Eta damages were modest. But ‘crazy’ 2020 storm season likely to spike insurance rates
Tropical Storm Eta brought widespread flooding and some wind damage throughout South Florida.
According to industry experts, it is also likely to bring with it insurance rate hikes for Florida policy holders, even if they don’t file a storm claim.
“The worst thing for the domestic industry is to have several [storms],” said Jay Neal, executive chairman of the Federal Association for Insurance Reform, a Florida-based consumer group. “We’re going to be seeing significant rate increases.”
For a typical insurance company, the cost of protecting its own bottom line is more stable when it only has to think about a once-in-a-century event, like Hurricane Katrina. For homeowners and renters, stability in weather equals stability in insurance prices.
But as more storms pile up, so does your insurance company’s own insurance, supplied by firms known as a reinsurers — large multinational firms that backstop insurance companies themselves. According to reinsurance news site artemis.bm, reinsurance prices already increased by up to 30% in Florida this year.
And typically, half of the value of a homeowner’s policy gets passed along to pay a reinsurer.
Florida’s average home insurance cost of $3,643 is already more than twice the $1,338 national average, according to Insurance.com.
Between 2006 and 2015, there was not a single named storm that hit Florida.
That changed in a big way with the 2017 hurricane season and the arrival of now-infamous storms like Irma and Michael.
“Once we started having catastrophic events again, they started increasing their prices,” Neal said.
With 2020’s high number of named storms — 29 so far, which ties the record — it’s a trend that seems likely to continue.
As Bloomberg’s James Tarmy wrote in September, “The peculiar dynamics of reinsurance and climate have inched the state of Florida toward the precipice of an insurance disaster.”
After a “crazy” year like 2020 — even without the pandemic — insurance companies will find themselves looking to reinsurers for additional protection to cover more frequent losses, said Joe Petrelli, president of Demotech Inc., a financial analysis firm that works with insurance groups.
“There’s a direct cost ... from the storm, but insurance companies now also need to purchase additional reinsurance when the number of storms exceeds what they may have pre-purchased,” Petrelli said.
Further complicating Florida’s insurance market has been a deluge of third-party lawsuits, often from claims adjusters or repair companies, aimed at insurance providers.
Many of these prove fraudulent. In one instance, a Coral Gables-based litigator, Scot Strems, is facing a suit from Citizens Property Insurance that claims Strems worked with third parties to defraud Citizens of millions. Strems is also facing a putative class action suit from former clients, Law.com reported in August.
Still, experts say the costs of litigating the suits drive up rates. Many attorneys are incentivized to file such suits thanks to statutes that allows them to earn high fees if they prevail against an insurance company. According to the Insurance Information Institute, there were 45,000 lawsuits filed against Florida insurers in 2018, 92,000 filed in 2019, and 150,000 lawsuits are projected for 2020.
Combined, these factors turn the outlook for policyholders grim.
“Rate increases are coming and they’re coming big,” Neal said.
IF YOU HAD DAMAGE FROM ETA
▪ Check your policy before you call your insurer. With a storm this minimal, your damage probably won’t exceed your deductible (the amount you owe before insurance kicks in). Still, the Insurance Information Institute encourages homeowners to file a claim if there is any damage.
▪ If you have flooding, be aware that your windstorm company may argue that your policy doesn’t cover flooding, even if flooding is caused by a hurricane. In most cases, a homeowner must purchase separate flood insurance.
▪ If you live in a low-lying area or other location subject to storm surge, consider federal flood insurance if you don’t already have it.
This story was originally published November 10, 2020 at 7:00 AM.
