The Board of Florida’s Citizens Property Insurance Corporation has approved a statewide 6.8% rate rise for personal lines policies, as it tries to head off a trend of rising non-weather water losses and assignment of benefit (AOB) abuse.
The board of Citizens voted unanimously to hike rates by almost 7% as it tries to make rated in Florida reflective of the effects of increased water losses, the assignment of benefits abuse and increased litigation which is being seen.
Approval was sought to increase rates now as Citizens believes that left unchecked these issues would have caused rate increases for years to come. This is all part of the carriers mission to make insurance rates actuarially sound in Florida, a statutory obligation.
Barry Gilway, Citizens President, CEO and Executive Director, said that the issue is not unique to Citizens, suggesting that other Florida primary carriers may find themselves having to increase rates. The market is sure to respond to Citizens increase, but the question is whether other Florida primary insurers may find themselves more competitive if they now don’t hike rates as much as Citizens has.
“The causes for these increases include the AOB document itself, referral fees & other inducements, unchecked solicitation for mitigation business, lack of licensing and regulation and a general lack of knowledge on the part of customers of the risks involved with an AOB,” Gilway explained, adding that this is a “crisis” for the entire Florida property insurance market.
Florida is an incredibly competitive insurance market, given the rates available and focus on it as one of the main drivers of reinsurance related returns in property risks. As a result, some carriers may feel they can compete more strongly with Citizens now and the higher rates could result in more policies switching out of Citizens and into private companies through the clearinghouse.
Inland homeowners with multi-peril policies would see an average increase of 6.3%, coastal homeowners will see rates climb by an average of 8.6%, and condominium owners rates will rise by a statewide average of 7.1%. Citizens said that despite the statewide increases, thousands of its customers will see rate reductions.
The rate increases have to be approved by the Florida Office of Insurance Regulation at a public hearing later this summer. New rates will go into effect after January 1 2017.
“Every year, our actuaries use recognized standards to formulate the rate recommendations presented to this board,” commented Chris Gardner, Citizens Chairman. “We don’t want to raise rates, but we must respond to the actuarial data. Unfortunately, our policyholders are being required to pay higher rates because of inflated claims, increased litigation and abuse. We can’t keep asking them to do that.”
The increase in rates by Citizens could result in rate rises across the market. It could also result in greater competition, from any carriers who choose not to raise rates as high.
Of course the knock-on effect of the increasing Florida property insurance rate environment could be for greater demand for reinsurance capacity and coverage and perhaps even some ability to increase reinsurance rates, or at least force in the pricing floor.
With rates increasing on primary lines, reinsurance firms and insurance-linked securities (ILS) fund managers are unlikely to support further price declines. If primary carriers believe their rates have not been actuarially sound, the reinsurance market is likely to demand some compensation, either in the form of higher pricing or narrower terms.
Florida remains the most competitive and sought after property catastrophe reinsurance market for many traditional reinsurers and ILS fund managers, something that is unlikely to change. In fact any prospect of higher rates could serve to increase competition again in the state, but could also result in more business ceded to the reinsurance and ILS market if primary carriers have any concerns about the quality of the property risks they have underwritten.