Despite no major storms or hurricanes hitting Florida since 2005, Florida property insurance rates have continue to skyrocket over the past few years – with no end in sight. Shockingly, a recent AP report showed that Florida’s Office of Insurance Regulation has approved more than 100 rate hikes per year since 2009. Where is the money going – surely not for claims!
The biggest “expense” an insurance company faces is the cost of reinsurance. Simply stated, reinsurance is an insurance product that an insurance company buys for itself to offset any claims it must pay. If an insurance company has a large number of claims in a given year, the insurance company submits a claim to its reinsurance company for reimbursement of the amount paid in claims. The only difference between a policy holder’s relationship with his insurance company and the relationship an insurance company has with its reinsurer is…..the insurance company most likely owns the reinsurance company as well!!! With this cozy relationship, an insurance company can jack up the rates that it must pay itself – er, I mean, its reinsurer – and thereby create an artificial “hardship”. The insurance company then squeals to the media and to the legislature that it can’t make any money in Florida unless they are allowed to further increase rates. Clearly, since an insurance company can set its own expenses (due to the fact that it can manipulate the money it pays to itself as a “cost”), it will never show a profit from its Florida operations! The Sarasota Herald Tribune wrote a Pulitzer Prize winning article on this concept in 2010.
Where does this leave the individual homeowner who is struggling to pay his ever-increasing property insurance premiums? Until our representatives in Tallahassee are willing to stand up to the insurance companies and their lobbyists, all Floridians will have to just wait and see what this year’s hurricane season has in store for Florida. Unfortunately, history has shown us that – whether a storm comes this year or not – we will be facing higher insurance premiums either way. You know – because of those “reinsurance premiums”….