TALLAHASSEE, Florida. – As Florida lawmakers try to stabilize the troubled property insurance system next month, they could face escalating reinsurance issues, a critical part of the system.
Fitch Ratings released analysis on Wednesday that global reinsurance prices are expected to rise more than 10% in 2023, pointing to losses from disasters such as Hurricane Ian and “increasing frequency and severity claims related to natural disasters”.
“Price increases will be most pronounced in regions most affected by natural disasters in 2022, including Australia, Florida and France,” the rating agency said. “Hurricane Ian is likely to have caused between ($35 billion and $55 billion) in insured losses, making it one of the costliest natural disasters of all time.”
In the analysis posted online, Fitch also said it expects tighter restrictions when renewing reinsurance policies in 2023, while raising the possibility that Florida property insurers may not be able to buy all the reinsurance they need.
“Nevertheless, we believe demand for real estate catastrophe reinsurance during the 2023 renewal season will be largely met, with the exception of Florida,” the analysis states.
Reinsurance, which is sold in a global market, is essentially emergency cover for insurers. It plays a crucial role in Florida, as evidenced by the tens of billions of dollars in damage predicted by Category 4 Hurricane Ian, which made landfall Sept. 28 in southwest Florida before crossing the state. .
When property insurers’ losses reach certain thresholds, reinsurance coverage is triggered to help pay claims. Reinsurance costs are included in policyholder rates.
Florida property insurers rely on a combination of reinsurance purchased in the private market and from the state-run Florida Hurricane Catastrophe Fund. As an example of the importance of reinsurance, the Florida Hurricane Catastrophe Fund estimated last month that it would have $10 billion in losses from Ian.
Reinsurance costs and availability were an issue in the Florida market before Ian. In a special legislative session in May, lawmakers agreed to spend $2 billion in tax dollars to temporarily provide additional reinsurance coverage to insurers.
Governor Ron DeSantis called the May special session amid widespread problems in the insurance industry, including homeowners losing policies and seeing massive rate hikes. Meanwhile, some property insurers have gone insolvent and policies have poured into the state-backed Citizens Property Insurance Corp., which has been set up as an insurer of last resort.
The problems, however, have persisted and lawmakers will hold another special session the week of December 12 which is expected to include additional changes to try to strengthen insurers.
House Speaker Paul Renner, R-Palm Coast, said Tuesday lawmakers will consider a “kitchen sink of options” in the special session to try to stabilize the market and expand private coverage. He said those options could involve spending extra money to help with reinsurance.
“It would be temporary, and it has to be conditional on major reforms so that we actually fix the situation,” Renner told reporters. “I don’t want to be in a situation where we will make a new long-term commitment from taxpayers to buy insurance. It is not the goal. The goal is to have a healthy private market, to then start depopulating (removing policies) citizens so that we get back to where we weren’t so many years ago, i.e. a healthy and vibrant market where people can’t go into cardiac arrest when they get their renewal bills.