 33 tropical cyclones and 32 earthquakes, with additional losses from winter weather, wildfires, Euro windstorms, droughts, and “other perils.” Natural catastrophes worldwide totaled $71 billion in 2019.
- Adverse Development from Irma and Michael
- Insurance companies continue to see claims filing in, specifically from 2017’s Hurricane Irma, which is now approaching $27B in property loss across 5 US states, Puerto Rico, and the Virgin Islands ($20.9B in Florida alone). Hurricane Michael has exceeded $6B.
- Reduction in Overall Reinsurance Capital due to COVID
- Capital markets have begun de-risking their balance sheets, holding onto their cash instead of investing in the Florida markets. According to S&P, “Pandemic-related losses, combined with volatile capital markets, and lower investment returns, will likely prevent the global reinsurance sector from meeting earnings expectations for 2020. Once again, the sector will not earn its cost of capital this year, bearing in mind it has struggled in the past three years to do so due to large natural catastrophe losses and fierce competition.”
- Trapped capital in the “retro” reinsurance markets
- A recent report from Aon Benfield estimated that “around $15B of collateral remains trapped in the wake of recent major natural catastrophe events. The reduced amount of capacity available for deployment is impacting the retrocessional market.” Retrocession, or “retro”, reinsurance refers to reinsurance for reinsurers. Trapped collateral and capital from insurance-linked securities (ILS) funds and other third-party capital backed reinsurance entities was expected to be a key catalyst for 2020 renewals. In the end, this lack of available capital proved to be a rate driver for the primary markets as evidenced in part by the rate filings occurring across the board for insurers.
2. Carrier Loss Experience: Roof Claims and Social Inflation
Social inflation, one of the latest buzzwords to hit the property market, is no laughing matter. It’s a phrase used by insurers to describe the rising cost of claims due to things like increased litigation, broader definitions or liability, and insured behavior. In an article in “Insurance Business Magazine,” Bethan Moorcraft described that, for insured who engage in social inflation, “there’s just generally a feeling that someone needs to pay when there’s some kind of damage or injury sustained, regardless of negligence.”
Although there are enough legitimate roof claims to feed reputable roofers. There are enough disreputable roofers to create social inflation around older roofs. These contractors/roofers canvas neighborhoods, convincing homeowners to file weather claims on roofs which are simply aged or worn. The net result of this behavior is just what we are seeing now: carriers refusing to insure roofs older than 10 years, coverage limitations, and major rate increases on older roofs. According to the National Information Crime Bureau (NICB), Florida is among the top 5 states with the highest rate of questionable insurance claims (QC). These are claims in which insurance companies refer for additional investigation based upon one or several indicators which may imply fraud. If this issue is not addressed through either rat or legislation, Florida will continue to see exposure management action from carriers with regards to roof age.
This newsletter contains trade secrets of Olympus Insurance and is to be treated as confidential.
OLYMPUS INSURANCE COMPANY SPECIFICALLY DISCLAIMS ANY AND ALL RESPONSIBILITIES, OBLIGATIONS, AND LIABILITY WITH RESPECT TO ANY DECISIONS OR ADVICE MADE OR GIVEN AS A RESULT OF THE INFORMATION OR USE THEREOF, INCLUDING ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, WARRANTIES OF NON-INFRINGEMENT, MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL OLYMPUS INSURANCE COMPANY (OR ITS PARENT, SUBSIDIARY, OR OTHER AFFILIATED COMPANIES) BE LIABLE FOR DIRECT, INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES WITH RESPECT TO ANY DECISIONS OR ADVICE MADE OR GIVEN AS A RESULT OF THE CONTENTS OF THIS INFORMATION OR USE THEREOF.
Burke, Bogart, and Brownell, Inc. is a 47-year young Independent Insurance Agency. The agency provides educational information as a professional courtesy and consumer benefit. Contact Lee Burke at [email protected]