State Property Insurance Plans Face Increased Exposure

Florida and Louisiana have reduced the number of policyholders covered by their state-run property insurers of last resort since 2008 but non-coastal property owners remain vulnerable to paying for these same insurers’ potential coastal losses.

Florida Citizens Property Insurance Corp. saw the number of its total policies drop to 1.2 million at year-end 2009, down 14 percent from 1.4 million at year-end 2008. Louisiana Citizens Property Insurance Corp. had a reduction of around 40 percent.

But even though the number of policies is dropping, the exposure base continues to grow, according to the Insurance Information Institute’s updated report, Residual Market Property Plans: From Markets of Last Resort to Markets of First Choice.

The III estimates that, even as the number of policyholders in Florida, Louisiana and the 32 other Fair Access to Insurance Requirements (FAIR) Plans for which data are available dropped to 2.47 million from 2.62 million between 2008 and 2009, their cumulative exposure to loss grew to $614.9 billion in 2009 from $612.7 billion in 2008.

When the FAIR Plan exposures are added to those incurred by beach and windstorm plans, such as those in Alabama and Mississippi, the U.S. residual market exposure to loss grows to $703 billion (2009) from $696 billion.

The two main capital raising options for state plans are levying assessments on all policyholders and issuing bonds, costs that are passed along in the form of premium surcharges or higher taxes.

“Increasingly plans are being bailed out by a diversion of tax revenues,” the III report states, noting that in 2008, after Hurricane Ike struck Texas, $230 million in assessments incurred by the Texas Windstorm Insurance Association’s member insurers were subject to premium tax credits.

The report also notes that Mississippi in 2007 allowed a diversion of $80 million in federal and state funds to its state windstorm insurance pool to boost its reserves.