Why are Homeowner Insurance Rates on the Rise?

January 31, 2013 by Grant Blackwell

The good news is insurance in the Florida panhandle remains much more affordable than any other coastal area in the State. Our area is attractive to the homeowner insurance companies because it allows them to spread their risk away from the densely populated areas of south and central Florida.

In 2012 homeowner insurance rates rose an average of 15% and some companies took rate increases approaching 60%. Most of the homeowner insurance companies in Florida  are again seeking State approval to raise rates in 2013 by another 15%.

This situation is very unsettling for homeowners in Florida. There has not been a major storm in Florida since 2005, thus insurance companies have enjoyed seven years of collecting premiums without a major storm event, yet they continue to raise their rates.

The question begs to be asked, how can the State justify approving these rate increases when the insurance companies have not suffered a major storm loss in seven years?

There are multiple reasons why the insurance companies have been able to justify these rate increases to the State. The primary justification is the cost of reinsurance. Reinsurance is insurance that homeowner insurance companies buy in order to reduce their exposure to catastrophic losses like hurricanes.

Some of the smaller Florida insurance companies spend as much as 50 cents for every dollar of premium collected on reinsurance. These reinsurance companies not only provide insurance to Florida homeowner insurance companies but to insurance companies all over the US and worldwide.

The wild fires in the west coupled with hurricanes Irene and Sandy in the Northeast have hit these reinsurance companies hard. They in turn have raised their rates on Florida homeowner insurance companies and ultimately this costs is past on to the consumer.

The major national insurance companies like State Farm, Allstate, Nationwide and even USAA are no longer selling new homeowner insurance policies in Florida.  The State will not approve rate increases to a level that these national carriers deem necessary to be profitable on Florida business.

Citizens Property and Casualty Insurance Company , our state chartered insurance carrier is intended to be the company of last resort. However, their rates are often lower than some private insurance companies, especially in South Florida and these lower rates also keep the national carriers from being able to compete at rate levels they deem necessary for profitability.

We all know that the best thing for the consumer is open market competition. Over regulation typically stifles competition and ultimately makes everything cost more.

Governor Scott has recognized the insurance crisis in Florida and made executive decisions to increase competition among Florida insurance companies. However, the legislature remains reluctant to tackle many of the complicated issues that would ultimately lead to a more vibrant competitive marketplace.

Insurance rates do vary from one insurance company to another. The majority of new homeowner insurance policies are sold by independent insurance agencies that have access to many or all of the insurance companies currently writing new policies in Florida.

Shopping around for better rates is not a bad idea but the consumer must be informed and do their homework. If a price looks too good to be true, it probably is.

- Grant Blackwell owns Coastal Insurance Agency in Seagrove Beach and insures thousands of homes and condos in the Florida Panhandle. 

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