Florida's insurance market experienced difficulties - insurers decreasing coverage

Florida’s insurance market has experienced difficulties in recent years, with some private insurers becoming insolvent, and others choosing to halt coverage there altogether because Florida insurers will have a challenging June reinsurance renewal, even with the implementation of the legislative reforms.

Seven insurers have been declared insolvent in Florida. Average annual property insurance premiums jumped 42% this year to $6,000 in Florida, compared to a national average of $1,700.

According to Stonybrook Capital, the 2022 year-end renewals experienced rate-adjusted rate increases for property reinsurance renewal averaging north of 35% as a cumulative result of losses caused by extreme weather events, economic/social inflation, and geopolitical uncertainty (see Natural Catastrophes Drivers. Main Lessons for Insurance Industry).

Florida's insurance market experienced difficulties - insurers decreasing coverage

Due to Hurricane Ian losses and global macroeconomic factors, the global reinsurance markets are expected to remain hard, which will further reduce the reinsurance capacity for the Florida insurance market.

FHCF’s portion of losses related to Hurricane Ian is expected to range between $6 bn and $13 bn, with a projected ultimate loss amount of $10 bn (see Natural Catastrophes Drivers).

The introduction of the Reinsurance to Assist Policyholders Program (RAP) and the Florida Operational Reinsurance Assistance Program (FORA) will help soften the reinsurance market to some extent.

About 15% of homeowners in the state didn’t have property insurance, compared to the national average of 7%, according to the Insurance Information Institute, a research organization funded by the insurance industry.

AAA says it will not be renewing some insurance policies in Florida due to an “unprecedented” rise in reinsurance rates in the state following last year’s hurricane season, making the company the latest insurer to reduce its risk exposure in the Sunshine State.

AAA’s announcement comes a week after Farmers Insurance made a similar move in reducing coverage in Florida, saying it would no longer offer Farmers-branded auto, home and umbrella policies in the state.

The past year and half have seen major changes in the global Reinsurance Property Catastrophe (CAT) market.  In the recent reinsurance renewals we have seen robust price improvements, increased net retentions and much tighter terms and conditions, according to Swiss Re report.

Due to losses being in the early stages of development, there is considerable uncertainty surrounding the final loss amount. These estimates rely on model outputs and are subject to significant uncertainty, meaning that the actual losses may not necessarily fall within the projected range.

Nataly Kramer by Nataly Kramer