Hurricanes likely to increase insurance rates.
Home insurance rates in Florida — already increasing thanks to claims abuses — will likely be boosted even more as a result of the unusually active 2017 storm season.
That’s what insurance industry experts are expecting as loss reports roll in from hurricanes Harvey, Irma and Maria, California wildfires, the Mexico earthquake and a series of damaging storms in Europe.
But the good news is most experts are expecting only modest increases resulting from the storm season, and they won’t take effect for most policyholders until 2019 because most 2018 rate requests have already been filed.
In Florida, total insured value of losses from Irma have reached an estimated $5.9 billion, according to the most recent tally by the Office of Insurance Regulation.
Nationwide, catastrophe losses in the nine months that ended Sept. 30 totaled $38.4 billion — dwarfing the $2.3 billion losses in 2016 and exceeding the full-year $36.1 billion loss in 2012, which included Superstorm Sandy, according to a new report from the ratings agency A.M. Best.
Still, the insurance industry remains flush with money, A.M. Best said. “Despite the significant decline in net income, industry surplus grew to $699.8 billion at the end of September 2017, driven by an $11.2 billion increase in unrealized gains, a slight increase in other surplus gains and a 20 percent reduction in stockholder dividends.”
Insurers covering Florida properties reported $1.3 billion in operating losses during the third quarter compared with $349 million in profit for the previous year’s third quarter, according to a tally by risk specialist Guy Carpenter. Of 61 companies tracked, 49 reported losses for the quarter.
The cost of most claims paid by property insurers are underwritten by reinsurance — that’s insurance that the insurance carriers are required to buy — and the Florida Hurricane Catastrophe Fund, a state trust fund created shortly after Hurricane Andrew to protect insurers against insolvency.
Reinsurance rates are certain to rise for companies prior to next June 1, and most of those increases will be passed to property owners in 2019, said Locke Burt, chairman and president of Ormond Beach-based Security First Insurance, one of the state’s five largest property and casualty insurers.
Insurers and reinsurers will begin negotiations over rates for next year’s hurricane season after Jan. 1, Burt said.
Reinsurers will enter those negotiations claiming to have suffered “terrible” losses from Irma and say, “’We need more money,’” Burt said.
Insurers, by contrast, “are going to start out by saying, ‘Yeah, but look at the last 10 years [with no major hurricanes hitting Florida.]’ Reinsurers are sitting on a lot of money from Florida with no claims for 10 years. ‘Shouldn’t that count for something?’
“And they’ll say, ‘No, we were risking our capital.’ ”
Swiss Re, a Zurich, Switzerland-based reinsurance company, warned non-life insurance carriers to expect “substantial” rate increases resulting from an estimated $95 billion in losses from the three hurricanes and the Mexico earthquakes.
With 40 to 60 reinsurance carriers competing for Florida business, Burt said that ultimately, “I don’t think reinsurance rates will be going up as much as the reinsurance underwriters in London and Bermuda hope.”
Joe Petrelli, president of Ohio-based insurance ratings agency Demotech Inc., shares Burt’s opinion that reinsurance rates will increase only moderately despite an active year for catastrophes not only in the U.S. but globally.
Tempering those increases will be competition from insurance linked securities, catastrophe bonds and other alternatives, he added.
Petrelli said that before Irma struck, “there was a point in time when it appeared likely that Irma would strike the Keys and then bisect the Florida peninsula. This would have been unprecedented and, I speculate, an unanticipated path.
“In 2018, this scenario will likely be one of the new additions to the claim forecasting models.”