Sun Sentinel Palm Beach Edition
Experts warn of insurance hikes
Irma’s costs are still rising, and so could the cost of your policy
South Florida homeowners could be in for another round of property insurance rate hikes, thanks in part to “creeping” loss increases from Hurricane Irma back in September 2017, experts are warning.
Losses from Irma, the fifthcostliest Atlantic hurricane, are now 26 percent higher than originally estimated, according to data from Jardine Lloyd Thompson Group PLC, a London-based provider of insurance advice and brokerage services.
Also exceeding estimates are losses from 2017 hurricanes Maria (25 percent) and Harvey (17 percent), Tampa-based reinsurance broker COIN Re said in a Feb. 19 news release.
Estimated insured losses from Hurricane Irma increased in Florida by 14.2 percent — from $9.7 billion to $11.1 billion — between
June and November 2018 despite the number of claims increasing by just 2.5 percent, the most recent tallies by the Florida Office of Insurance Regulation show.
For example, Sunrisebased FedNat Holding Co., in addition to announcing a net loss of $23 million driven by Hurricane Michael in the fourth quarter of 2018, also said Thursday it increased its Hurricane Irma loss estimate from $634 million to $695 million.
The increased losses, combined with the ongoing crisis stemming from excessive claims and litigation over non-weather-related water losses in Florida, will force insurers to raise rates so they can build up adequate reserves in preparation for this year’s hurricane season, the release said.
“These late-breaking losses are collectively known in the trade as ‘loss creep,’” COIN Re CEO E.W. “Ted” Blanch was quoted in the release as saying. “The factors contributing to it are not only affecting insurers and reinsurers; they are taking money out of the pockets of Florida homeowners.”
The increased hurricane costs result partly from expenses of processing claims, including hiring private investigators to verify that homeowners told the truth when reporting, as an example, that their front porch was swept away in a storm, the release said.
South Florida-based Hurricane Irma claims are taking longer to resolve than claims in the rest of the state, the Office of Insurance Regulation’s data shows. About a quarter of all claims are from Broward, Palm Beach and MiamiDade counties. Of them, 14.7 percent remain open. Just 5.2 percent remain open in the rest of the state.
Loss adjustment costs also include attorneys fees incurred when disputes over claims end up in the courts.
Litigation has increased significantly in recent years over disputes involving repair contractors working under a third-party claims assignment, or assignment of benefits, the report said.
When losses from particular events reach a predetermined threshold — comparable to a deductible for individual policyholders — insurers recover any additional losses from their reinsurers.
Insurers’ cost for reinsurance — which is insurance that carriers buy to avoid being bankrupted by claims from any single year of losses — did not significantly increase on average for coverage purchased at the beginning of 2019, the trade website Reinsurance News reported.
That’s because the supply of investment capital willing to fund reinsurance continues to exceed demand, keeping the cost of that capital low, insurance ratings firm Demotech said in a Feb. 27 statement.
While Reinsurance News called the lack of price increases “disappointing” to investors, it said it expects larger price increases for renewals that would take effect in spring and summer, before the height of hurricane season, for insurers that sustained losses last year.
Demotech, meanwhile, projected that insurers affected by hurricanes Matthew, Irma and Michael could report operating and underwriting losses in their year-end financial statements.
That, in turn, will lead to rate increases for homeowners as the companies adjust rates to ensure they have adequate reserves going forward, the company said.
Asked by email whether he expects increases to reinsurance premiums — which consume between 40 percent and 60 percent of every premium dollar spent by policyholders — Demotech CEO Joe Petrelli said he would “defer to the reinsurance and insurancelinked securities community.”
Jay Neal, president and CEO of the Fort Lauderdale-based Florida Association for Insurance Reform, said he expects reinsurance rates to increase from 4 percent to 10 percent, which would be passed to policyholders as increases of 2 percent to 5 percent, in addition to increases some companies likely will impose to cover losses.