Article Courtesy of The Palm Beach Post
By Charles Elmore
Published February 27, 2012
To Florida homeowners, it seems like there is only one thing worse than a bad storm to make them dread opening their insurance bills: Years of calm.
Private-sector insurers have long since collected more in premiums - nearly $40 billion through 2010 - than the $28.8 billion they paid in direct losses during and since the hurricanes of 2004 and 2005, industry data shows.
Yet consumers see no let-up in the push for higher premiums, and cutbacks in coverage and discounts.
"It makes me think they're gouging," said Tequesta resident Potsy Scoville. "It's absurd."
Insurers besides state-run Citizens paid about 33 cents in direct losses for every premium dollar collected between 2006 and 2010, according to data The Palm Beach Post requested from The Florida Catastrophic Storm Risk Center at Florida State University.
Taking a longer view, the private insurance industry in Florida sustained a lower loss ratio from 2000 to 2010 - 66 percent - than the 76 percent it rang up in the quarter-century from 1985 to 2010, data shows.
Insurers say the picture is far more complicated than such basic loss ratios, which do not take into account expenses such as reinsurance to cushion the risks carriers face in Florida.
But consumers wonder where this ride stops.
Scoville, a 70-year-old military veteran, said he filed no claims for the 2004-2005 storms but insurer USAA increased his premium 42 percent last year to about $4,800 because it said the potential cost to replace his house rose. He said he faces another hike of 35 percent this year related to storm-mitigation discounts.
"They have had a good run with no losses," Scoville said. "It is hard to understand."
A national industry group says things need to be kept in perspective.
"When there's no hurricane in Florida, the results look good," said Robert Hartwig, economist for the Insurance Information Institute in New York. But a repeat of the 2004 storm season in 2012 would erase the $10.5 billion difference between premiums and direct losses between 2004 and 2010, Hartwig said.
"Moreover, a repeat of Hurricane Andrew during the 2012 hurricane season, on the 20th anniversary of Andrew, would produce losses more than twice that $10.5 billion figure," he said.
Hartwig calculates insurers have operated in the red at least half of the past 26 years in Florida, allowing for what he calls reasonable operating expenses and profit margins.
"The reason why insurers are reluctant to operate and insure in Florida isn't because they're afraid to insure for hurricanes," Hartwig said. "It's because the state, especially under (former) Gov. (Charlie) Crist, actively suppressed rates."
That's a "myth," said J. Robert Hunter, director of insurance for the Consumer Federation of America. He is a former Texas insurance commissioner who served as a consultant to Florida regulators after Andrew and in 2007. "Saying rates are suppressed does not make it true."
The insurance industry has effectively transferred costs and risks to consumers through things such as higher deductibles, he said, while 1.5 million policyholders in Florida are now served by Citizens, the insurer of last resort.
Consumers remain besieged by "insurer attempts to unjustifiably increase rates or hollow out coverage," Hunter said.
The property and casualty insurance industry as a whole is "significantly overcapitalized," with well over $500 billion in surplus, more than triple 1991 levels, he said. It would still have $1.20 in surplus for every dollar in premiums even if it had to pay right now for all 10 of the most costly disasters in U.S. history, he said.
Florida Insurance Commissioner Kevin McCarty was not available for comment, but a spokesman said his office "vigilantly" reviews many factors, not just loss ratios.
"Some of these factors include industry trends, overhead costs, reinsurer costs, commissions, loss adjustment expenses, taxes, and other contingency factors," spokesman Jack McDermott said.
Gov. Rick Scott says he's worried about potential assessments and taxpayer liability for Citizens if a big storm hits. He has endorsed efforts to shrink Citizens by raising its rates and scaling back coverage with the idea of pushing more people to private-sector insurers.
One plan under consideration by state lawmakers this session would make it easier for lightly regulated "surplus lines" insurers to take over some Citizens policies and raise rates at will, unlike regular "admitted" carriers.
Insurers point out direct losses from claims are not their only costs. They also have administrative, advertising and other expenses.
Reinsurance has represented as much as 35 to 45 percent of total costs in recent years, said a spokesman for the Florida Property & Casualty Association, a trade group representing Florida-based insurance companies. Even without hurricanes, claims for sinkhole, water and fire damage have been significant in various parts of the state, he said.
On the other hand, the loss ratios also do not include investment income insurance companies earn on the premiums .
Companies like USAA, or United Services Automobile Association, seem to be flourishing.
USAA, which specializes in providing financial services to military families and stands at No. 145 on the Fortune 500 list of America's largest companies, saw its net worth jump to $18.7 billion in 2010, up 10 percent from 2009.
USAA has reported nearly $6 billion in net income the last two years combined, and returned another $2.5 billion to members in distributions, dividends and rebates.
The company's annual report did not break out separate results for home insurance or for Florida operations, but a spokesman said USAA has lost 6.4 cents for every Florida premium dollar over the past 10 years after payouts for distributions and dividends.
"At a time when some insurers have left Florida and others have created Florida-only companies, USAA remains committed to serving our Florida members' needs and remaining financially strong," said spokesman Roger Wildermuth.
Vic Dilda, a retired Air Force officer and USAA customer in Royal Palm Beach, said he filed no claims from hurricanes Charlie, Frances, Jean or Wilma but got a letter announcing a $2,500 annual premium increase related to storm discounts.
That made Dilda "really disappointed" in an insurer known for its service.
After the Post contacted USAA, Dilda said the company called him last week and said it had discovered a "typo," and he owed only $26 more. The USAA spokesman said he couldn't discuss individual members, but pointed to top customer-service rankings from JD Power and Forrester Research.
Fellow USAA customer Scoville said he has enjoyed a relationship of trust with the company since 1964 but "it appears now they use the same shady practices used by the industry at large."
Like many South Florida homeowners, he is still looking for some relief.
"After a relationship of almost 50 years, I expected more," Scoville said.
The calm before the bill
Homeowners insurance premiums in Florida have exceeded direct losses by more than $10 billion since the hurricanes of 2004 and 2005.
Even taking the 2004-5 storms into account, the loss ratio for homeowners insurance has been lower in Florida during the 21st century.
Note: Private-market companies only; does not include Citizens; sum totals may differ due to rounding. Sources: Florida Catastrophic Storm Risk Management Center; National Association of Insurance Commissioners annual statement database