Florida insurers are passing on rate improvements to consumers
Despite suggestions from Florida’s CFO that consumers are losing out on savings made in reinsurance buying, insurers are in many instances passing on rate reductions to state consumers.
That is the view of Miguel Barrales, president of Universal North America, who agreed with Florida CFO, Jeff Atwater’s assertion that Florida consumers “deserve appropriate insurance rates”.
Atwater recently sent a letter to Florida Insurance Commissioner, Kevin McCarthy in which he asked McCarthy to look into why savings in reinsurance buying among state insurers were not being passed on to Florida consumers.
Barrales told Bermuda:Re that “provided that the final rates are adequate relative to all costs and exposures ,it would ultimately be appropriate for policyholders to benefit from rate decreases in reinsurance rates.”
He said that Universal North America had worked collaboratively with the Florida Office of Insurance Regulation to decrease rates state-wide by 7 percent on average, thanks largely to the improved pricing environment for reinsurance during the mid-year renewals.
Barrales explained that there is “no one size fits all solution” however, as state insurers work closely with the state regulator to submit filings that reflect their particular circumstances.
Barrales said that the insurance rate-making process takes time as it requires the use of actuarial analysis that considers all costs: losses, reinsurance and acquisition expenses, and insurance companies have to follow the process established by the state regulator, so rate changes do not happen overnight. “We finished the placement of our reinsurance program on June 1st, received approval from the FLOIR to our rate filing in October and the effective date of the rate decrease is December 30th”, he said.
Some insurers may have been unable to expedite the rate filing process and their clients will have to wait for reinsurance savings to make their way through to the retail level. But with an active regulator and legislature, Florida consumers are well served to benefit from potential rate reductions associated with improved reinsurance pricing, he added.
Barrales said that reinsurance rates in the state reflect an absence of cat losses and an oversupply of capital, that is helping to drive down the cost of coverage. But he added that the market is only returning to an “equilibrium” that was thrown off-kilter by changes under RMS 11.
Barrales said that changes to modelled assumptions following RMS 11 and the resulting spike in reinsurance pricing had proved a shock to Florida insurers, adding that “the state regulator was very vigilant when reinsurance costs went up and we needed to increase rates. Without price decreases now, we might not have been able to recoup the costs we incurred during the changes under RMS 11”. Current rate decreases need to be considered within the context of the wider cycle.
Addressing whether insurers are retaining more business in the state, Barrales said that it was not apparent that they were. Citing Citizens' Everglades Re deal as a case in point, he said that there is considerable appetite to buy additional reinsurance, particularly at current rates.
In Universal North America's case, Barrales said the insurer has always purchased extensive reinsurance beyond what is required by the Florida Office of Insurance Regulation, and the current reinsurance pricing environment has encouraged the company to purchase still greater reinsurance coverage. “We have always had multi-event protection and now have reinsurance coverage with quality reinsurance partners for a 1 in 200 year storm, which is twice as much reinsurance as is required by the state regulator”. Such additional coverage, can only be a good thing for Florida consumers.
