Florida to Report on Effect of Reinsurance Savings on Homeowners’ Rates

October 30, 2013

Florida Chief Financial Officer Jeff Atwater wants to know why home insurers are not passing along to insureds apparent savings they are realizing on reinsurance.

The state’s insurance regulator says he will let Atwater know next month.

Atwater sent a letter to Florida Insurance Commissioner Kevin McCarty yesterday asking the regulator to initiate a study on how much insurers are saving on reinsurance and how they are utilizing those savings.

“Year after year, insurance companies have been telling their customers and the Legislature that the ‘simple’ explanation for the higher rates they are charging was due to reinsurance costs going up,” Atwater wrote. “Furthermore, they made representations that if reinsurance rates were to fall they would pass those savings along to their customers. But now that insurance companies are experiencing a significant decrease in the cost of their reinsurance, they are not lowering rates for consumers.”

Atwater said he is aware of the need for insurers to carry adequate reinsurance and that the Florida laws allow insurers to purchase enough reinsurance to cover a 1 in 250 year storm. However, he said that McCarty has told him that “companies have rarely if ever purchased reinsurance to cover a 1 in 250 year storm.”

Atwater asked for McCarty’s analysis by Dec. 18.

In a letter to Atwater the same day, McCarty responded that an analysis of reinsurance savings and how they are affecting Florida homeowners is already underway and should be ready by Dec. 18.

This is not the first time Atwater has pressed McCarty on why lower reinsurance costs have not translated into reduced homeowners rates.

In August, McCarty responded to questions from Atwater, saying insurers have significant leeway in how they incorporate those costs into rates and any changes can take a significant amount of time to implement.

McCarty said there are a number of reasons homeowners may not be seeing any premium reductions due to decreases in reinsurance costs. The reasons, McCarty said, extend from both from the requirements and limitations of state regulations and the fact that each individual insurer has different reinsurance needs.

Florida has no firm rule that insurers must follow when calculating their reinsurance needs. It is up to each individual insurer to decide how much reinsurance to purchase, an amount that can vary from insurer to insurer based on its hurricane exposure, available capital, and other factors, according to the commissioner.

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