by David Chapman
In the hurricane-housing market, it’s not just the real estate industry that suffers – insurance companies are getting blown away, too. So much so that the insurance industry is seen by many as a proverbial bad guy. But not so fast.
Insurance agents, working for large companies and small, said they are being battered by the hurricane-force changes, too.
“It probably is a big problem finding insurance,” said Matt Carlucci, a State Farm agent and former Jacksonville City Council president. “It’s not good for agents either.”
Independent agents are also feeling the sting.
“It sure has affected us,” said John Fletcher, owner of McNeil, Garrison & Fletcher Insurance. “We used to be able to offer simple solutions.”
The problem started with a familiar Florida building and insurance industry foe, Hurricane Andrew in 1992.
“Some houses in Hurricane Andrew survived,” said Fletcher, “while others were just obliterated. Since then, more attention has been paid to the construction of houses.”
In an effort to prevent such destruction from happening again, building codes for new homes were strengthened and unified for the state by the Florida Building Commission. The standardized code has been augmented several times, but the losses of insurance companies from Andrew combined with the series of storms from the 2004 and 2005 seasons put companies on the brink.
According to Carlucci, insurance companies from the period of 1992 to 2005 had total claims payouts of $67 billion, compared to collections of $24.2 billion.
“The frequency of storms made the state very unprofitable,” said Carlucci. “Every company was trying to avoid probable maximum loss.”
The industry was shaken up and changes were made.
“Companies from largest to smallest re-evaluated weather patterns and had to go from there,” said Bill Wilson, an agent with Hilleglass, Wilson & Cowen.
To remain profitable, insurance companies had to fine tune their exposure.
“After 2004 and 2005,” said Fletcher, “insurance companies didn’t know what their exposure was, so they had to re-evaluate everything.”
The cost of reinsurance for insurance companies combined with the profitability of Florida has led to numerous headaches for everyone in the industry.
“The market reacts to reinsurance losses,” said Jim Browning, owner of The Browning Agency of Ponte Vedra. “As reinsurance goes up and down, so does insurance and it’s passed on to consumers.”
Rising premiums and lack of affordable and available insurance has given insurance agents a bad reputation as they deal with their industry being labeled “the bad guy.”
“Being sales people,” said Fletcher, “we work on commission so it’s not really to our advantage for raised rates.”
Some have seen the industry changes result in a high turnover rate.
“Newer agents can starve to death,” said Jeff Carey, a local insurance agent who’s been in the business for 17 years, “The past few years especially I’ve seen them come and go. It takes a lot to get into this industry.”
New homes, those that were built up to code, have little to no trouble getting homeowners insurance, Fletcher, Carey, Carlucci and Wilson agreed, but many coastal and older homes are still left in danger.
“The ones like the beach bungalows built in the 50s and 60s are the ones hit hardest by changes,” said Carey, who said the majority of his clients are in coastal areas. He noted that he had around 380 policies that were not renewed due to being deemed high-risk.
“It’s a problem for Realtors,” said Carey. “Most companies only want to write new homes.”
Sometimes, homeowners insurance isn’t the only thing that agents lose business on. Many homeowners who have multiple policies on things such as automobiles and boats end up cutting ties with a company when notified that they are unable to renew their homeowners policy.
“All you can do for your longtime clients is keep in touch with them,” said Carey, “and hopefully the lasting relationship can be maintained. Service is the key.”
Another problem for insurance companies is reinsurance. Unable to get higher-risk policies, insurance companies have had to raise premiums for customers to compensate for potential losses or refer the high-risk policies to Citizens Property Insurance, which is run by the state. Citizens, in an effort to curb the escalating premiums, has frozen its rates until 2009. While the idea might seem like a good idea, others disagree.
“It’s the biggest all-in gamble by leadership in the history of Florida,” opined Browning. He explained that by freezing rates for Citizens, state leaders are gambling that a major storm doesn’t come through the state. In the event one does, he said, the difference between claims collected and paid would come from every type of insurance policy in the state through a surcharge.
“The consumer doesn’t realize it,” he said. “The best thing that can happen is that the legislature lets the private market settle.”
Some think it could be a while before that private market reestablishes itself as a force within the state.
“A lot of it depends on mother nature,” said Wilson. “Insurance is about money... if a few years pass with relatively no storms, I think the private market will forget about 2004 and 2005 and come back to the state.”
Given the albatross that’s afflicting every facet of the industry, is there a solution? Some agents have ideas and they revolve around one common theme.
“The real solution is at the federal level with a natural catastrophe fund,” said Carlucci.
Such a thing, he said, meets opposition by non-risk states that would help fund the program knowing that a state like Florida is a major beneficiary.
“The thing is that after Katrina, I think people started realizing it’s not just a Florida problem,” said Carlucci. “Hurricanes affect people all along the East Coast and Gulf. The benefits would help more than just Florida.”
But experts still say any kind of solution may be a long ways off.
“This mess is going to get worse before it gets better,” said Carey.