Nearly five dozen Florida businesses have submitted plans to participate in a $2 billion taxpayer-funded plan to shore up the struggling property insurance industry, which would only save homeowners about 1% to 3% on annual premiums.
If those companies pass those savings on to their customers, it would barely make a dent in the double-digit increases in premiums that millions of state homeowners have been subjected to for years.
The law establishing the fund makes no guarantees that the savings will be passed on to consumers. Many are filing for rate increases at the same time to cover the higher cost of private reinsurance, which they purchase to protect themselves in the event of major disasters.
Republican Pinellas Park state Sen. Jeff Brandes said the situation shows how little the Legislature has done for both the industry and homeowners.
According to him, the $2 billion fund is “the equivalent of performing Stage 1 treatment on a Stage 4 cancer patient.”
The RAP program was approved during a special session called by Gov. Ron DeSantis in late May after the Legislature failed to address the property insurance crisis during the regular session. DeSantis immediately signed it into law.
Insurance companies that wanted to participate this year had to work quickly to meet the June 30 deadline to apply with the Office of Insurance Regulation, which is still sorting through the paperwork.
“OIR is expediting the review of these filings and ensuring that submitted filings are in accordance with the recently passed legislation,” said Samantha Bequer, the Office of Insurance Regulation’s communications director.
Opponents have called it an industry bailout that will not save consumers money. Based on the savings offered by companies, it appears that they were correct.
“This is not only what we feared, but what many legislators predicted,” said Bill Newton, deputy director of the Florida Consumer Action Network, a grassroots nonprofit public policy advocacy organization. “When you just put down that much money and say, ‘Here you go.’ That’s what happens: ‘Have a nice day.’ But I’m sure they appreciate your consideration.”
On the plus side, Newton noted that this reinsurance plan is backed by Citizens Property Insurance, the state-backed insurer of last resort that has quickly become the insurer of last resort for nearly 940,000 Florida homeowners and is expected to reach 1.2 million by the end of the year.
“As long as it can offer reasonably priced insurance, the market will be stable, sort of,” Newton said, adding that private companies will have to keep their rates low as well. “What holds it all together is citizens.” Oh, and despite having the highest risk customers, Citizens has consistently made money. “I guess it’s not that difficult to make money in the insurance business.”
Citizens recently requested an 11% rate increase.
Florida homeowners pay more than $2,000 more for property insurance than the national average.
Insurance costs have risen since DeSantis was sworn in, rising from $1,989 in 2019 to a current average of $3,585, according to Insurify, which provides online rate comparisons.
Reinsurance is insurance for insurance companies to cover claims for which they do not have the capital to cover. Because reinsurance companies are not regulated by the state, their fees have risen as Florida’s insurers have become more reliant on them to cover catastrophic claims.
The RAP program gives those domestic insurers a break by allowing them to tap into the Florida Hurricane Catastrophe Fund earlier than usual before reaching their maximum claims payouts.
The catastrophe fund is activated when a hurricane causes $8.5 billion in damages and can increase to $17 billion, but insurers must pay for it. RAP allows participating insurance companies free access to the fund when damages exceed $6.5 billion, rather than $8.5 billion.
That money will not be distributed to insurers unless there is a true disaster, such as a major hurricane, and they require it to cover damage claims.
The 68 separate rate filings by 59 companies show how much money they could theoretically save if they took advantage of the free money. The premium savings range from 0.7 percent to 3.9 percent, with the majority falling between 1% and 2%. Many of those rate changes would take months to take effect.
The average homeowner will save between $36 and $143 per year on a $3,585 homeowners policy that has risen by nearly $1,600 in the last three years.
Pages of documentation and worksheets demonstrating how much savings they could pass on to policyholders were submitted by the companies.
However, the rate filings are all over the place. Some stated the dollar amount they could return to policyholders, while the majority only stated a percentage reduction of what they could pass on to policyholders. Several of them disguised their plans as trade secrets, which irritated state Rep. Anna Eskamani, D-Orlando.
“People are in the dark and want answers,” Eskamani explained.
Some companies had difficulty calculating estimated premiums, damages, and rate rollbacks, and state regulators had to point out and correct their mistakes. In one case, officials informed Berkley that it was using incorrect growth figures to calculate insurance premiums and suggested a method to obtain a more accurate estimate of savings.
Foremost, for example, ran the numbers and decided it wasn’t worth it to participate until OIR officials persuaded them otherwise.
Some RAP applicants have been experiencing financial difficulties.
United Property and Casualty of St. Petersburg, one of Florida’s largest insurance companies with 180,000 policies, estimated a 1.2 percent overall savings.
According to insurance industry trade publications, United stopped issuing new policies in February and is considering a sale or merger to stay afloat. It recently requested a 15% rate increase from the state.
Federated National and Monarch, which recently dropped tens of thousands of policyholders in Florida in order to remain solvent, calculated a 0.8 percent premium savings overall. Federated’s stability rating was downgraded from “exceptional” to “substantial” by insurance ratings firm Demotech in April.
“Our fears have been confirmed that the special session was more concerned with bailing out the insurance industry than with providing relief to consumers,” Eskamani said.
Republicans rejected at least a half-dozen amendments to address rate hikes in both the House and Senate, including a 5% increase cap, requiring insurance companies to pass on any savings from litigation reforms to consumers in the form of rate reductions or rebates, and requiring data reporting in the bill to include the impact of climate change on rates.
“Citizens are increasingly becoming the insurer of last resort,” Eskamani said. “None of this is even remotely sustainable.”