Citizens, Florida's state sponsored and largest property insurer, will receive a Task Force recommendation for approval of a 10% rate hike in 2009. http://www.tampabay.com/news/business/banking/article960143.ece
Fundamentally, all hurricane prone states will continue to struggle with the data and hurricane modeling that is necessary to guide industry and its regulators when determining the inherent risk assumed by wind insurers and properly included in premium calculations. The bottom line is that two forces are combining to drive up the cost of wind coverage, neither of which is likely to go away in the near term. First, the southeastern US is experiencing an increase of named wind storm activity over the past four years. Secondly, the poor performance of investments on catastrophe reserves means that the premium will increasingly need to reflect the risk assumed without a major discount for expected return on invested reserves.
The good news peculiar to Florida is that since 2004/2005 it has seen relatively good years for industry to stabilize without the immediate impact of a major loss event. While Fay did dump an enormous amount of rain last year, this storm did not have the wind and coastal wave action that a major windstorm also provides. These more recent years have given Florida an opportunity to create a reinsurance program with state guarantees and "catch its breath".
Moreover, these more quiescent years have seen an increase in the formation of small insurers designed to take out proportionately smaller areas of risk than the hugely consolidated risks held by the major carriers such as State Farm and Allstate in 2004/2005. The major carriers have reduced their exposure in Florida and this gap is being filled by Citizens and the new upstart insurers.
As the insurance market equalizes to an economically acceptable holding of the risk among the industry participates, it is even more important that regulators scrutinize the premiums charged as market appropriate AND that the financial solvency of the carriers is maintained to meet the claims of policyholders when the next major windstorm hits. Madoff and his multi-billion dollar ponzi scheme is an example of what can happen when investors pay in and regulators fail to scrutinize how the money flows within the organization. Premiums must reflect the risk in order to have a healthy insurance industry capable of meeting claim demands. Consumers will have to pay this price. State regulators must make sure that these payments will bring the promised protection in a time of need.
We trust that those so charged to watch out for the public's interest will watch all three phases of the money exchange: that the premiums charged are fair and necessary, the premium is properly managed and reserved in accordance with the risk assumed, and that the premium results in the prompt, fair payment of covered losses.
Florida, like many coastal states, continues to face complex challenges as the coastal development and increased storm activities present a greater need for a viable property insurance industry. Governor Crist has demonstrated an incredible sensitivity to the importance of a responsible property insurance industry to the economic future of our state. We are fortunate to have someone in our highest office who does care so much about this issue. We can now hope that 2009 is a safe and happy year and that the State's efforts to manage its property insurance industry are not "storm tested".
Best wishes for a Happy, safe and healthy New Year!
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