Even with reisnurance rates going down, Citizens and many carriers are raising rates.
http://politics.heraldtribune.com/2013/08/21/citizens-seeks-higher-rates/
Thursday, August 22, 2013
Monday, August 19, 2013
Why Sinkholes Form in Florida
Sections of a building at a resort near Orlando’s theme park district collapsed into a sinkhole on Aug. 12, forcing the evacuation of 105 guests in the structure and also dozens of visitors staying in two adjacent three-story buildings.
Sinkholes are as much a part of the Florida landscape as palm trees and alligators. Florida has more of them than any state in the nation. Earlier this year, a man near Tampa died when a sinkhole opened up underneath his bedroom.
Why Are There Sinkholes in Florida?
Florida’s peninsula is made up of porous carbonate rocks such as limestone that store and help move groundwater. Dirt, sand and clay sit on top of the carbonate rock. Over time, these rocks can dissolve from an acid created from oxygen in water, creating a void underneath the limestone roof. When the dirt, clay or sand gets too heavy for the limestone roof, it can collapse and form a sinkhole. Sinkholes are caused naturally but they can be triggered by outside events.
What Triggers Sinkholes?
Although sinkholes are formed naturally, they can be triggered by heavy rainfall, drought followed by heavy rainfall, tropical storms and human activity. The most common actions by humans that cause sinkholes are heavy pumping of groundwater to spray on oranges and strawberries during freezes to keep them from being damaged, well drilling, excavating, creating landfills, leaking broken water lines and pounding or blasting from construction.
Where Are Sinkholes Most Common in Florida?
Three counties in the Tampa region are known as “sinkhole alley.” Two-thirds of the sinkhole damage claims reported to the state Office of Insurance Regulation from 2006 to 2010 came from Hernando, Hillsborough and Pasco counties. Sinkholes are less common in South Florida, home to the state’s two most populous counties — Broward and Miami-Dade.
How Many Sinkholes Occur in Florida?
The state Office of Insurance Regulation says reported claims from sinkholes have risen in recent years. More than 2,300 claims were reported in Florida in 2006 but that figure jumped to almost 6,700 claims in 2010. There is no geological explanation for the rise and state insurance officials believe many claims are questionable. There must be structural damage to a home for a policyholder to claim a loss from a sinkhole, but insurance officials say claims are often paid without that proof.
How Much Damage Do Sinkholes Do?
The state Office of Insurance Regulation says sinkhole claims in Florida cost insurers $1.4 billion from 2006 to 2010.
Sources: Florida Department of Environmental Protection and Florida Senate report.
Sinkholes are as much a part of the Florida landscape as palm trees and alligators. Florida has more of them than any state in the nation. Earlier this year, a man near Tampa died when a sinkhole opened up underneath his bedroom.
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Experts say sinkholes aren’t occurring at a greater rate than usual but that the high-profile nature of recent one in populated areas has drawn attention to them. There also has been a rise in sinkhole claims in Florida, but insurance officials believe some of those claims are questionable. Here are some answers about why sinkholes form and their costs.
The McGowan Companies consist of: McGowan Program Administrators, a MGU for highly-specialized programs of insurance; McGowan Excess & Casualty, a MGU that specializes in Commercial Umbrella and Excess Liability; and McGowan, Donnelly & Oberheu, LLC, a Wholesale Insurance Broker specializing in Professional and Management Liability.
Florida’s peninsula is made up of porous carbonate rocks such as limestone that store and help move groundwater. Dirt, sand and clay sit on top of the carbonate rock. Over time, these rocks can dissolve from an acid created from oxygen in water, creating a void underneath the limestone roof. When the dirt, clay or sand gets too heavy for the limestone roof, it can collapse and form a sinkhole. Sinkholes are caused naturally but they can be triggered by outside events.
What Triggers Sinkholes?
Although sinkholes are formed naturally, they can be triggered by heavy rainfall, drought followed by heavy rainfall, tropical storms and human activity. The most common actions by humans that cause sinkholes are heavy pumping of groundwater to spray on oranges and strawberries during freezes to keep them from being damaged, well drilling, excavating, creating landfills, leaking broken water lines and pounding or blasting from construction.
Where Are Sinkholes Most Common in Florida?
Three counties in the Tampa region are known as “sinkhole alley.” Two-thirds of the sinkhole damage claims reported to the state Office of Insurance Regulation from 2006 to 2010 came from Hernando, Hillsborough and Pasco counties. Sinkholes are less common in South Florida, home to the state’s two most populous counties — Broward and Miami-Dade.
How Many Sinkholes Occur in Florida?
The state Office of Insurance Regulation says reported claims from sinkholes have risen in recent years. More than 2,300 claims were reported in Florida in 2006 but that figure jumped to almost 6,700 claims in 2010. There is no geological explanation for the rise and state insurance officials believe many claims are questionable. There must be structural damage to a home for a policyholder to claim a loss from a sinkhole, but insurance officials say claims are often paid without that proof.
