Florida’s top insurance regulator says that state residents are starting to benefit from a more competitive homeowners market as rates have started to trend downward due in part to the reduction in reinsurance costs.
Florida Insurance Commissioner Kevin McCarty released a 13-page Office of Insurance Regulation (OIR) report finding that some of the state’s largest property insurers are starting to lower their overall rates as the result of falling reinsurance rates.
“The good news reflected in this report is that the trend in Florida homeowners market is positive,” wrote McCarty. “Florida homeowners are benefiting from lower reinsurance costs and the market as a whole is more robust and competitive.”
McCarty’s report was in response to a letter by Florida Chief Financial Officer Jeff Atwater last August in which the Cabinet officer questioned why after a decade of rising homeowners premiums due primarily to rising reinsurance costs, those premiums are not being reduced due to a corresponding drop in reinsurance expenses.
“If insurance companies can justifiably raise rates on Florida families because the reinsurance market drives the cost up, they can certainly lower the cost for Florida families when reinsurance prices fall,” said Atwater.
Atwater wrote that “Floridians not only deserve an explanation for why they have not seen any savings to date, they also deserve to quickly begin seeing property insurance savings in their bills.”
The OIR report is based on the top 30 private homeowners’ insurers that represent 70 percent of the state’s overall market. Of those 30 companies, 15 insurers have submitted rate filings that are based on their 2013/2014 reinsurance costs, while the other 15 insurers are scheduled to submit their filings later this year.
All five of the insurers that have been approved to lower their overall rates have reported lower reinsurance costs.
Universal Property & Casualty Insurance Co., the state’s largest private insurer, has reduced its rates by a statewide average 2.4 percent, which includes a 15.9 percent reduction in reinsurance costs. Security First Insurance Co. has lowered rates by 9.2 percent that reflects a 4.9 percent decrease in reinsurance costs.
ASI Preferred Insurance Co, has lowered rates by 7.8 percent based on over a 25 percent reduction in reinsurance expenses. Ark Royal Insurance Co., and American Strategic Corp., have likewise reduced their overall rates based on similar numbers.
The report notes that other insurers have rate filings pending that are expected to result in overall rate decreases.
Absent from the report, however, is any information on the state-run Citizens Property Insurance Corp., which with its estimated one million policyholders represents more than 20 percent of the market.
In 2013, Citizens received a statewide average 6.3 percent rate increase. In the last several years, the insurer has been aggressively purchasing both reinsurance and issuing catastrophic bonds to decrease the possibility of policyholder assessments.
CFO Atwater said the report offered some positive news, as the rate reductions should result in a more competitive market and better-informed consumers. However, he said, more work remains to be done.
“The commissioner made it clear, barring any catastrophic event, he has every expectation that these lower reinsurance costs will be reflected in lower rates for consumers in future rate filings,” said Atwater in a statement. “I share the commissioner’s expectations. Florida deserves rate relief.”
Even as the report shows that insurers are starting to incorporate the reduction in reinsurance in their rate filings, some entities are defending why those changes might not lead to an overall reduction in rates.
Joseph Petrelli, president of the insurance rating and actuarial firm Demotech Inc., in a letter to Atwater, spelled out a number of reasons insurers may choose to use the reductions in reinsurance coverage to address other costs.
Petrelli said that insurers and consumers benefit if insurers choose to use savings in reinsurance costs to purchase additional coverage. That is especially true, he said, at a time when policymakers are urging the private market to increase its market share by removing policies from Citizens.
Additionally, Petrelli said, reinsurance costs are just one factor in a rate filing. Some insurers, he said, are still working to reach actuarially sound rate levels. Insurers also face other rising costs, such as an increase in claims’ expenses due to rising repair costs, Petrelli said.
“Upward pressure on premiums from the underlying costs of repairs and the ongoing annual purchase of a substantive, conservative reinsurance program does not lend itself to across the board rate decreases,” wrote Petrelli.
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