An irate policyholder bursts into an insurance agency waiving a policy and demanding why their premiums have skyrocketed over the past year. In recent months this has become a common scenario that has played out thousands of times in insurance agents' offices throughout the state. Most customers just want to vent their frustrations, but others want to understand the reasons behind what seems a never-ending rise in premiums. It is up to agents, as the face of the industry, to provide a clear-cut answer to the most complex of problems.

To start with there are numerous factors that influence the price of insurance today. The most obvious is the upswing in the frequency and severity of tropical storms as exhibited by the eight major hurricanes that affected the state in 2004 and 2005. In addition, there is the rising cost of materials and labor to repair homes, which is also a by-product of the extraordinary growth in Florida and its associated increase in exposure. And finally, there is the extreme shortage of reinsurance.

Most agents can talk with authority on a majority of these issues. However, by a large margin, the issue that has the most impact is also the most difficult to explain, namely the role of reinsurance. Reinsurance is a mystery to all but a small group of brokers and the companies that provide the coverage. Nevertheless, it has a huge impact on policyholders.