CAT Property Update - Florida: Navigating a Hard Pricing Market

Companies and individuals that own property in areas of the country that are exposed to risk from Catastrophic events have seen property, wind, wildfire and flood premiums skyrocket over that last three years. The increase in rates is directly correlated to the increase in frequency and severity of large catastrophes throughout the US and Globally.

In 2021 alone, the United States experienced 20 catastrophic events - defined as a single event that causes in excess of $25 million in insured losses - that exceeded $1 billion in losses to insurance carriers. The two largest events were Hurricane Ida, at $32 billion, and winter storm Uri that cost carriers around $15 billion. Total insured losses from all catastrophic events in 2021 was about $115 billion, up from $74 billion in 2020.

The escalation in these large loss events is putting significant pressure on the financial stability of many insurance and reinsurance carriers providing this coverage. This instability is forcing insurance and reinsurance carriers to limit writing coverage in these areas, and in some cases pulling out of those markets all together. More stringent underwriting is also appearing, with the brunt of rate increases is being pushed on older properties, properties not well maintained and properties with prior years losses. There are situations where properties are unable to secure a desired level of insurance, or not able to secure coverage at all.

Florida Property and Wind Insurance Market

Florida is one of the hardest hit property and wind coverage market. Both the commercial and personal residential markets are seeing rate increase from 20% to above 100%. In addition to the aforementioned issues, other primary factors contributing to Florida’s difficult market are:

Property Claims Litigation

Florida had 116,000 property claim lawsuits filed in 2021, 80% of the total filed claims nationwide. No other state had more than 900. Most of the lawsuits were related to personal residence roof replacement. The Governor of Florida recently held a special legislative session that passed several reforms to both curtail the level of litigation, and shore up reinsurance for carriers writing property coverage for homes. Early consensus is that more reform will be needed to address these issues and stabilize the market.

Increase Cost of Construction and Material Demand

Double Whammy – Building material prices increased by over 20% in 2021 and have risen by almost 30% since 2020. Labor rates have increased over 10% since 2020. These increases affect property replacement cost value (RCV), creating the requirement to reflect current market conditions and insure at a higher value than last year, and at a higher rate.

The mass migration of residents to Florida resulting from the COVID pandemic has has more than doubled the cost to build a home in some areas of Florida. The increase in new construction has driven up the cost of claims as insurance carriers struggle to find both labor and materials when a loss occurs. Carriers now factor this increased cost into the policy premium they charge clients.

Condo Collapse

One of the most tragic events to happen in Florida, the collapse of Champlain Towers South Condominium, also had a major effect on its property insurance market. The collapse highlighted several key factors with which underwriters are still grappling. The two most prominent are the failure to properly maintain a building, and the potential structural impact of new construction projects on adjacent buildings. Insured losses related to the collapse have recently exceeded $1 billion.

Carriers are now requiring additional underwriting information, including structural engineering reports and maintenance reserve funding disclosures. Older condos are being hardest hit, with pricing increases ranging from 30% to over 200%. Some are unable to buy enough insurance to comply with their bank lending requirements.

The recent emergency special session in Florida also passed new laws which take effect immediately requiring inspections for high-rise condominiums everywhere in the state 30 years after construction, with re-inspection every 10 years. For condos within three miles of the coastline, inspections would be done 25 years after construction and reinspection every seven years. Condo associations also would no longer be able to postpone or neglect needed repairs. More details on the new bill are still being reviewed, including noncompliance penalties.

How do I get the best result?

New and renewal policies will require more underwriting than in previous decades. The underwriting process is evolving, as carriers embrace newer technologies and require more detailed, accurate, and real-time information than ever before from insureds.

• Ways to gain the best response from the property insurance market include:
• Address underwriting issues with your broker before submitting to insurance carriers.
• Get into the market early. Most carriers will accept renewal and new business submissions within 120 or 90 days prior to the effective date. The most competitive carriers will likely pass on any submission made with less than a week to review and underwrite.
• Provide quality data to the underwriters. Give them everything they need or they will move on to someone that did. If a price is provided on short turn-around, it will often be at their higher rates.
• Work with an experienced broker – Hard markets are not for the inexperienced. Find a broker that understands how to navigate a hard pricing market and has access to a majority of the carriers that are writing.
• Seek brokers with exclusive, Florida-market specific property programs. They can yield significant premium savings.
• Consider your risk-tolerance and what deductible structure is best for the property.

In a difficult, dynamic market , experience and specialty focus can make all the difference. If you’re looking for help navigating the current difficulties of the Florida property insurance market, connect with the specialists at Risk Strategies.

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