Can you believe it – The 2020 Atlantic hurricane season was the most active as well as the seventh costliest Atlantic hurricane season on record. In addition, it was also the fifth consecutive above average Atlantic hurricane season from 2016 onward and the first extremely active season since 2017.
The record breaking season featured a total of 31 (sub)tropical cyclones, with all but one becoming a named storm – reaching winds in excess of 33 knots or 38 mph. Of the 30 named storms, 13 developed into hurricanes, and six further intensified into major hurricanes, with one, Hurricane Iota, attaining Category 5 (137 knots or 158 mph) strength. It was the second season to use the Greek letter storm naming system, the first being 2005.
Of the 30 named storms, 12 made landfall in the contiguous US, breaking the record of nine set back in 1916. The season was also the fifth consecutive season in which at least one Category 5 hurricane formed. During the season, 27 tropical storms established a new record for the earliest formation by storm number. This season also featured a record 10 tropical cyclones that underwent rapid intensification meaning a tropical cyclone intensifies dramatically in a short period of time, tying it with the year 1995. All of this unprecedented activity was fueled by a La Nina which is where the sea surface temperatures across the eastern equatorial part of the central Pacific Ocean will be lower than normal by 3 to 5 °C (5.4 to 9 °F). This developed in the summer months of 2020.
This in turn is leading to rate increases and capacity tightening in Florida, as relayed by media articles. Home insurance is getting a whole lot more expensive, a wallet punch for residents of a state that already has some of the highest property insurance rates in the nation. not to mention a shrinking marketplace.
Major insurance companies are raising windstorm premiums in Florida as much as 33 percent and dropping tens of thousands of customers, signaling an end to the nearly decade-long lull in prices. At the same time, some companies also are canceling thousands of home policies to reduce risks of corporate losses.
Underwriting guidelines and requirements are also changing. Older homes and older roofs are a major issue. Even with some up-dates to the electrical, plumbing and HVAC systems, some carriers are requiring newer roofs. This can be costly to the consumer as contractors take advantage of the requirement and supply and demand drive up the costs.
One of the main reasons is reinsurance costs. Reinsurance is the insurance designed to buffer insurers from big losses. It keeps the companies afloat and ensures there’s enough cash around to pay claims if a devastating storm strikes. As a rule of thumb, industry experts say, about half of every premium dollar an insurance company collects goes toward reinsurance.
For 2020, the reinsurance prices rose by as much as 26 percent, insurance news site Artemis reported. The last time Florida insurers had to deal with reinsurance prices this high was 2005, after back-to-back hurricanes sent premiums skyrocketing. So, that means that at least 76% of every premium dollar may be spent on the cost of reinsurance. That leaves very little for operating costs and profit.
Reinsurance companies say the drawn-out process of paying claims after storms drives up prices. Hurricane Irma’s initial estimated damage when it hit in 2017 was around $9 billion. At that point, experts predicted that property premiums would not increase. Now that’s ballooned to $17 billion three years later, according to the Florida Office of Insurance Regulation.
Insurance companies blame legal bills for driving up premiums across the state and have called for even stricter reforms. Never has the need for tort and insurance reform in Florida been greater. All consumers, particularly senior citizens, young families, and small businesses are being hit hard by skyrocketing costs, paying the price for policymakers who do little about rampant litigation abuse. Florida State leaders must continue to look for ways to reduce the ravenous and ruinous lawsuit factories that make insurance unaffordable in Florida.
Without reform it is sure Floridians face massive insurance rate hikes, and insurers simply won’t offer the coverage homeowners need in some regions. The risks of economic devastation caused by shocking insurance rate hikes are real, and Florida lawmakers must work to stop the tidal wave of higher property insurance rates about to hit Florida.
The rate hikes and storm risks also are forcing some homeowners back into a new, more expensive market. This year, for example, the state allowed Capitol Preferred Insurance Company to drop 23,000 policies, about a quarter of its total, along with its request to raise rates. Capitol Preferred, the ninth-largest insurance company in the state, specifically pointed to high reinsurance costs as the reason behind its mass policy drop. It told Florida it needed to increase premiums by at least 47 percent, in addition to slimming down on policies, to stay in business. The state approved an average increase of 33.5 percent, noting that “the projections reviewed by the office indicate that even with a substantial rate increase the [policies the company wanted to drop] will continue to generate unsustainable losses.”
Security First, citing a 17.5 percent increase in reinsurance rates, raised premiums 12.8 percent and didn’t renew 5,000 coastal clients.
Edison’s Insurance Company asked for a nearly 22 percent increase, which Florida approved.
Velocity Risk asked for 28 percent.
National Specialty Insurance Company asked for an average premium increase of 28 percent.
And those are just the most dramatic requests. Plenty of other companies are upping their rates too, just not as much. Florida’s biggest insurer, Universal Property and Casualty, asked the state for a 12.4 percent increase. People’s Trust asked for 10.9 percent, AIG for 9.6 percent, Florida Family for 6.5 percent, and FedNat for 5.5 percent.
Late last year, major insurer Florida Specialty Insurance went belly up, forcing its 90,000 clients to find a new company, the Insurance Journal reported.
The state of Florida has an outsized role to play in this Homeowners Property market. Please know that no other place in the world has the insured exposure to hurricanes as Florida does.
Welcome to Florida!
Information from Miami News Herald, the Center Square, Artemis and Wikipedia articles.