George S. Patton hit the nail on the head when he said, “Take calculated risks. That is quite different from being rash.”
Let’s face it: it’s risky to offer property insurance in the Southeast and insurance companies must price that risk in the form of premiums. In the past 35 years, six of the 10 most costly insured losses were hurricanes. (Katrina was largest with $45 billion in insured losses). Six hurricanes hit Florida in 2004-05 with insured losses of $68.8 billion. (To put these facts in proper prospective, the entire State of Florida’s proposed budget is approximately $71 billion.)
The Florida Legislature took a calculated risk in the recent special session. According to some industry analysts, the new legislation is predicted to reduce property insurance premiums by an average of 22 percent. For Floridians struggling to pay premiums to insure their property, I hope this is the case.
On the flip side, as a result of the lower premiums, Floridians will now have to take on a greater share of the risk if a catastrophic event hits the state. For example, the new legislation allows policyholders to exclude windstorm coverage in exchange for a lower premium. Even though it’s allowed, I will caution my policyholders to think very carefully before excluding coverage for hurricanes and tornadoes, two of Florida’s most devastating weather events. Mortgage companies and bankers agree—most will not allow their borrowers to exercise this option. I am letting my customers know that this is not a calculated risk—it’s a rash choice that could have devastating consequences.
The new legislation also lowered state-owned Citizens’ rates. This is fine and good—as long as no hurricane hits the state. If a large storm strikes, most insurance companies, including those that sell auto insurance, will be hit with assessments to make up Citizens’ deficits. To put it in perspective, as a result of hurricane claims in 2004, Citizens incurred $1.5 billion in claims, running up a deficit of $516 million. Who paid for this deficit? You and me.
As an insurance agent who has weathered many a storm, this makes me feel a little uneasy. I appreciate the Legislature’s work—some Floridians were facing financial ruin because of their rising premiums, but I also look at the other side of the story and see the possibility of all Floridians being on the hook for taking on this increased risk.
With the new legislation, it’s even more imperative that policyholders meet with their insurance agent to discuss their new options—and determine the amount of risk they feel they can comfortably take.
So, even though the Florida Legislature addressed the insurance crisis facing Floridians, much still must be done. Louisiana, Mississippi, Texas and the Atlantic Seaboard states are all witnessing what Floridians are experiencing: seeing private insurance companies either stop writing new policies or stop renewing policies, especially along the coast where the risk is highest.
However, there is hope. I am pleased to report that Bradenton’s own U.S. Representative Vern Buchanan, along with Representative Ginny Brown-Waite, introduced the Homeowners’ Insurance Protect Act of 2007 last month. This act is a comprehensive catastrophic insurance bill that would establish a federal reinsurance catastrophic fund (cat fund) as a federal backstop for future natural disasters. The bill encourages states to create catastrophic funds by providing a federal backstop for those states that voluntarily create state funds. In other words, the federal fund will provide lower-cost reinsurance to our existing cat fund, thus reducing the costs of homeowners' insurance to those around the country.
“This bill would provide lower-cost reinsurance to state catastrophic funds, the federal fund would reduce property insurance costs and increase availability in Florida and across the nation,” said Representative Buchanan.
Any cost savings achieved through the bill will be passed on to the policyholders and not held as corporate profits. The bill also calls for Catastrophic Capital Reserve Funds, which are essentially tax-deferred savings accounts that can be used by private insurance companies to help offset catastrophic claims.
I applaud Representative Buchanan for authoring this important bill. Floridians are taking a calculated risk by lowering premiums. It’s now time for the national government to step forward to help areas exposed to risks such as tornadoes, hurricanes, earthquakes and other natural disasters.
George S. Patton hit the nail on the head when he said, “Take calculated risks. That is quite different from being rash.”
Let’s face it: it’s risky to offer property insurance in the Southeast and insurance companies must price that risk in the form of premiums. In the past 35 years, six of the 10 most costly insured losses were hurricanes. (Katrina was largest with $45 billion in insured losses). Six hurricanes hit Florida in 2004-05 with insured losses of $68.8 billion. (To put these facts in proper prospective, the entire State of Florida’s proposed budget is approximately $71 billion.)
The Florida Legislature took a calculated risk in the recent special session. According to some industry analysts, the new legislation is predicted to reduce property insurance premiums by an average of 22 percent. For Floridians struggling to pay premiums to insure their property, I hope this is the case.
On the flip side, as a result of the lower premiums, Floridians will now have to take on a greater share of the risk if a catastrophic event hits the state. For example, the new legislation allows policyholders to exclude windstorm coverage in exchange for a lower premium. Even though it’s allowed, I will caution my policyholders to think very carefully before excluding coverage for hurricanes and tornadoes, two of Florida’s most devastating weather events. Mortgage companies and bankers agree—most will not allow their borrowers to exercise this option. I am letting my customers know that this is not a calculated risk—it’s a rash choice that could have devastating consequences.
The new legislation also lowered state-owned Citizens’ rates. This is fine and good—as long as no hurricane hits the state. If a large storm strikes, most insurance companies, including those that sell auto insurance, will be hit with assessments to make up Citizens’ deficits. To put it in perspective, as a result of hurricane claims in 2004, Citizens incurred $1.5 billion in claims, running up a deficit of $516 million. Who paid for this deficit? You and me.
As an insurance agent who has weathered many a storm, this makes me feel a little uneasy. I appreciate the Legislature’s work—some Floridians were facing financial ruin because of their rising premiums, but I also look at the other side of the story and see the possibility of all Floridians being on the hook for taking on this increased risk.
With the new legislation, it’s even more imperative that policyholders meet with their insurance agent to discuss their new options—and determine the amount of risk they feel they can comfortably take.
So, even though the Florida Legislature addressed the insurance crisis facing Floridians, much still must be done. Louisiana, Mississippi, Texas and the Atlantic Seaboard states are all witnessing what Floridians are experiencing: seeing private insurance companies either stop writing new policies or stop renewing policies, especially along the coast where the risk is highest.
However, there is hope. I am pleased to report that Bradenton’s own U.S. Representative Vern Buchanan, along with Representative Ginny Brown-Waite, introduced the Homeowners’ Insurance Protect Act of 2007 last month. This act is a comprehensive catastrophic insurance bill that would establish a federal reinsurance catastrophic fund (cat fund) as a federal backstop for future natural disasters. The bill encourages states to create catastrophic funds by providing a federal backstop for those states that voluntarily create state funds. In other words, the federal fund will provide lower-cost reinsurance to our existing cat fund, thus reducing the costs of homeowners' insurance to those around the country.
“This bill would provide lower-cost reinsurance to state catastrophic funds, the federal fund would reduce property insurance costs and increase availability in Florida and across the nation,” said Representative Buchanan.
Any cost savings achieved through the bill will be passed on to the policyholders and not held as corporate profits. The bill also calls for Catastrophic Capital Reserve Funds, which are essentially tax-deferred savings accounts that can be used by private insurance companies to help offset catastrophic claims.
I applaud Representative Buchanan for authoring this important bill. Floridians are taking a calculated risk by lowering premiums. It’s now time for the national government to step forward to help areas exposed to risks such as tornadoes, hurricanes, earthquakes and other natural disasters.
As part of Professional Insurance Agents of Florida, an agents group, Moore, Fowinkle, %26 Schroer Agency will be going to Washington in March to meet with Reps. Buchanan and Waite-Brown to let them know that insurance agents and Floridians support this bill.
Bob Fowinkle is the president of Moore, Fowinkle, Schroer Agency, and School Insurance Agency in Bradenton, Florida. The agencies have been in operation for 37 years.
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