Fla. Home Premiums Could Fall 10%-50% Under New Reinsurance Law

Florida homeowners could see average property insurance savings ranging from around 10 percent in the Panhandle to more than half the cost of their policy in South Florida because of a new law, state insurance officials said.

Statewide, homeowners with private insurance will see cuts of about 24 percent on average because of the law, the Office of Insurance Regulation said.

After two years of extensive hurricane damage, Floridians have seen their property insurance rates double and triple. That led the Legislature to pass a sweeping new law in January that seeks in large part to give insurance companies more access to cheaper backup coverage, with the savings to be passed on to customers.

Insurance companies must make filings for lower rates factoring in the presumed savings for new policies beginning June 1. For others, the savings will be seen when they renew their policy after June 1.

Actual discounts will vary fairly drastically, depending on a variety of factors including what is covered, where the home is, and how much coverage the resident has. State officials repeatedly cautioned that the presumed cuts were averages, and that individual reductions might be much less, or they could be more.

Most private companies can expect to cut more than 40 percent on average off the cost of the hurricane portion of customer’s premiums. The percentage drop in the overall premium will be a little lower, but the hurricane or wind damage portion of most policies accounts for much of the overall rate.

Customers of state-backed Citizens Property Insurance, however, won’t benefit from the rate filing requirement, partly because the company doesn’t rely on private reinsurers. But customers of Citizens, the state’s largest insurer, are benefiting from rate increases the company had planned that won’t go into effect because of the new law. The company also expects to file for lower rates, but is developing its own formula for how much the changes will affect its customers, Citizens spokesman Rocky Scott said.

Still, for customers of private companies, the news was “very encouraging,” said Gov. Charlie Crist.

“It looks like we’re going to have some significant rate decreases occurring for the people of Florida,” Crist said.

The Office of Insurance Regulation said some Miami-area households could see savings of about 53 percent off their homeowners policy.

“One of the goals we set out to do was to make sure that the rate relief for Floridians was substantial and broad-based,” said state Insurance Commissioner Kevin McCarty. “I think both of those objectives have been achieved.”

While insurance companies generally have been supportive of efforts to lower their reinsurance costs, they also warned that the state will be more on the hook if there’s a large disaster — and that could be expensive for everyone in the long-run.

“Today’s announcement will allow companies to move forward with delivering the cost savings Florida residents have been asking for while also preparing for the next hurricane season,” said William Stander, assistant vice president of the Property and Casualty Insurers of America. “However, while these savings will have an immediate impact on Florida homeowners, we remain concerned that these short-term fixes will not prevent long-term headaches for consumers.”

The state’s Catastrophe Fund wouldn’t have enough money to pay the claims if there were a really bad hurricane season, and in that case, all insurance companies in Florida would be assessed to pay the claims. Those assessments would be passed on to consumers in the form of higher rates — or state tax dollars could be used to bail out the Catastrophe Fund.

Insurers say that the state needs to do more to make sure homes are upgraded to prevent damage in the first place, and do more to make the market more palatable for private insurance companies to write more policies.

The average savings Florida homeowners can expect will be lower in general in north Florida, where hurricane coverage is cheaper, and the highest in South Florida, particularly in the Miami area, where premiums are more expensive.

Renters, condo and mobile home dwellers and apartment building owners can all expect decreases of at least 24 percent on average on the wind portion of their coverage if they get it from a private company, the Office of Insurance Regulation said.

While insurance companies and others have expressed concerns that the state is taking on too much risk by increasing its role in the insurance solution, the actuary who helped Florida regulators work out the presumed cuts said the path the state is taking is the best way anybody’s found to lower rates for consumers and suggested others look more closely at it.

“Florida has an answer here that needs serious study by (other) states,” said the actuary, J. Robert Hunter, a former Texas insurance commissioner who currently is the director of the Consumer Federation of America.