Roughly four weeks into this year’s hurricane season, a guessing game pertaining to Florida fl homeowners insurance has already begun. For the past five years, Mother Nature has spared the Sunshine State from the brunt of her whimsical wiles. No major hurricane has hit its shores during the last half-decade. Experts expect things to change very shortly, however. A 72 percent probability that Florida will receive a visit from at least on of the three to six major storm systems brewing in the Atlantic.
Even if Florida wins the weather lottery again this year, there are nearly half a dozen reasons why homeowner’s insurance rates will likely rise across the state:
1. The reinsurance arena has been especially hard hit by non-Floridian disaster. “Reinsurance” denotes insurers’ insurance. Carriers must protect themselves from catastrophic economic loss just as their customers do. As part of insurers’ operating overhead, individual policyholders ultimately absorb reinsurance costs.
Recent tornadoes in Missouri and Alabama have sucked more than $70 billion from reinsurers’ coffers. Such loss must be recouped somehow. Insurance industry analysts predict a rise of up to 10 percent for reinsurance by the middle of this summer for US issuers of property and casualty policies.
2. Newly-devised hurricane models
Homeowner’s insurers estimate risk exposure by projecting probable storm damage levels via various simulation methods. Popular hurricane modeling firm Risk Management Solutions recently released a new storm model. This revised model reveals higher risk for Florida property insurers than was previously realized. Consequent higher levels of reinsurance costs will ultimately pass onto consumers.
3. Pro-Insurance Politicians
The political climate has shifted considerably in Florida’s capital city of Tallahassee. State Insurance Commissioner Kevin McCarty recently endorsed double-digit rises for several private insurers within the last two years. Likewise, Governor Rick Scott has publicly supported rate hikes for Citizens Property Insurance (“CPI“), the state-sponsored insurer for those unable to locate private coverage. In addition, recent legislation allows across-the-board premium increases of up to 15 percent to offset higher private insurer reinsurance costs.
4. Increasing CPI Premiums
New state legislation permits Citizens Property Insurance to raise homeowner’s premiums by up to 10 percent each year. Although a bid that would have allowed increases of up to 25 percent annually has failed, CPI has admittedly been “on a mission” to increase premiums to become “actuarially sound.” This is very significant, as CPI is Florida’s dominant insurer. Roughly 1.3 million active policyholders fill its rosters. As such, CPI is a pacesetter for all other Florida insurers.
5. Non-storm expenditures
Increased sinkhole claims have been the single-largest cause of rising Florida fl homeowners insurance rates during the last two years. Legislation is pending to increase homeowners’ portion of testing costs. Despite this, many insurers have claimed substantially increased sinkhole payouts while awaiting the new law’s final passage. Undoubtedly, post-legislative premium rates will be impacted by these increased payouts.