It's not an unusual problem at this time of year. We're a few months from June 1, the official start of hurricane season, at least as far as the insurance industry is concerned. Through April and May, the Florida legislature will rush to nail down details pertaining to Citizens Property Insurance Corporation, the state entity that provides insurance to some homeowners (usually when risk is too high for private insurers to accept), and the Florida Hurricane Catastrophe Fund, which provides some reinsurance protection to carriers writing property-catastrophe risk in Florida. And even earlier, the editorials start to fly. There are concerns over whether homeowners will get sufficient coverage. There are questions about thinly capitalized Florida carriers. This is an annual ritual, of sorts, and 2010 is no different. Already, the Sarasota Herald-Tribune is raising the issue of whether some local carriers are sufficiently capitalized. Ultimately, this isn't much of a problem – unless a hurricane hits.
But, there appears to be some cause for alarm. In the past year, six property insurers in Florida have failed, and there are calls for the legislature to ensure that insurers are sufficiently capitalized to underwrite businesses that they can cover. One in three insured homeowners, according to the Herald-Tribune's research, "relies on insurers that exhibit one or more signs of financial risk."
Of course, insuring Florida properties is a tricky business, given the state's history with hurricanes. In 1992, Hurricane Andrew caused a hefty amount of damage in South Florida, and storms in 2004 and 2005 caused even more financial woes for insurers. Florida's Citizens company was formed to insure homes that private carriers believe are too risky, and the FHCF was launched to provide reinsurance coverage to the market. A common spring refrain, both are said to be "seriously underfunded."
Meanwhile, national companies are continuing to leave the state. According to the Herald-Tribune, only 71% of the coverage for homeowners in Florida comes from the Florida subsidiaries of national carriers. An attempt last year to allow national carriers more flexibility in setting their rates was vetoed by Governor Charlie Crist. The bill has been raised again this year.
Smaller insurers are feeling the squeeze. The Miami Herald reports that several startup insurers in the state are "headed for insolvency, leaving tens of thousands of homeowners looking for a new company as hurricane season approaches June 1." Regulators are trying to find ways to cobble them into larger insurers to minimize the effects on policyholders.
Part of the problem, according to the state's insurance agency, is that a company can get off the ground with a mere $5 million in capital. Carriers have to keep at least $4 million in reserve to pay claims, though critics believe the minimum should be up around at least $25 million.
The run-up to the beginning of hurricane season will be interesting, as it usually is. A year ago, we watched an insurance industry that had lost a considerable amount of capital, a debate over the rates Citizens can charge and worries about how high the confluence of hurricane risk and financial mayhem -- including the near-collapse of American International Group (AIG) and the acquisition of Merrill Lynch by Bank of America (BAC) -- the year before would push reinsurance rates. This year, financial stability takes some of the sting out for the larger insurers in the market, but Florida is a small carrier's game, and we could be in for a bumpy ride.
Of course, insuring Florida properties is a tricky business, given the state's history with hurricanes. In 1992, Hurricane Andrew caused a hefty amount of damage in South Florida, and storms in 2004 and 2005 caused even more financial woes for insurers. Florida's Citizens company was formed to insure homes that private carriers believe are too risky, and the FHCF was launched to provide reinsurance coverage to the market. A common spring refrain, both are said to be "seriously underfunded."
Meanwhile, national companies are continuing to leave the state. According to the Herald-Tribune, only 71% of the coverage for homeowners in Florida comes from the Florida subsidiaries of national carriers. An attempt last year to allow national carriers more flexibility in setting their rates was vetoed by Governor Charlie Crist. The bill has been raised again this year.
Smaller insurers are feeling the squeeze. The Miami Herald reports that several startup insurers in the state are "headed for insolvency, leaving tens of thousands of homeowners looking for a new company as hurricane season approaches June 1." Regulators are trying to find ways to cobble them into larger insurers to minimize the effects on policyholders.
Part of the problem, according to the state's insurance agency, is that a company can get off the ground with a mere $5 million in capital. Carriers have to keep at least $4 million in reserve to pay claims, though critics believe the minimum should be up around at least $25 million.
The run-up to the beginning of hurricane season will be interesting, as it usually is. A year ago, we watched an insurance industry that had lost a considerable amount of capital, a debate over the rates Citizens can charge and worries about how high the confluence of hurricane risk and financial mayhem -- including the near-collapse of American International Group (AIG) and the acquisition of Merrill Lynch by Bank of America (BAC) -- the year before would push reinsurance rates. This year, financial stability takes some of the sting out for the larger insurers in the market, but Florida is a small carrier's game, and we could be in for a bumpy ride.
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