Insurance Boss: Cost Drop Does Not Immediately Lower Premiums

August 13, 2013

A drop in reinsurance costs may not be immediately reaching Florida’s policyholders for a variety of reasons, including property insurers buying more coverage to brace against the risk of bigger storms, the state insurance commissioner has told state Chief Financial Officer Jeff Atwater.

Rates might eventually show a downward trend as property insurance companies submit new filings to the state Office of Insurance Regulation. But for lawmakers already considering changes that could be imposed next year on the insurance industry, a lack of lower rates appearing across the board is disappointing.

“For years what we have seen are insurance companies raising their rates, claiming that reinsurance rates were one of the big items that they had to raise rates for,” said Rep. Ray Rodrigues, R-Estero. “It seems like if the ratepayers have to pay when reinsurance is going up, they ought to see some benefit now that reinsurance is coming down.”

Reinsurance is backup insurance for insurance companies. Insurers in the past often have pointed to high reinsurance costs as a rationale for increasing consumers’ rates.

Last Wednesday, Atwater asked Insurance Commissioner Kevin McCarty (pictured) to explain why property insurers haven’t reduced premiums at a time when reinsurance costs have dropped worldwide on average 15 percent to 20 percent.

McCarty wrote Atwater on Friday that insurance companies might be increasing the amount of reinsurance they purchase rather than reducing rates and that not enough time may have passed for the lower reinsurance costs to result in lower customer premiums. Also, he wrote that reinsurance only accounts for a portion of a homeowner’s rate filing, some companies have tried to spread out of the cost of reinsurance over a number of years to lessen one-time hikes on policyholders and that not every insurance company is seeing a drop in reinsurance costs.

“In fact, several Florida property insurance companies are being required by their rating agencies to buy more reinsurance than they initially planned to purchase,” McCarty wrote.

McCarty added that some insurers have indicated an intention to reduce rates in some territories based on the 2013 reinsurance costs. But others “may purchase more reinsurance rather than reducing rates and the purchase of more reinsurance based on, or up to, a 1-in-250-year event is allowed by the rating law to be included in the premiums,” McCarty continued.

The cost of reinsurance from the Florida Hurricane Catastrophe Fund — basically a public pool that provides insurance for insurance companies — is among the rates that have increased.

McCarty sent a similar response July 2 to Rodrigues, who on June 24 had asked, “from a practical standpoint, will long-suffering Floridians begin to see rates stabilize and decrease in many cases based on reinsurance savings?”

Lisa Miller, a former deputy insurance commissioner who now lobbies for insurers, expects the lower reinsurance costs to eventually ease policy rates. Also, she said the additional reinsurance that companies have to purchase will protect policyholders.

“Reinsurance rates just went down, so changing rates, whether up or down, is not a fast process,” Miller said in an email. “The mechanics of determining where and how to adjust the rates and meeting legal requirements for adequate lead time to consumers makes it unlikely that it can be done in less than nine months!”

by The News Service of Florida


3 Responses to “Insurance Boss: Cost Drop Does Not Immediately Lower Premiums”

  1. fred on August 13th, 2013 9:46 am

    I’ve said it before and will say it again – property insurance companies aren’t in the business of indemnification against losses by their policy holders; they are, in the case of stock companies, in the business of generating revenue and increasing the net worth of their stockholders and directors. We pay huge premiums, then they fight us when we have claims. They should have carried sufficient reinsurance back in 2004 – 2005, but didn’t, and made us pay for their mistakes. Didn’t Hurricane Andrew in 1992 teach anyone a lesson in reinsurance? it’s just greed. I don’t agree that deregulation is necessarily the cure for this, they’d just be more free to price fix and rip us off worse. I do agree that beach property owners should pay a whole lot more, since they chose that risk. I live well away from the water and on high ground, yet have incurred a huge increase this year. Politicians are in bed with the insurance industry, and have non will to reform their practices. I’m offended by Mr. McCarty’s “go away” vague so-called answer. It is non-responsive and just regurgitates the same old non-informative excuse we’ve heard before: some may this and some may that. Then again, John, maybe deregulation could result in additional companies doing business here and help drive rates down through competition. We’ll see…

  2. John on August 13th, 2013 7:00 am

    Deregulate the insurance industry, allow for free market competition across state lines, eliminate the oligopoly these companies have enjoyed for decades because of that government regulation and allow the market to freely operate and competition will return. Better coverage and options will come back and prices will stabilize. At the same time, people need to understand that their choices in life can and will increase their risks against hazards. Live near the beach, pay higher insurance. Live in earthquake prone California, expect to pay hire rates. People need to make decisions that affect the risk they are exposed to and should expect to pay the price for those choices. Affordable insurance is based upon your choices in life, it is not a constitutional right.

  3. c.w. on August 13th, 2013 5:02 am

    Insurance companies are in the business of collecting money. How do they do it? They charge everyone more and more. The companies always have and excuse for raising rates and they get away with ti.

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