Insurance costs could rise quickly if Florida gets a lot of hurricanes

It’s so Florida.

A yearslong effort to stabilize the home insurance industry is finally paying dividends, according to state officials and insurance insiders, just as forecasters are predicting a super-charged, La Niña-driven hurricane season.

What could possibly go wrong?

Let’s start with what insurers say has gone right: Reduced losses from the reforms that quelled high litigation rates, combined with a single hurricane that hit a sparely populated area last year, convinced reinsurers — the global financiers that insure insurers — to ease back on rates charged for the upcoming hurricane season.

So companies purchased more reinsurance than they needed to and say they are prepared to pay off losses after not one but two hurricanes that could hit the state this year.

If more than two strike Florida, however, “that’s not something you normally budget for,” said Paul Handerhan, president of the Fort Lauderdale-based Federal Association for Insurance Reform.

“If that were to happen, you could see some companies experience some financial stress.”

Meanwhile, eight new companies have been approved to sell insurance in Florida, according to the state Office of Insurance Regulation. Several are getting started by taking policies out of state-owned Citizens Property Insurance Corp.

Ten insurers have filed for approval to leave their rates unchanged this year while eight have filed for rate decreases, the state says.

New data shows further slowing of cost increases

And newly released data backs up state officials’ assertions that costs for home insurance are stabilizing in Florida.

Quarterly market share data released by insurance regulators showed that homeowner insurance premium increases slowed to their lowest point during the first quarter of 2024 since the state began requiring insurers to submit the data in early 2022.

An analysis by the South Florida Sun Sentinel of the data released on Tuesday showed that the statewide average premium charged to owners of single-family houses for all-perils coverage reached $3,511 in the first quarter that ended in March.

That average was just 1.3% more than the $3,466 average for the fourth quarter of 2023. And the 1.3% increase was half as large as the 2.6% hike experienced between the third and fourth quarters of last year and a third of the 4.0% hike recorded in the first quarter of 2023.

Agents say that homeowners have not yet started to feel the relief.

“Premiums have not leveled off, but increases are not as large,” said Chris Heidrick, owner of Heidrick and Company Insurance and Risk Management Services in Sanibel. “That is still difficult news to deliver to a homeowner who had large increases the past few years and the premium is increasing again, just not by as much.”

Statewide totals are the only figures currently available to the public, and averages are calculated by dividing the total of premiums collected by the number of policies reported by each state-regulated insurer. Premiums charged by surplus lines insurers, often used to insure expensive homes on the coasts, are not included in the quarterly reports.

Because of how the state’s economy is structured, South Florida households are likely paying more than the average, while homes in North and Central Florida are paying less.

Condominium unit owners aren’t getting quite the same break. The statewide average premium to insure a condo unit rose 2.6% in the first quarter to $1,692. That’s more than the 2.1% increase noted during the fourth quarter of 2023 but far less than the 4.5% hike of the first quarter of 2023 and the 5.9% hike experienced in the second quarter of 2023.

The average premium for policies that condo associations purchase — and that unit owners pay for in their annual fees — to cover common areas was up 3.1% to $138,309. Since the second quarter of 2022, the cost of those policies have increased by 93.7%, largely because of strict new maintenance requirements enacted after the collapse of the Champlain Towers South building in Surfside.

New insurers still gearing up

While state officials are touting approval of eight new companies, most are not yet making offers to cover individual homeowners who shop for lower-cost policies.

Several have showed no signs they are actually selling insurance in the state, while most of the companies that have started operating are building their initial books of business by participating in Citizens’ depopulation strategy, said Tom Cotton, owner of Hugh Cotton Insurance Agency in Orlando. He adds, “That’s not helpful to policyholders not in Citizens.”

A number of the new companies — Ovation Home Insurance Exchange, Tailrow Insurance Company, Condo Owners Reciprocal Exchange and Manatee Insurance Exchange — were formed by existing Florida-based insurers.

Ovation, a subsidiary of Florida Peninsula, plans to begin selling policies in mid-July, according to Clint Strauch, president of Windward Risk Managers, which manages the company as a reciprocal exchange.

Manatee Insurance Exchange, a subsidiary of Safepoint Holdings, currently has more than 2,500 policies that were rolled over from Safepoint. Agents have sold others that will take effect on June 1. While it plans to participate in Citizens takeouts, Safepoint spokesman Rocky Russell said “our business objective has always been to transfer Safepoint’s Florida book of business to Manatee.”

Like Tailrow, Condo Owners Reciprocal Exchange is a subsidiary of Homeowners Choice Insurance, which also operates Homeowners Choice and TypTap Insurance. The company, also referred to by its acronym CORE, covers condominium buildings and took out 318 policies during the first quarter.

The company has been authorized to take out another 700 policies in April and June.

HCI spokesman Kevin Mitchell said the company focuses on buildings that are five stories high or less because they are typically older and having the most difficulty finding coverage. “Plus it keeps us at a certain level from a reinsurance standpoint so we can help more people,” he said.

Tailrow, approved by the state in April 2023 to begin selling insurance in Florida, has not yet submitted forms or rates for state approval, the office’s website shows.

Mitchell said the company has been focused on establishing Condo Owners Reciprocal Exchange and getting Homeowners Choice and TypTap in position to takeout 70,000 Citizens policies.

