At Robin Lewis Insurance we get asked this question just about everyday! 

The simple answer: because the insurance companies are paying out high claims…

Is that all there is to it? 

Keep in mind that insurance companies are for profit, and will not be around to pay our claims if they don’t make a profit.  In the Florida property insurance market the major exposure is wind damage, particularly damage from hurricanes and/or tropical storms. However it’s not the only threat.  For example, Citizens Property Insurance Corporation (CPIC) by itself paid $247 million since 2007 for sinkhole claims on residential properties. 

One big storm has the potential to cost tens of billions of dollars in claims. Insurance carriers could be profitable for many years, and yet lose all those profits and much more with just one event. 

In 1992 Hurricane Andrew handed South Florida a whopping blow, costing insurance carriers an estimated $27 billion ($41.8 billion 2010 USD).  

Shortly after Hurricane Andrew hit, several companies went bankrupt and many companies stopped writing Homeowners Insurance.  Additionally, major companies started to drop what has amounted to hundreds of thousands of policies. People buying homes had their closings delayed because they were not able to obtain property insurance.  This led to the forming of the Florida Residential Property and Casualty Joint Underwriting Association (FRPCJUA), a company set up by the State to avail the consumer of property insurance.

This company now known as Citizens Property Insurance Corporation (CPIC) has become the largest insurance carrier in Florida, as of August 31, 2010 they have 1,153,187 residential policies in force. 

Just last year, State Farm threatened to leave the Florida market because they did not get their rate increase approved.  Arrangements were made for State Farm to stay, however, they began dropping 125,000 policies in August 2010. 

Since 1992, Homeowners Insurance premiums have increased by as much as 300%. Several of our customers have seen their annual premiums jump from less than $500.00 to well over $4000.00. 

In this chaotic property insurance market, several changes have occurred; here are just a few: 

• The introduction of a separate wind/hurricane deductible (typically 2%). The consumer has to share a little bit more of the risk in an attempt to curtail the huge increase in premiums. It’s a price we have to pay to live in paradise. 
• CPIC becomes the largest property insurer in Florida and the Legislature introduced a takeout program in an effort to reduce the number of policies in CPIC while encouraging other companies to write policies in Florida. The result of this is many start-up companies underwriting property insurance in Florida and unfortunately several of them are have already gone bankrupt. 
• CPIC is allowed to operate without the necessary cash reserves that other insurance companies have to adhere to, and as a result, reports indicate that CPIC would not have anywhere near enough money to cover their storm exposure.
• Yet, in an effort to drive premiums down, the State is using CPIC as a competing company rather than a company of last resort, forcing other carriers (who cannot operate like Citizens and still remain in business) to lower their premiums and face the potential of not having enough funds to pay claims or not write the business at all. 
• Wind Mitigation Discounts were introduced. The Concept makes sense; homes that are built stronger, with specific features to help mitigate damage from windstorm, should receive discounts on their premiums. Great idea, however, because of  lack of understanding, fraud and invalid State mandated credits, premiums have dropped disproportionately, in some cases by thousands of dollars. Carriers are fighting for this process to be overhauled. 
• Fraudulent and frivolous claims are on the rise.  A growing number of people are filing claims (many of them due to the prodding of an usually high number of Public Adjusters) because they think that the insurance companies have deep pockets, not realizing that eventually, it’s the policyholders who end up paying for it all. 

In summary, premiums have gone up, come down and are going back up again and it’s still not where it needs to be in order to cover the potential loss.  The battle between our State Government and Insurance Carriers has not resulted in a viable solution.

If you are a Floridian, I encourage you to make this issue a priority as you vote in the upcoming elections.  Ask your politicians specifically what they are going to do about the property insurance crisis, if and when they are elected. 

While this discussion has focused on Florida, stay tuned for part two.  In which I will provide practical ideas on how to keep your Homeowners Insurance premiums lower, whether you live in or outside of Florida.

What other factors do you think has contributed to roller coaster change in premiums?  What do you think are possible solutions?