Florida Chief Financial Officer Jeff Atwater asked the state’s top insurance regulator Wednesday why millions of residents are not seeing lower property insurance bills if reinsurance rates are falling 15 percent to 20 percent.
“Floridians not only deserve an explanation for why they have not seen any savings to date, they also deserve to quickly begin seeing property insurance savings in their bills,” Atwater wrote in a letter to Florida Insurance Commissioner Kevin McCarty.
Industry groups responded that’s just one factor in a complex rate situation, but the letter got quick attention from homeowner advocates, one of whom said it is “about time” someone in Tallahassee spoke up.
For years, the rising cost of reinsurance — backup coverage that insurers buy to help cover claims after catastrophes — has been a leading justification by insurers to raise rates.
But now that reinsurance costs are falling, according to articles in the trade press, the CFO with North Palm Beach roots says he wants to know why it’s not showing up in savings for policyholders.
“If insurance companies can justifiably raise rates on Florida families because the reinsurance market drives their costs up, they can certainly lower the costs for Florida families when reinsurance prices fall,” Atwater said.
McCarty “appreciates his inquiry,” said Amy Bogner, spokeswoman for the Office of Insurance Regulation. “We are in the process of working on a response letter to address his questions and concerns.”
Atwater’s letter cited a trade publication article that said a consensus among brokers and underwriters was that reinsurance rates “are going down on average in the range of 15-20 percent.” Reports show an influx of capital from pension funds and other markets have created the “right conditions for relief,” Atwater said.
Industry groups responded that sometimes insurers are not spending less on reinsurance overall, just buying more protection.
“The CFO is asking a very reasonable question, and the straightforward answer is that many of the state’s private insurers (not all of them) have used the reinsurance savings to purchase additional reinsurance,” said Lynne McChristian, Florida representative for the Insurance Information Institute. “That means that an insurer’s annual expenditure for reinsurance may remain the same, yet it has made a business decision to purchase additional reinsurance to be financially prepared to handle the costs of natural disasters.”
Others said reinsurance costs are just one piece of the puzzle.
Such expenses are “only one portion of Florida property insurance rates which have been hammered in recent years by unprecedented fraud and increased claims from an emboldened public adjuster community,” said G. Donovan Brown, Florida counsel for the Property Casualty Insurers Association of America.
Brown continued: “A soft reinsurance market does not necessarily correlate to reduced rates this year. The industry is working hard to better protect Florida’s consumers and insulate insureds from hurricane tax sticker shock through enhanced reinsurance programs.”
But advocates for homeowners cheered the letter from the CFO, an elected position with administrative oversight over financial and insurance regulation. For years, unregulated reinsurance rates, often coming from offshore firms and sometimes companies affiliated with an insurer, have been a top driver of rising consumer rates in Florida, advocates say.
“It’s about time someone in Tallahassee points out that once these insurance companies get a rate hike, they want another and another, regardless of the fact that we haven’t had any major storms and have lower reinsurance costs,” former state insurance consumer advocate and Tampa attorney Sean Shaw said. “Enough is enough.”
Atwater signaled he’s not comfortable with the status quo. As he told McCarty, “right now there is no evidence that Florida families are benefiting as they should from the drop in reinsurance rates.”