Homeowners Insurance Discussion Heating Up in Florida

Two items on homeowners insurance in Florida have caught my eye in the past couple of days.

First, there’s a wire story out reporting on public hearings on Citizens’ proposed rate increase:

Proposed rate increases by Citizens Property Insurance Corp. would cause homeowners serious financial problems and some may lose their homes, policyholders said Thursday during a public hearing.

Citizens’ board last month unanimously approved an average statewide rate increase of 44 percent for homeowners in high-risk areas, on top of a 16.2 percent increase in high-risk coastal areas that was approved in February 2005.

“If we get another increase, I’m looking to sell my home,” said Melody Zager, 46, a teacher from Clearwater. She said her Citizens premiums jumped from $693 to $1,395 in one year.[...]

Daniel Funk, 45, a pilot from Kenneth City, said his premiums leapt from $1,200 to $3,600.[...]

Steve Burgess, Florida’s insurance consumer advocate, said Wednesday during a hearing in Miami that Citizens Property Insurance miscalculated the rate increases it has requested for homeowners in high-risk areas.

Citizens should only be allowed a 2.9 percent rate increase in high-risk areas, he said.

Justin Glover, a spokesman for Citizens, defended the rate hikes. He said the increases were needed to allow Citizens to continue to pay for future hurricane claims. The company faces a $1 billion deficit this year from claims related to Hurricane Wilma alone, he said.

There are a couple of tough issues there. First, the industry is facing challenges on how to price for catastrophe risk…indeed the entire issue of how to account for risk/volatility in returns in the pricing of insurance needs to be (and to a certain extent, is being) revisited.

Second, you have the question of managing the affordability of insurance coverage in a state where one storm that will eventually happen could wipe out the profits a private company has ever made in that state, or where a public insurance agency’s losses could bankrupt the state absent an alternative funding mechanism.

I have ideas, but none well-formed enough to share.

Second item — a colleague emailed me a BestWire story that appeared yesterday with the tagline “Florida’s Office of Insurance Regulation has proposed a plan to create standard rating territories to be used by all property/casualty insrers for residential property insurance”.

The article, of course, contains the usual expressions of outrage from the insurance industry, replete with complaints about regulatory micromanagement, the stifling of competition, and not fixing things that aren’t broken.

The proposal is online at the Florida Office of Insurance Regulation website.

I’ve looked quickly through it, out of professional curiosity (and a personal love of pretty maps)…and I’ve got to say it doesn’t look that bad. Yes, from an industry perspective…I’d like the ability to define my own territories if I were making FL homeowners rates, but I wouldn’t be at all surprised if the territories I came up with wouldn’t be rather similar to what has been proposed.

It seems to me that energy would be better spent on working with the regulators on bigger questions, such as the permissibility of using catastrophe modeling in ratemaking, as well as determining appropriate profit loads and expense provisions, rather than fighting over something that isn’t actually that bad, save for the competitive inconvenience of having to play within a level playing field.

Sometimes, I find political aspect of the interaction between the insurance industry and regulators entertaining. Other times, I want to tell one side or the other, “get a life” or “suck it up; it shouldn’t be a big deal”. On this particular item, I feel a bit more of the latter position, than the former.