Florida’s property insurance market continues to be beset by challenges from losses, loss cost inflation (social inflation) and litigation, which is persistently driving a need for more rate, but also affecting property owners as insurers non-renew in a number of cases.
Property insurers operating in Florida have been challenged for years, with the last five seeing a particularly difficult environment emerge after hurricane Irma’s significant losses drove loss cost inflation and litigation, amplifying losses and causing loss creep.
At the same time, the issues that have challenged property insurers in Florida have also impacted their reinsurance capital providers, driving up the costs of reinsurance coverage and causing insurers to question their own ability to remain solvent, as eroded surplus alongside higher costs plague the marketplace.
For some insurers, the way out of this has been to raise property insurance rates. But this isn’t always as easy as you might think.
On Friday of last week, Florida focused insurer Southern Fidelity faced a rate hearing with the regulator, at which it asked for further significant increases for the second-year running across its Homeowners Multi-Peril business.
Southern Fidelity requested rate increases of 36% across 64,000 policies at the hearing, which would have pushed up some homeowners insurance costs by as much as $3,000 per annum.
As a reminder, Hudson Structured Capital Management Ltd., which enters into insurance and reinsurance investment business as HSCM Bermuda, took a majority stake in Southern Fidelity Insurance Company in 2020.
Regulators didn’t make a decision on this on Friday, saying that they have had concerns about thee methodology Southern Fidelity uses to rate its property insurance business for some years.
One source of ours suggested that Southern Fidelity needs significant rate increases to become a more sustainable business and that the 36% requested wouldn’t be sufficient without further increases down the line.
The request to raise rates this year comes on the back of 31% rate increases last year and observers say Southern Fidelity will need to continue down this road towards rate adequacy.
For some customers, the two years of rate increases are compounded at renewals, meaning an effective almost 70% increase year-on-year in some cases.
As well as rate increases, non-renewal or cancellation of property insurance policies is the other way carriers are dealing with the challenges they face in Florida.
Southern Fidelity has itself cancelled almost 50,000 policies already and if its recent rate increase request turns out to be denied more non-renewals are likely.
That could result in even more policies flowing back to Citizens Property Insurance Corporation, which has been growing strongly in recent years, thanks to Florida’s property insurance market challenges.
At the hearing, Southern Fidelity is reported to have used litigation costs and higher reinsurance pricing as its main drivers for another rate increase.
But regulators are reported to have focused on its rating methodology, saying that it has been inadequate.
Southern Fidelity also said it could need further rate increases in the next few months as well, raising the prospects of some homes seeing 100% increases in just over a year.
The Tampa Bay Times reported that Florida’s Insurance Consumer Advocate, Tasha Carter highlighted a concern over the financial future stability of Southern Fidelity.
Southern Fidelity is not the only insurance carrier in Florida facing challenges right now.
Gulfstream Insurance has reportedly been non-renewing or cancelling homeowners policies in northwest Florida recently, with as many as 45,000 policyholders reportedly affected.
Gulfstream began sending out cancellation notices in July and this has left homeowners needing to find new insurance policies in the middle of hurricane season, not an ideal situation.
This seems to be a response to the same market condition related challenges Southern Fidelity faced, but in this case Gulfstream was driven into liquidation by its problems.
All of Gulfstream’s policies will be cancelled by August 27th, which has also been driving customers to Florida Citizens we understand.
The hunt for rate adequacy and a sustainable way to run a Florida property insurance business model continues and in some quarters the urgency to achieve this is rising as well.
Rising reinsurance costs are of course a factor. But more important have been loss cost trends, social inflation and litigation which have piled on the pressure, as well as companies that appear not to have rated adequately in the first place.
But Irma and the scale of damage and so insurance industry impact from that specific storm, provided the catalyst for many of the problems we see today, amplifying the social inflation and litigation issues that already existed to a level where it has now become a significant drag on insurers, while also highlighting the fact rates, in many cases, just haven’t been adequate either.
It’s no surprise that the CEO of Universal Insurance Holdings recently said that loss costs on Florida property insurance business continue to be impacted by social inflation, while it also raised its prior year loss amounts.
It’s also no surprise therefore that Velocity Risk Underwriters LLC, the managing general agency (MGA) operation of reinsurance, catastrophe, climate and weather risk-linked investment manager Nephila Capital, paused accepting new homeowners business in Florida, citing a desire to control its rapidly grown portfolio in the State.