Why property insurance could keep rising in Florida
June 1 is the start of hurricane season. It's also a deadline for Florida property insurance companies to get their reinsurance in place.
- Of the money insurance companies rake in from premiums, they can wind up spending more than half of that on reinsurance, David Paul, principal of ALIRT Insurance Research, tells Axios.
- Companies have gone insolvent and rates have skyrocketed.
- A recent ALIRT report shows problems have been brewing since Hurricane Andrew in 1992. Reinsurers finally "cried uncle" this year, hiking prices or considering just leaving the state.
Context: Inflation, fraud, litigation, and Hurricane Ian — "the second costliest insured loss ever on record globally" according to a report by the American Property Casualty Insurance Association — all contributed to reinsurers backing away.
Yes, but: The state legislature passed reforms to reduce lawsuits against and costs for insurance companies, which should help lower rates.
- Critics have characterized these reforms as a giveaway to insurance companies.
What they're saying: Bruce Lucas, founder and CEO of Tampa-based Slide Insurance, tells Axios reinsurance has a domino effect on the economy.
- Insurance companies need reinsurance to be rated "A." Most people with mortgages are required by lenders to buy insurance from only A-rated firms.
- Without the reforms, "there would be a cataclysmic event taking place here in two weeks," Lucas says. Some insurance and reinsurance companies would likely have stopped doing business in the state.
Between the lines: Seeing the opportunity to charge higher prices, Berkshire Hathaway decided to offer more reinsurance this year, Barron's reports.
- The firm could lose as much as $15 billion if a hurricane hits Florida. But if not, "we’ll make several billion dollars as profit," said Ajit Jain, Berkshire’s head of insurance operations.
What's next: Even if reinsurance remains expensive, in about 18 months the reforms will kick in and lawsuits will die down, Lucas predicts.
- That will save insurance companies money and consumer rates could then drop substantially.
💭 Deirdra's thought bubble: I insured a townhouse last year for $2,877 and just got a quote for this year: $6,394.
- "It'll probably double for next year" — but then go down, Lucas says.
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