How Much Damage Do Sinkholes Do?
The state Office of Insurance Regulation says sinkhole claims in Florida cost insurers $1.4 billion from 2006 to 2010.
Sources: Florida Department of Environmental Protection and Florida Senate report.
Why aren't Property Rates Falling
Florida’s insurance regulator, in response to questions why lower reinsurance costs have not translated into reduced homeowners rates, said insurers have significant leeway in how they incorporate those costs into rates and any changes can take a significant amount of time to implement.
Insurance Commissioner Kevin McCarty, in a letter, sought to explain the role reinsurance costs play in the homeowners market after Chief Financial Officer Jeff Atwater questioned why there has not been a corresponding drop in homeowners’ premiums as prices for reinsurance has come down.
In a letter responding to Atwater, McCarty said there are a number of reasons homeowners may not be seeing any premium reductions due to decreases in reinsurance costs. The reasons, McCarty said extend from both from the requirements and limitations of state regulations and the fact that each individual insurer has different reinsurance needs.
Florida has no firm rule that insurers must follow when calculating their reinsurance needs. It is up to each individual insurer to decide how much reinsurance to purchase, an amount that can vary from insurer to insurer based on its hurricane exposure, available capital, and other factors.
For example, lower reinsurance costs may give an insurer the ability to purchase additional coverage, thus improving its financial position when it comes to its catastrophic exposure. Financial rating firms such as A.M. Best may also require an insurer to purchase a certain level of coverage to secure or retain a financial rating.
“Several Florida property insurance companies are being required by their rating agency to buy more reinsurance than they initially planned to purchase,” stated McCarty. “This is likely to keep rates up and move addition premium and exposure to reinsurers.”
McCarty said that those factors and others explain why not every individual insurer will see a reduction in their overall reinsurance costs. He also said that even if an insurer sees a reinsurance cost reduction, it may have a minor effect on policyholders’ premiums.
“It is important to remember reinsurance costs make up only a portion of the total homeowners premiums and a reduction in reinsurance costs does not translate into a one-to-one reduction in premium,” wrote McCarty.
Another major reason that reduced reinsurance costs may not be felt by consumers is the amount of time it takes for those costs to be incorporated in policies. The majority of property reinsurance contracts in Florida are timed to begin with the start of the hurricane season on June 1 and expire on May 31 of the following year. Once those contracts are finalized, insurers must conduct an actuarial review to see if any rate changes are warranted on a statewide or territorial area, a process that McCarty said is “time-consuming.”
McCarty said that once that process is complete most insurers seek prior regulatory approval of the rates. Any changes must be filed with the Office of Insurance Regulation at least 90 days before their effective date. State law then requires insurers to give policyholders notice of the new rates at least 45 days before their renewal date.
McCarty did say that his office is working to get a better picture of insurers’ reinsurance expenses. For one, regulators have requested that in their recent rate filings insurers include the specific costs of their 2013/2014 reinsurance contracts.
Even with the complexity of the role of reinsurance within Florida’s market, McCarty pledged that regulators would continue to keep consumers’ interests in the forefront.
“I agree that it is necessary to provide economic relief to Florida families,” wrote McCarty to Atwater. “The OIR will remain vigilant in its review of rate filings in accordance with Florida law to ensure all possibilities for such relief are identified and passed along to consumers.”
A copy of the letter can be found here.
Insurance Commissioner Kevin McCarty, in a letter, sought to explain the role reinsurance costs play in the homeowners market after Chief Financial Officer Jeff Atwater questioned why there has not been a corresponding drop in homeowners’ premiums as prices for reinsurance has come down.
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“If insurance companies can justifiably raise rates on Florida families because the reinsurance market drives the cost up, they can certainly lower the cost for Florida families when reinsurance prices fall,” said Atwater in a letter to McCarty last week.In a letter responding to Atwater, McCarty said there are a number of reasons homeowners may not be seeing any premium reductions due to decreases in reinsurance costs. The reasons, McCarty said extend from both from the requirements and limitations of state regulations and the fact that each individual insurer has different reinsurance needs.
Florida has no firm rule that insurers must follow when calculating their reinsurance needs. It is up to each individual insurer to decide how much reinsurance to purchase, an amount that can vary from insurer to insurer based on its hurricane exposure, available capital, and other factors.
For example, lower reinsurance costs may give an insurer the ability to purchase additional coverage, thus improving its financial position when it comes to its catastrophic exposure. Financial rating firms such as A.M. Best may also require an insurer to purchase a certain level of coverage to secure or retain a financial rating.
“Several Florida property insurance companies are being required by their rating agency to buy more reinsurance than they initially planned to purchase,” stated McCarty. “This is likely to keep rates up and move addition premium and exposure to reinsurers.”
McCarty said that those factors and others explain why not every individual insurer will see a reduction in their overall reinsurance costs. He also said that even if an insurer sees a reinsurance cost reduction, it may have a minor effect on policyholders’ premiums.
