Property Insurance in Florida: Balancing the Calm & the Storms BinTech Partners End of Hurricane Season Forum St. Petersburg, FL December 9, 2010 Lynne McChristian, Florida Representative Insurance Information Institute Tel: 813.480-6446 [email protected]www.InsuringFlorida.org
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Property Insurance in Florida: Balancing the Calm & the Storms BinTech Partners End of Hurricane Season Forum St. Petersburg, FL December 9, 2010 Lynne.
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Property Insurance in Florida:Balancing the Calm & the Storms
BinTech PartnersEnd of Hurricane Season Forum
St. Petersburg, FLDecember 9, 2010
Lynne McChristian, Florida RepresentativeInsurance Information Institute
Insurance Rates: Why Insurers Plan for the WorstHistory Repeating Itself – or Outdoing Itself
Profits & ProfitabilityUnderwriting PerformanceEconomy and InvestmentsThe Role of Reinsurance
Public vs. Private Insurance Model
Concerns About Complacency
How Insurers Establish Rates
They consider loss history and probability forecasts. “Probability” forecast is not the same as a weather forecast.
Forecasters were right! 2010 was the third most active season on record, and, thankfully, no landfall.
In hurricane-free years, insurers are able to build funds for when a catastrophic storm does come. Building this capital means they can write more business.
It’s not only about hurricanes. Non catastrophe losses are rising, i.e., sinkhole claims.
3
Why Rates Have Not Dropped
The threat of storms has not diminished. Cycle of major storms continues.
More people and more property have been built in vulnerable areas. Florida is on track to eclipse NY as the third most populous
state. Population growth was between 2.0% and 2.6% between 1990’s and 2006 (national average was 1%); slowed in 2008.
Coastal exposure in Florida represents 79% of all property exposure in the state.
*Estimate through December 31, 2010.Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B.Sources: Property Claims Service/ISO; Munich Re; Insurance Information Institute.
2010 CAT Losses Are Running Below 2009, So Far Figures Do Not Include an Estimate of Deepwater Horizon Loss
$100 Billion CAT Year is Coming Eventually
Estimated 2010 CAT
Losses Are About
Average
($ Billions)
2000s: A Decade of Disaster2000s: $193B (up 117%)
1990s: $89B
33%
35%
38%
46%
47%
48%
52%
54%
63%
75%
0% 10% 20% 30% 40% 50% 60% 70% 80%
South Carolina
Georgia
Delaware
New Hampshire
California
Virginia
Texas
Washington
Alaska
Florida
Leading States in Coastal Population Growth, 1980-2003
Source: U.S. Census Bureau and NOAA
Between 1980 and 2003, total coastal population grew by 33 million people, or 28 percent.
Florida – at 75% – had the greatest percent population
* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 7.5% ROAS for 2010:H1 and 4.6% for 2009. 2009:H1 net income was $19.2 billion and $10.2 billion in 2008:H1 excluding M&FG.Sources: A.M. Best, ISO, Insurance Information Institute
P-C Industry 2010:H1 profits rose $10.6B from $6.0B in 2009:H1, due mainly to $2.2B in realized
capital gains vs. -$11.1B in previous realized capital losses
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ROE: P/C vs. All Industries1987–2009*
* Excludes Mortgage & Financial Guarantee in 2008 and 2009.Sources: ISO, Fortune; Insurance Information Institute.
* 2000 through 2009. 2009 combined ratio excluding mortgage and financial guaranty insurers was 99.3, which would bring the 2000s total to 4 years with an underwriting profit.Note: Data for 1920–1934 based on stock companies only.Sources: Insurance Information Institute research from A.M. Best Data.
Number of Years with Underwriting Profits
Underwriting Profits Were Common Before the 1980s (40 of the 60 Years Before 1980 Had Combined Ratios Below 100) –
But Then They Vanished. Not a Single Underwriting Profit Was Recorded in the 25 Years from 1979 Through 2003
It took 11 years to erase losses from Andrew. Then, 2004 hurricanes erased 7 years’ profits; 2005 deepened the hole.
**Does not include Citizens Property Insurance Corporation results.
Homeowners Insurance,1992-2007
Florida’s Cumulative Underwriting Gain/Loss
The Role of Reinsurance
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Reinsurance is “insurance for insurers.” It is an important risk-sharing mechanism in Florida
because it helps spread risk across the global markets.
Keeping all reinsurance within Florida would also mean keeping all the risk within the state.
All property/casualty insurers in Florida are required to participate in the state’s reinsurance fund – Florida Hurricane Catastrophe Fund. If the FHCF does not have the money it needs on hand, it
finances losses with debt – that you help to pay.
For example, we’ll pay for 2005 storms through 2014.
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Public & Private Insurance Model
Nearly All Floridians Pay Into the State-run Insurance Pool
Residual Market Plan Estimated Deficits 2004/2005 (Millions of Dollars)
* MWUA est. deficit for 2005 comprises $545m in assessments plus $50m in Federal Aid.Source: Insurance Information Institute
-$516
-$1,425
-$1,770
-$954
-$595 *
-$2,000
-$1,800
-$1,600
-$1,400
-$1,200
-$1,000
-$800
-$600
-$400
-$200
$0
Florida HurricaneCatastrophe Fund
(FHCF) Florida Citizens Louisiana Citizens
MississippiWindstorm
UnderwritingAssociation (MWUA)
2004 2005
The impact of Hurricane Katrina pushed all of the residual market property plans
in the affected states into deficits for 2005, following an already record
hurricane loss year in 2004.
