Dim the lights, turn on the projector, and cue the voiceover: "In a world gone mad, when everything was crumbling around them, one industry stood strong — INSURANCE!"

That could have been the preview for the disaster movie that was Florida's and the nation's economy in 2009.

As more than 1,000 attendees heard at the Property Casualty Insurers Association of America's 2009 Annual Meeting in Orlando in late October, the property and casualty business successfully navigated difficult waters this past year. Despite the deepest recession of our lifetime, with unemployment broaching ten percent, plummeting consumer confidence, a credit crisis that impacted nearly every business, and a collapsed housing sector, insurance companies continued to operate the same way they did one year ago: Writing policies and paying claims without a federal bailout.

Few industries can say the same, especially in a state like Florida that was so far out on the crest of the construction and consumer-consumption bubble. As usual, Florida represented both tremendous opportunity and unprecedented risk, with five million catastrophe-exposed insured homes and 11.3 million insured cars. While we do not yet know the final numbers for 2009, insurers paid more than $17 billion in Florida property casualty losses, including $7.9 billion of personal auto claims and over $2 billion of homeowners' claims, in a similarly quiet 2008.

The National View

Nationally, net written premiums declined by 3.6 percent during the first quarter of 2009, the biggest drop in first quarter premium since ISO began recording quarterly changes. Premiums were held back in part by continued soft market conditions, primarily in commercial lines, which entered its fifth consecutive year of decline in 2009. If negative premium growth continues through the end of 2009, it will mark the first three-year sequential decline in premiums written since the Great Depression. In those bleak times, industry premiums fell for four consecutive years (1930 through 1933, inclusive) after peaking in 1929.

Again nationally, the magnitude of rate decreases in most key commercial lines had begun to diminish by early 2009, but remained in negative territory. Nevertheless, whatever modest gains the industry earned from higher rates were more than offset by economic weakness cutting into the demand for most types of insurance.

In particular, the weak economy nationally and in Florida continued to have a disproportionately large impact on commercial insurers due to rising unemployment slicing payrolls and eroding the exposure base for workers' compensation premiums and reducing construction and manufacturing activity.

Other Markets

Insurers were able to exhale, though, as the Florida Legislature reversed the Oct. 23, 2008, Murray v. Mariner decision and reinstated the prohibition on hourly attorneys' fees in the state. We are pleased that 2009 will come to a close with the news that the Florida Office of Insurance Regulation (OIR) ordered a 6.8-percent rate decrease for 2010, for a cumulative total decrease of 63 percent since the now-preserved 2003 reforms.

Despite the good news from the Legislature, workers' compensation insurers are plagued with another layer of uncertainty. Prior to the passage of the 2009 positive reforms, the OIR originally approved a 6.4 percent increase in response to Murray. This increase was effective April 1, 2009, and only for new and renewal business and not for policies in-force. As a result, insurers will continue to play catch-up as the claims and accompanying attorneys' fees from those six months continue to develop.

The OIR's annual report on the profitability and solvency of medical malpractice insurers doing business in Florida contained good news. To quote the report: "Based on the trends found in this report, it would appear that the 2003 changes to the law have benefited policyholders, the industry, assisted with the solvency of medical malpractice carriers, and directly contributed to lowering the defense cost and containment ratio in the State of Florida."

The personal automobile market continued to show improvements in competition, even as the industry continued to face OIR's and other public officials' desire to prohibit credit-based insurance scores.

Homeowners', of course, continued to be the most troubled line of business in Florida. The year began with State Farm Florida's announcement that it would withdraw from our property market, and continued with other discouraging news.

While risk-taking entrepreneurs have come in with new domestics or expanded smaller companies in an effort to fill the void, the OIR reported that through the first six months of 2009, of the 21 new companies writing new homeowners' policies in Florida, only six had underwriting gains; 15 suffered losses.

Even without a hurricane, the Florida market saw the liquidations of American Keystone Insurance Co., First Commercial Insurance Co., and Coral Insurance Co., and the suspension of People's Trust Homeowners Insurance from writing new business for six months.

Import Problems

But the biggest news in Florida insurance in 2009 sounded more like the name of one of your son's favorite heavy metal bands than a consumer product: Chinese Drywall. Since the initial news articles began to garner attention in early 2009, media reports of bodily injury and property damage allegations tied to Chinese drywall have become more common, along with the consequent litigation. Chinese drywall claims have caused a conundrum over who is financially responsible for these defective products. Drywall manufacturers, their U.S. distributors, general contractors, and installers have all been named in lawsuits this year. Insurers writing homeowners', commercial property, commercial general liability, product liability, and home warranty lines are being drawn in as the public and politicians search for solutions.

Meanwhile, in case you weren't paying attention, the U.S. Congress decided to take a new look at how insurance is regulated, and therein lies probably the greatest challenge for the insurance industry going forward.

The current debate in Congress will determine the future of how all insurance operates. While the Florida regulatory environment could certainly benefit from a less adversarial posture, PCI continues to believe that efficient state-level regulation of property and casualty insurers is effective, by being responsive to consumers while keeping insurers solvent and competitive. Proposals for duplicative layers of federal regulation over insurers stand to negatively affect consumers over the long-term.

Property and casualty insurers remain financially strong, did not contribute to the current financial crisis, do not present systemic risk, and are already regulated effectively at the state level.

And that's no movie.

William H. Stander is assistant vice president of the Property Casualty Insurers Association of America. He may be reached at 850-681-2615 or William.Stander@pciaa.net.

Special Reports /

2009 Property & Casualty Market Review

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