“It is important to remember reinsurance costs make up only a portion of the total homeowners premiums and a reduction in reinsurance costs does not translate into a one-to-one reduction in premium,” wrote McCarty.
Another major reason that reduced reinsurance costs may not be felt by consumers is the amount of time it takes for those costs to be incorporated in policies. The majority of property reinsurance contracts in Florida are timed to begin with the start of the hurricane season on June 1 and expire on May 31 of the following year. Once those contracts are finalized, insurers must conduct an actuarial review to see if any rate changes are warranted on a statewide or territorial area, a process that McCarty said is “time-consuming.”
McCarty said that once that process is complete most insurers seek prior regulatory approval of the rates. Any changes must be filed with the Office of Insurance Regulation at least 90 days before their effective date. State law then requires insurers to give policyholders notice of the new rates at least 45 days before their renewal date.
McCarty did say that his office is working to get a better picture of insurers’ reinsurance expenses. For one, regulators have requested that in their recent rate filings insurers include the specific costs of their 2013/2014 reinsurance contracts.
Even with the complexity of the role of reinsurance within Florida’s market, McCarty pledged that regulators would continue to keep consumers’ interests in the forefront.
“I agree that it is necessary to provide economic relief to Florida families,” wrote McCarty to Atwater. “The OIR will remain vigilant in its review of rate filings in accordance with Florida law to ensure all possibilities for such relief are identified and passed along to consumers.”
A copy of the letter can be found here.
Insurers Continue to Improve Their Home Valuations, Says MSB
The insurance industry is doing a better job adequately valuing residential construction, according to Marshall & Swift/Boeckh (MSB), a provider of building cost information.
MSB’s 2013 Insurance to Value (ITV) Index report for 2013 shows 60 percent of homes in the U.S. are undervalued by an average of 17 percent. These figures represent an improvement from last year’s numbers of 61 percent of homes being undervalued by 18 percent.
The ITV Index has improved dramatically since the 1990s, when nearly 73 percent of homes were undervalued by 35 percent. Insurance companies that have not instituted new underwriting procedures to carefully value coverage limits at the time policies are first written and at the time policies renew still see 73/35 as their statistical norm, according to MSB.
But that is changing.
“A critical mass of carriers are moving to more sophisticated by-peril pricing models,” said Steven Brewer, senior vice president, Underwriting Solutions for MSB. “This is motivating homeowners carriers to validate and archive detailed property characteristic profiles on their legacy books of business.”
Brewer said these updated profiles not only fuel better pricing segmentation, but also allow carriers to identify and update undervalued homes. “This enables them to generate risk-adequate premium on each property in the book, while properly protecting the policyholder,” said Brewer.
Since the movement to by-peril rating sophistication has gained broad acceptance, home insurance writers have begun a more diligent review of their legacy books of business, netting the current 60 percent/17 percent statistic. Along the way, the industry improved coverage and premium adequacy, with nearly $9 billion in lost premiums recovered annually from recalculating the base with more adequate protection for policyholders.
Increased use of modern “component-based” estimating programs has also improved coverage adequacy, since true replacement cost values are now calculated on a risk-specific basis.
The current ITV Index update represents the national average trend for homeowners insurance written in the U.S., according to MSB.
Originally published in Insurance Journal
MSB’s 2013 Insurance to Value (ITV) Index report for 2013 shows 60 percent of homes in the U.S. are undervalued by an average of 17 percent. These figures represent an improvement from last year’s numbers of 61 percent of homes being undervalued by 18 percent.
The ITV Index has improved dramatically since the 1990s, when nearly 73 percent of homes were undervalued by 35 percent. Insurance companies that have not instituted new underwriting procedures to carefully value coverage limits at the time policies are first written and at the time policies renew still see 73/35 as their statistical norm, according to MSB.
But that is changing.
“A critical mass of carriers are moving to more sophisticated by-peril pricing models,” said Steven Brewer, senior vice president, Underwriting Solutions for MSB. “This is motivating homeowners carriers to validate and archive detailed property characteristic profiles on their legacy books of business.”
Brewer said these updated profiles not only fuel better pricing segmentation, but also allow carriers to identify and update undervalued homes. “This enables them to generate risk-adequate premium on each property in the book, while properly protecting the policyholder,” said Brewer.
Since the movement to by-peril rating sophistication has gained broad acceptance, home insurance writers have begun a more diligent review of their legacy books of business, netting the current 60 percent/17 percent statistic. Along the way, the industry improved coverage and premium adequacy, with nearly $9 billion in lost premiums recovered annually from recalculating the base with more adequate protection for policyholders.
Increased use of modern “component-based” estimating programs has also improved coverage adequacy, since true replacement cost values are now calculated on a risk-specific basis.
The current ITV Index update represents the national average trend for homeowners insurance written in the U.S., according to MSB.
Originally published in Insurance Journal
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