Florida’s CFO Jeff Atwater must have had sticker shock when getting his bill for insurance renewal premiums. Last week, Atwater fired off a letter to Florida’s Insurance Commissioner Kevin McCarty asking why Florida insurance rates were still going up despite a drop in reinsurance rates.

Here is the letter from Atwater:

Dear Commissioner McCarty,

For more than a decade, insurance companies have argued that their property insurance rate increases have been due in large part to rising reinsurance costs. But if this is their justification for years of rising rates, can you please explain why a significant drop in reinsurance costs worldwide hasn’t yet corresponded with a significant drop in property insurance rates for Floridians?

The reports by reinsurance professionals and analytics firms that I have read this year suggest Florida property insurance companies have seen significant decreases in their catastrophe reinsurance pricing. For example, in a recent article by The Insurance Insider, I read that, “the picture emerging is of rate reductions that are more significant than initially forecast…The consensus among brokers and cat underwriters polled by The Insurance Insider is that rates are down on average in the range of 15-20 percent.” Industry reports show that the influx of capital from pension funds and other markets have created the right conditions for relief.

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. Floridians not only deserve an explanation for why they haven’t seen any savings to date, they also deserve to quickly begin seeing property insurance savings in their bills.

I know you agree that we should always strive to provide whatever economic relief we can for Florida’s families while also maintaining a secure insurance system for property owners. But this goal means ensuring fairness for both insurers and customers, and right now there is no evidence that Florida families are currently benefiting as they should from the drop in reinsurance costs.

I look forward to your input on this important issue.


CFO Jeff Atwater

McCarty’s letter responded in part:

…There are several reasons why a significant drop in reinsurance costs has not yet corresponded with a significant drop in property insurance rates.

The Office of Insurance Regulation (Office) has no firm rule on how much reinsurance a company must purchase and is constrained by statute to allow the cost of a purchase that complies with the rating law (a purchase of up to a 1 in 250 year event). The reinsurance needed is a function of how much insurance a company is writing, its exposure to hurricane loss, as well as the availability of other funds such as policyholder surplus, that can be used to pay for potential hurricane losses. An insurance company must evaluate its reinsurance need and purchase accordingly. In a time when reinsurance rates are dropping, an insurance company may choose to purchase more reinsurance. In fact, several Florida property insurance companies are being required by their rating agency to buy more reinsurance than they initially planned to purchase. This is likely to keep rates up and move additional premium and exposure to reinsurers. The additional coverage is added protection to ensure claims are paid in a time of a catastrophic event.

Another issue has to do with timing. There has not been enough time for most insurance companies to reflect any decreases in the reinsurance premiums. Most property reinsurance contracts in Florida have policy periods that run from June 1st to May 31st. Once the insurance company has formalized its reinsurance contracts, the insurance company would then conduct an actuarial review of its loss experience and expenses to determine the appropriate changes that must be made on both a statewide and a territorial level, which can be very time-consuming. . . .

While the average reinsurance cost might have decreased this year, not every insurance company will experience a drop in its reinsurance costs. Furthermore, the cost of reinsurance from the Florida Hurricane Catastrophe Fund has actually increased this year. It is important to remember reinsurance costs make up only a portion of the total homeowners premium and a reduction in reinsurance costs does not translate into a on to-one reduction in premium. For example, in a recent homeowners rate filing, an insurance company received an approximate 19% reduction in reinsurance costs which translated into an indicated 8% reduction in overall premiums.

In addition, many insurance companies have chosen to transition large rate increases over a period of years in order to mitigate the effects on their policyholders, as allowed under Section 627.0629, Florida Statutes. Depending on the size of that residual rate need and current loss experience and expenses, increases in premium may still be warranted despite a decrease in reinsurance costs.

The Office can reject a proposed rate increase if it is not supported in accordance with actuarial standards or if the proposed rate would violate Florida Statutes or applicable administrative rules adopted as authorized by Florida Statutes. Insurance companies would be expected to reflect any reinsurance costs savings in its rate level indications and the Office has requested in recent filings that insurance companies include the reinsurance costs from the 2013/2014 contracts. Insurance companies that experience a reduction in reinsurance costs could make a full rate filing and reduce rates for policyholders. Insurance companies should do this or certify rates within one calendar year from the last time an annual rate certification or rate filing was made. Some insurers have indicated their intent to reduce rates at least in some territories based on the 2013 reinsurance costs. As stated above, others may purchase more reinsurance rather than reducing rates and the purchase of more reinsurance based on, or up to, a 1 in 250 year event is allowed by the rating law to be included in the premiums.

The Palm Beach Post quoted Merlin Law Group’s Sean Shaw on the matter. Sean congratulated Jeff Atwater for bringing the issue to public light:

“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.”

From my viewpoint, the insurance rate problem in Florida is not getting better for a number of reasons. It is not because hurricanes have been hitting the state – we have not had one in eight years. It is not because reinsurance costs are going out of sight, because they are dropping.

Rates are going up because our legislature has lessened insurance rate regulations under the guise of having a “free market” and made it far easier for insurers to seek rate increases. Those legislative changes left little authority for regulation requiring rate reduction. McCarty cannot say that, or he would lose his job. Maybe we should elect somebody like Sean Shaw to write laws that make sense for Florida families.

Here is Sean Shaw’s campaign website. He needs your support.