Florida’s Homeowners Market Still Roiled by Politics, Regulatory Changes

In November, Florida residents will elect a new governor and chief financial officer. The question is how the new political leadership will affect the homeowners insurance market, which industry representatives have called difficult, challenging, and even stifling.

The market in the Sunshine State, which has seen a crop of major insurers pull out of or scale back their presence in the state in recent years, hasn't gotten much better, said William Stander, assistant vice president of the Property Casualty Insurers Association of America in Tallahassee. "It is a market with few choices for consumers."

The largest homeowners insurer in Florida, State Farm, stopped writing new business in February 2008, citing the need to maintain financial stability in a state that had been battered by catastrophes in the preceding years.

In fact, Florida accounted for 22% of all U.S. insured cat losses from 1980-2006 and since the start of 2004, underwriting losses exceeded premiums by about $6.7 billion. From 1990-2006, the average annual rate of return on Florida homeowners insurance was down 36.5% (BestWire, Nov. 28, 2007).

"The market is, if not the most difficult in the country, certainly one of the most difficult," said State Farm spokesman Chris Neal, who noted the insurer will service existing policyholders who move within the state. "You combine extreme catastrophic risk with real challenges in ratings and over-regulation, and it is a very difficult market to do business in."

Sinkhole claims are "perhaps the single most serious cost driver," the Florida Insurance Council said in a white paper. The industry also is concerned about "a very aggressive" public adjuster and trial-bar community, said Stander. Another concern is a law passed in 2007, in which insurers can no longer offer actual cash value for repairs to homes, but must tender full replacement cost value. In some cases, insurers contend, the repairs are never made.

"We're simply losing money," said Neal, although he added that the company's Florida-only unit, State Farm Florida Insurance Co., has stabilized and is "not in peril like this time last year." State Farm Florida, which currently has a Best's Financial Strength rating of B- (Fair), had threatened to pull out of Florida, but last year agreed to stay. In doing so, the insurer is shedding some 125,000 policies (BestWire, Feb. 1, 2010).

Nationwide Insurance stopped writing new homeowners and condominium policies in Florida in 2005 and continues to reduce its exposure in the state (BestWire, Oct. 8, 2009). After its completed scaling back, Nationwide will have some 45,000 policyholders in the state, spokeswoman Nancy Smeltzer said in an e-mail. Nationwide Insurance Co. of Florida has a Best's Financial Strength rating of B- (Fair).

Deputy Insurance Commissioner Belinda Miller stressed things have changed since 2007, when a combination of mitigation credits and the so-called "presumed factor" -- an Office of Insurance Regulation calculation for the amount of rate reductions based on the expansion of the Florida Hurricane Catastrophe Fund -- led to a "perception in the insurance industry at that time there was no way to make money." One improvement -- there's more capacity in the reinsurance market. Miller said the biggest challenge the market faces are excessive and unnecessary claims.

Republican candidate Rick Scott, facing Democrat Alex Sink, the state's chief financial officer, in the state's gubernatorial race, stated that Citizens Property Insurance Corp. "is at the very heart of Florida's property insurance crisis." Scott has pledged to eliminate Citizens' reliance on assessments following a major disaster and ensure that Citizens operates at actuarially sound rates.

Asked about an FIC white paper that states Citizens "has insufficient money to pay major hurricane claims," Citizens Chief Financial Officer Sharon Binnun said the state-run insurer has more surplus than it's ever had and is in a strong financial position.

"The supply of insurance from private carriers is an issue," said A.M. Best Senior Financial Analyst Kenneth Tappen. "They don't want everyone in the state to be into Citizens."

"That's what happened when companies started pulling out," said Rich Attanasio, vice president of property/casualty ratings at A.M. Best. Citizens grew, and under Florida law, Citizens rate increases are limited to 10% for any policyholder per year.

The FIC wants the so-called "glide path" to bring Citizens to actuarially sound rates raised to 20% a year. Gary Landry, FIC vice president, said the upcoming election and new leadership "will create opportunity for understanding what the risks are in Florida."

"With the change in the political environment that is occurring now before the general election, opportunity exists to return the Florida market to healthy competition," said Stander, who cautioned "If there's one thing we've learned since the 2004-2005 hurricanes, it's difficult to predict what the regulatory environment in Florida will be like."

"It's still a challenging market, but it's not as acrimonious as it was," said Attanasio. "You can do business there. It's a matter of do you have local market knowledge, do you have adequate pricing -- all of those things. It's just a matter of risk management."

The top five writers in the Florida homeowners multiperil market in 2009 were State Farm Group, with a 15.09% market share; Citizens, with 13.44%; Universal Insurance Holdings Group, with 8.62%; USAA Group, with 5.9%; and St. Johns Insurance Co. Inc., with 4.59%, according to BestLink, which provides online access to A.M. Best Co.'s Global Insurance & Banking Database.

(By Diana Rosenberg, senior associate editor, BestWeek)