Florida's property insurance market is in a crisis, with the majority of homeowners in the Southeast unable to secure insurance except through its residual market and commercial accounts going bare on wind coverage.
Recently, large publicly traded brokers reported a very gloomy outlook toward the property market in general. During investor conference calls they called the market the worst they had seen in years.
To agents and brokers on the ground in Florida dealing with the issue locally, the word "crisis" doesn't begin to describe the situation. Impossible would be a more apt description of the situation.
Brian Samberg, president of Southeast Insurance in Boca Raton, Fla., called the situation "very bleak."
Mr. Samberg, a board member of the Professional Insurance Agents of Florida, described an insurance environment that has broken down with virtually no admitted market available and practically all homeowners risks in southern Florida going into the state's residual market, Citizens Property Insurance Corp.
Those few companies that are writing new business are only writing policies for homes no older than 12 years old, and others are choosing to only write homes no older than 5 years old, he said.
Premiums are doubling, putting many people in a financial bind. In most cases, said Mr. Samberg, the rule-of-thumb on the cost of premium is 2 percent of the home's value.
"The biggest problem is that premiums have gotten so high the people can't stay in their homes," noted Larry Willis, vice president of Annette Willis Insurance Agency based in Miami. "When people can't afford to live in their homes, that has economic consequences for the area," said Mr. Willis, a past president of PIA of Florida.
The most dramatic effect of these increases has been felt within the last six months, said Mr. Willis, as more and more insurers learned they were unable to secure reinsurance. He suggested that the ramifications for homeowners will be felt into next year as homeowners get recalculated mortgage payments that include the increased cost for insurance.
For the multimillion-dollar homes that can't be placed in Citizens (home value limits are under $1 million), the alternative is the surplus lines market where rates are double or worse, he said.
Matt Wester, a spokesperson for the Florida Surplus Lines Service Office, said nonadmitted insurers have limited capacity in Florida and are carefully choosing their risks, purposely spreading those risks geographically to avoid becoming overburdened in any one region.
"They are not tapped out" in terms of capacity, he observed. "But they are cherry-picking the best risks that are available."
Commercial property owners are faring no better, unable to secure wind coverage from either the admitted or nonadmitted markets, especially in the South and along the coast of Florida.
There is no residual market available for commercial wind risks and many businesses are doing without because they have nowhere to turn.
"This is a tremendous crisis," said Mr. Samberg. "As agents, we saw the homeowners crisis coming, but the commercial market caught us off guard."
To combat this situation, Florida Insurance Commissioner Kevin McCarty received approval on Aug. 1, from Gov. Jeb Bush and the cabinet, to create a Joint Underwriting Association to deal with the commercial insurance crisis.
The question that lingers, however, is whether the JUA can be put in place fast enough to help commercial accounts since the authorization only grants the commissioner authority to begin drafting the rules for the JUA. It requires him to report back to the cabinet on Aug. 15 on the process–right in the midst of hurricane season.
The American Insurance Association expressed skepticism over the JUA, saying the plan needs to carefully target real problems and not create new ones. The association called on overall regulatory reform that would allow additional capacity to flow into the state.
Scott Johnson, executive vice president for the Florida Association of Insurance Agents, called this "crisis much worst than Andrew," when a large number of carriers went bankrupt because of losses from the 1992 hurricane.
The situation is compounded by a number of factors, he noted. For starters, the crisis has made Citizens the largest insurer in the state, followed by State Farm, Mr. Johnson pointed out.
The underwriting difficulties extend beyond southeast Florida and cover all coastal areas of the state to some extent. State Farm, the largest insurer in the country, has not written any policies in Dade, Broward, Palm Beach, Pinellas and five other Florida counties since 1993.
Add to that the liquidation of the state's largest property insurer, Poe Financial, adding another 350,000 policyholders to Citizens, and the situation becomes even more acute, Mr. Johnson said. The Florida Guaranty Fund has had to bail out Poe Financial, and the state's reinsurance catastrophe fund is in the red, he added.
The result, he predicted, will be even higher assessments in the future.
"If there is a storm, things will get worse before they get better," Mr. Johnson lamented. "If we are hit with another hurricane, it will get worse real quick."
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