Citizens halves Florida homeowners rate change thanks to AOB reform

Florida’s Citizens Property Insurance Corporation has revealed that its homeowners insurance premium rate need has almost halved after taking into account the recent enactment of legislation designed to reform the assignment of benefits (AOB) system.

Citizens said in an update on its rate needs for the year ahead that the average uncapped Florida-wide indicated rate need for all personal lines business has dropped from 25.9% to 14.2%, while the capped rate change was reduced to 4.7% from its previous filing of 8.2%.

The almost halving of the capped rate change is significant, as this suggests Florida primary property insurance rates are set to slow their inexorable rise.

In an environment where reinsurance rates have risen at the latest renewals season in June, the suggestion therefore would be that primary insurers in the state will be fighting hard not to see their reinsurance costs rise again at the 2020 renewals, as the expectations for their own pricing looks to have declined after this change.

It’s positive for insurance consumers, of course, as it looks like Florida Citizens is bullish that the enactment of HB 7065 through the House and Senate in Florida will cap the runaway claims inflation being seen, particularly through fraudulent AOB cases.

The explosion in non-weather related water loss claims in recent years had driven Florida Citizens to propose a rate increase for 97 percent of its homeowners policyholders in 2019, the insurer had previously said.

But the enactment of this legislation means those rate increases won’t be anywhere near as high as they would have been without the bill passing successfully into law.

The Citizens board is calling for capped statewide average increase of 4.7% for personal lines policyholders, so homeowners, condominium owners and renters. If passed this will come into effect from December 1st 2019.

The insurer said the recommendation takes into account the passage of HB 7065, legislative changes that go into effect as of July 1st 2019.

If primary rate need reduces due to the enactment of this assignment of benefits (AOB) reform, as it seems to be, then the knock-on effect will be a reduction in the upwards pressure seen on reinsurance rates in Florida as well.

As we explained recently, Sean Downes, CEO of Florida headquartered primary insurer Universal Insurance Holdings, said that he feels it is still too early to understand how the AOB reform may play into reinsurance capacity pricing for the state.

But Citizens proposal for rate increases at around half the level it had previously proposed, all due to this AOB reform, suggests that upwards rate pressure will be significantly reduced on the primary side, which should naturally filter through into the reinsurance markets as well.

Of course, reinsurance firms and alternative or ILS fund capital providers are keen to see property catastrophe reinsurance rates in Florida hold up as much as possible.

It’s likely to require market-wide pressure now if the reinsurance rate rises achieved this year are to be bettered again in 2020, else we could see a return to rate pressure as the reduced primary rate expectations feed through the market.

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