Whether Tailrow actually goes into business is unknown, Mitchell acknowledged.

“We’re probably going to evaluate the (upcoming) storm season and make a decision in the fall,” he said. “If the opportunity is there, we have the option to activate it.”

In August, the state approved three out-of-state companies — Texas-based Mainsail Insurance Company, and Indiana-based Orion180 Select Insurance Company and Orion180 Insurance Company — to expand into Florida.

Orion180 announced in August that it planned to sell wind-only coverage along Florida’s coast beginning in late 2023, catering to homes with a replacement cost above $700,000, which is the cutoff for Citizens coverage in all Florida counties except Monroe and Miami-Dade, where the cutoff is $1 million.

The company also said it “would evaluate” offering a Florida homeowner product in 2024.

Although Orion180 has secured approval from the Office of Insurance Regulation in January for its rates and policy forms for wind-only coverage, the state’s market share data shows the company did not sell any policies in Florida through March 31.

Its sister company, Orion180 Select, has not submitted rates and policy forms for state approval.

Nor are either companies on the office’s list of consent orders identifying insurers that have been approved to take policies out of Citizens.

Orion180’s website lists sales representatives for Tennessee, North Carolina, South Carolina, Alabama, Georgia Indiana and Mississippi but no one is listed for Florida.

Mainsail, a subsidiary of the Hippo Insurance Group that includes Spinnaker Insurance Company, did not sell any policies during the first quarter, nor been approved for Citizens takeouts. It was approved in April to offer rates effective April 1. On April 29, it submitted policy forms for coverage that would take effect on June 1. Those forms have not yet been approved.

The company’s website states that it expects its insurance products to be approved for sale in Florida “later in the year.”

Representatives for Orion180 and Mainsail did not respond to emails seeking information about their plans to offer coverage in Florida.

Orange Insurance Exchange has hit the ground running. Since obtaining state approval on Sept. 1 to sell insurance in the state, it has been approved to assume 24,000 Citizens policies.

In response to an email seeking information about the company, CEO Don Matz said the company has assumed about 12,500 policies from Citizens and sold 3,500 additionally.

Orange began with $25 million in surplus and plans to begin writing last December, according to the Insurance Journal. It is partly owned by Cabrillo Coastal, a managing general agent that specializes in hard-to-place policies in Florida and other states, the website said.

Michael McNitt, Cabrillo’s longtime president, is president of underwriting for the new company. Matz spent 26 years with Tower Hill Insurance Group, the website reported.

What Manatee, CORE, Orange, and Ovation have in common is that they were formed as reciprocal insurance exchanges. That’s a model in which the insurance side of the operation is owned by policyholders who are referred to as members or subscribers.

Subscribers contribute a fee equal to 10% of their premiums to build up the company’s surplus, which makes it easier to raise investment capital to run the management firm, called the “Attorney-in-Fact,” appointed to operate the reciprocal exchange.

As owners of the companies, subscribers can have a say in their operations by joining a subscriber’s advisory committee, and depending on how successful the company is, can actually receive a dividend.

Hurricane ready?

Locke Burt, chairman and CEO of Security First Insurance, says Florida-admitted companies purchased $5 billion more in reinsurance this year and are as ready as they have ever been for a busy hurricane season.

Several reasons exist for the additional reinsurance purchases, he said. One of the major ones is that the amount of losses that companies must report before collecting reinsurance from the Florida Hurricane Catastrophe Fund increased, as did costs of hurricane losses in models run by the Florida Commission on Hurricane Loss Projection Methodology.

“I think the industry is well set up,” he said. “For the first time in six years, it’s making money. The legislative reforms are working and companies are decreasing rates for the first time in six years.”

Yet, few should expect rate decreases anytime soon. That’s because while eight companies, including Security First, have proposed reducing rates for coverage, the decreases will be superseded by inflation-driven increases in the replacement costs of homes being covered.

“The bad news is that the cost of homebuilding is expected to go up by 10% to 15% over the next 12 months,” he said.

Insurers are obligated to raise coverage costs to account for the added replacement costs, he said.

Of course, all of the storm modeling and insurance actuarial expertise in the world won’t mean a thing if Florida is hit by multiple hurricanes during the year, like the eight that wreaked havoc in 2004 and 2005.

While companies have enough reinsurance to pay off losses from two major storms, the second storm would force many to buy additional reinsurance, says Handerhan. That additional coverage would come at an increased price, he said.

Reinsurers will likely raise costs if the state only gets two hurricanes, he said, and those costs “will have to be passed onto consumers.”

Homeowners hear forecasts like NOAA’s recent projection for an above-average hurricane season with 17 to 25 named storms and four to seven major hurricanes and naturally become pessimistic, said agent Chris Heidrick.

“I’m certainly detecting anxiety about the upcoming hurricane season. Not just from clients, but also from insurers and reinsurers,” Heidrick said. “I probably received a half-dozen reports or articles last week describing how warm the oceans are and hurricane season hasn’t even begun.”

Brian Murphy, owner of The Murphy Agency, a Brightway franchise in Palm Beach Gardens, said his clients “often feel invincible regarding storms.”

But “brokers know better,” he said. “We understand the market’s volatility and the risks involved. ‘Never’ will happen. … Happens in Florida all the time.”

Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or by email at [email protected].