Consumers don’t pay for reinsurance – but property insurers do as a kind of “insurance for insurers.” Rate increases add another challenge to Fla.’s RE market.
MIAMI – As Florida lawmakers try to stabilize the troubled property-insurance system next month, they could face worsening problems with reinsurance, a critical part of the system.
Fitch Ratings released an analysis Wednesday that said overall reinsurance prices are expected to increase by more than 10% in 2023, pointing to losses from disasters such as Hurricane Ian and “increasing frequency and severity of natural catastrophe claims.”
“Price rises will be most pronounced in the regions worst affected by natural catastrophe events in 2022, including Australia, Florida and France,” the ratings agency said. “Hurricane Ian is likely to have caused between ($35 billion and $55 billion) of insured claims, making it one of the costliest natural catastrophe events ever.”
In the analysis posted online, Fitch also said it expects tighter restrictions when reinsurance policies are renewed in 2023, while raising the possibility that Florida property insurers will not be able to buy all of the reinsurance they need.
“Nevertheless, we believe demand for property catastrophe reinsurance during the 2023 renewals season will be broadly met, except for Florida,” the analysis said.
Reinsurance, which is sold in a global market, is essentially backup coverage for insurers. It plays a crucial role in Florida, as evidenced by the projected tens of billions of dollars in damage from the Category 4 Hurricane Ian, which made landfall Sept. 28 in Southwest Florida before crossing the state.
When property insurers’ losses reach certain thresholds, reinsurance coverage is triggered to help pay claims. Costs of reinsurance are baked into policyholders’ rates.
Florida property insurers rely on a combination of reinsurance bought in the private market and from the state-run Florida Hurricane Catastrophe Fund. As an example of the importance of reinsurance, the Florida Hurricane Catastrophe Fund estimated last month it would have $10 billion in losses from Ian.
Reinsurance costs and availability were a problem in the Florida market before Ian. During a May special legislative session, lawmakers agreed to spend $2 billion in tax dollars to temporarily provide additional reinsurance coverage to insurers.
Gov. Ron DeSantis called the May special session amid widespread problems in the insurance industry that have included homeowners losing policies and seeing massive rate hikes. Meanwhile, some property insurers have gone insolvent, and policies have flooded into the state-backed Citizens Property Insurance Corp., which was created as an insurer of last resort.
Problems, however, have persisted, and lawmakers will hold another special session the week of Dec. 12 that is expected to include making additional changes to try to bolster insurers.
House Speaker Paul Renner, R-Palm Coast, said Tuesday that lawmakers will look at a “kitchen sink of options” during the special session to try to stabilize the market and expand private coverage. He indicated those options could involve spending additional money to help with reinsurance.
“It would be temporary, and it has to be contingent on getting major reforms so we actually fix the situation,” Renner told reporters. “I do not want to be in a situation where we make any kind of new long-term taxpayer commitment to underwrite insurance. That is not the goal. The goal is to have a healthy private market, to then begin depopulating (removing policies from) Citizens so that we get back to where we were not so many years ago, which is a healthy, vibrant market where people cannot have a cardiac arrest when they get their renewal bills.”
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