Florida Citizens Exposure to Loss ($ Billions)
Source: PIPSO; Insurance Information Institute (I.I.I.).
$154.6
$195.5 $206.7 $210.6
$408.8
$485.1
$421.9 $406.0
$0
$100
$200
$300
$400
$500
$600
2002 2003 2004 2005 2006 2007 2008 2009
Since its creation in 2002, total exposure to loss in Florida Citizens has increased by 163 percent, from $154.6 billion to $406 billion in 2009.
Florida Hurricane Catastrophe Fund. – 6 percent for 2010.– Plus emergency assessment.
1 percent in 2010; increases to 1.3% in 2011 through 2014.
Citizens Emergency Assessment.– 1.4 percent through 2017.– Plus a Regular Assessment when needed.
Emergency Management Fund.– $2 for homeowners/$4 for commercial.
Source: Florida Insurance Consumer Advocate Office, July 2009.
Current Florida law does not allow single year assessments for double-digit numbers, so losses will be paid over time in the event of major storms. Losses associated with any private insurer insolvencies are not included in the calculation.
22%30% 31%
32%33%
28%
0%
10%
20%
30%
40%
50%
60%
70%
Coastal Counties Interior Counties Noncoastal States
Somewhat Unfair Very unfair
Public Attitude Monitor 2006: Unfairness of Policyholder Subsidies
Growth in residual market mechanisms may be due in part to implicit support of residents of coastal communities.
Coastal States
Source: Insurance Research Council
29%25%
30%
22% 34%31%
0%
10%
20%
30%
40%
50%
60%
70%
Coastal Counties Interior Counties Noncoastal States
Somewhat Unfair Very unfair
Public Attitude Monitor 2006: Unfairness of Taxpayer Subsidies
Some 59% of those living in interior counties and 61% in noncoastal states think taxpayer-subsidized insurance is unfair, compared to just 51% of those living in coastal counties.
Coastal States
Source: Insurance Research Council
Source: James Madison Institute, February 2008.
ME
NH
MA
CT
PA
WV
VA
NC
LA
TX
OK
NE
ND
MN
MI
IL
IA
ID
WA
OR
AZ
HI
NJRI C
DE
AL
VT
NY
MD
SC
GA
TN
AL
FL
MS
ARNM
KYMOKS
SDWI
IN
OH
MT
CA
NV
UT
WY
CO
AK
= A= B= C= D= F= NG
Source: Heartland Institute, May 2010
A- A-
A-
B-
B-
B-
B-
B-
B-B-
B-B-
B-
B-
B-
B-
B- C-
C-
C-
C -
C-
D-D-
A
A
A
A
B+
B+
B+
B
B
B
B
B
B
C+
C+
C
D+
D+D+
D
NG
NG
D F
F
2010 Property and Casualty InsuranceReport Card
Not Graded: District of ColumbiaMississippiLouisiana
Florida earned an “F” grade.
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Concerns About Complacency
Does Florida Suffer from Hurricane Amnesia?
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Unemployment Rates by State, September 2010:Highest 25 States*
9.6
9.49.
9
9.7
9.8
9.8
9.2
9.0
9.1
8.99.3
9.0
9.09.4
10.611
.5
10.0
10.0
10.1
10.111
.0
13.0
12.4
11.9
14.4
0
2
4
6
8
10
12
14
16
NV MI CA FL RI SC OR KY IN OH GA IL MS DC AZ NC TN NJ MO WV CT WA PA ID AL
Une
mpl
oym
ent R
ate
(%)
*Provisional figures for September 2010, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In September, state and regional unemployment rates were little changed.
Some 29 states and DC reported unemployment rate decreases from a
year earlier, 16 states had increases and 5 had no change.
The US unemployment rate was 9.6% in
September
What Will It Take to Lower Rates?
Awareness & Planning. Those who plan ahead rebound the fastest.
Overcome entitlement mentality. “FEMA is not for you.”
Closing loopholes related to insurance claims. Change 5-year statute to file a hurricane claim?
Require those who get insurance money for a sinkhole claim to fix the damage.
Mitigation. We must make our property and people less vulnerable.
Majority of existing home was built before the stronger building codes of 2002.
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Get Fortified: Institute for Building & Home Safety
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The insurance industry is committed to building stronger, safer homes and helping people learn how to retrofit existing property.
www. DisasterSafety.org
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The Nation’s Judicial Hellholes: 2010
Source: American Tort Reform Association; Insurance Information Institute
South Florida
West VirginiaIllinoisCook County
New MexicoAppellate
Courts
Watch List
California Alabama Madison County, IL Jefferson County, MS Texas Gulf Coast Rio Grande Valley, TX
Dishonorable Mention
AR Supreme Court MN Supreme Court ND Supreme Court PA Governor MA Supreme
Judicial Court Sacramento County
New JerseyAtlantic County (Atlantic City)
New York City
2009 Top Ten Jury Verdicts
Source: Lawyers USA, January 15, 2010.
Value Issue State
$370 Million Defamation California
$330 Million Personal Injury (Drunk driving case) Florida
$300 Million Personal Injury (Tobacco verdict) Florida
$89 Million Personal Injury (Drunk driving case) Missouri
$78.75 Million Personal Injury (Prempro) New Jersey
$77.4 Million Medical Malpractice New York
$71 Million Conversion and Breach of Fiduciary Duty Texas
$70 Million Workers Comp Case Texas
$65 Million Personal Injury Florida
$60 Million Medical Malpractice New York
I.I.I. Resources: Florida website, national website, Spanish-language communication