You might have noticed an increased premium on your Florida Homeowners Insurance renewal & thought that here they go again. Big, rich, insurance carriers, taking more of your money. But I did not have any claims, why are my premiums going up? Also, there have not been big catastrophic losses to hit the State of Florida in several years.
Fair question. Firstly, while you will typically be charged for having losses, not having a loss does not necessarily insulate you from premium increases. The basis of the entire industry is the law of large numbers. So if the pool of insureds perform poorly for the insurance carriers, they will take action to increase their revenue to ascertain they do not perform so poorly.
Let’s talk about performance. What type of return do you think the insurance companies are making? I bet you think it is a large number. The metric used within the industry is the Combined Ratio, which is (claims expense+overhead/revenue). Most Florida Homeowners Insurance Carriers have a combined ratio of > of 95%. Which means, they are making less than 5% on their money. After you factor in inflation, there is not much money to be made.
So how do they make bank? Well, they invest the money on the float (premiums paid, not yet paid out to claims expense or overhead). So in a low interest rate environment, a slight fluctuation on the claims side can be devastating. When we consider the insurance environment over the last eight years or so, it has been relatively soft, meaning there was downward pressure on pricing.
So what happened? There are many reasons that have contributed to the most recent turmoil. Many of the experts are pointing to legislation which has allowed trial lawyers to take advantage of carriers, increasing premiums, etc… This certainly is a contributing factor. However, from my vantage point, it was a much simpler contributing factor, a case of follow the leader. Ironshore, a leading writer of Homeowners Insurance within the State announced they were not making money & were non renewing their entire book of business – I estimate at tens of thousands of policies. This started a domino effect. Lloyd’s of London increased pricing on many of their programs by 40%. Universal (largest writer of Homeowners within the State) diminished their appetite dramatically etc… Federated Nation followed suit. Many carriers stopped writing altogether in Miami Dade Palm Beach & Broward Counties. The result is the increase in your mailbox.
The silver lining is, that the pendulum will swing back the other way; & hard markets do not last forever. Without an actual loss event, increased premiums should entice entrepreneurial markets to dip their toes in & the gloom and doom will not last forever.
What to do in the interim? You need to consult with a professional to ascertain you maximize the Wind Mitigation Credits available to you. Perhaps a few small changes can yield large premium savings. You then need to make sure your Home is going to the market that ants it the most during these turbulent times.
Give us a call, we will be happy to direct you!