Fort Myers New Press
August 28, 2011
When the Atlantic Coast and Northeast are cleaned up and insurance claims settled from Hurricane Irene, Florida homeowners could see a bump in insurance rates.
That increase won’t be extraordinary, such as what came after hurricanes struck in the last decade.
Don Brown of DeFuniak Springs, a former state legislator who was chairman of the House Insurance Committee and is a noted national insurance expert, said since Irene missed Florida and aimed its fury to the north, any impact on higher rates would be because of reinsurance.
“You might see some upward pressure on reinsurance,” Brown said. “It’s unlikely there would be any immediate impact. It would down the road.”
Reinsurance is insurance that is purchased by one insurance company from another for risk management, transferring risk from the insurer to the reinsurer.
“When compared to the tsunami in Japan and the earthquakes in New Zealand … there is a global system system of catastrophic losses that reinsurers have to cover … the direct impact of the hurricane would be very minimal,” he said.
Brittany Perez, a spokeswoman for the Florida Office of Insurance Regulations, agreed.
“I would hesitate to say it would have any effect,” she said from Tallahassee on Friday, referring to the damage Irene is causing north of Florida.
Insurance experts say there is a mistaken impression property insurers in Florida can arbitrarily raise their rates based on hurricane damage somewhere else.
“First,” Brown said, “it’s not legal. You have to justify for losses in Florida. Companies can’t use losses in other states to raise their rates here.”
Perez said before an insurance company can increase premiums it must go before state officials to justify the need.
Brown said that’s how a company might seek a boost because its reinsurance costs could go up if there was catastrophic damage in the Northeast.
The largest property insurer in Florida is Citizens Property Insurance Corp. Known as “insurer of last resort,” it is a nonprofit created in 2002 by the Legislature to provide insurance for homeowners who could not get coverage elsewhere. As of July 31, more than 1.4 million residences and businesses were insured by Citizens.
The reason homeowners are so conscious about rate increases – sometimes huge – dates to 1992 when Hurricane Andrew destroyed Homestead. That began a decade of steep policy increases, insurance company bankruptcies, birth of the company that eventually became Citizens and an exodus of companies writing insurance in Florida.
In 2002 the Legislature merged two firms and created Citizens. Then came Charley and the busy hurricane seasons of 2004 and 2005.
Ed Ludden, a longtime insurance agent in Fort Myers, remembers the aftermath and then the rate sticker shock.
“They were going up 40 to 90 percent in a two-year period,” Ludden said, referring to the rate increases from all companies that were writing property insurance in Florida at the time. “Actually, rates prior to that were pretty low. I moved here from Illinois. My insurance was about double there compared to what I paid at that time in Florida.”
In 2006 the Legislature appropriated $715 million to reduce the Citizens deficit that had been run up after Charley and Wilma and several other hurricanes.
Florida and Louisiana, following Katrina, were among the first states to establish “insurers of last resort.” Now, almost a dozen states have set them up to protect homeowners abandoned by private insurers. They are certain to be tested. Those in the path of Irene have an exposure of $196 billion, according to The Wall Street Journal.
Brown is often called on to review the insurance situation such as the one Irene is posing. Since leaving the Legislature, he has been a senior fellow with the Heartland Institute, a nonprofit research and education think tank where he specializes in insurance policy.
“When compared to all other states, New York is second only to Florida surrounded by water,” Brown said. “Connecticut is second only to Florida with a concentration of coastal population … 79.3 percent of our exposure is coastal counties. In Connecticut it’s 65 percent.
“There’s a lot of exposure in New Jersey as well,” Brown said. “The larger the loss, the more likely an increase.”
