Quiet Hurricane Season Won’t Mean Cheaper Insurance For Homeowners
As the 2008 hurricane season comes to a close, Floridians can breathe easier.
But there may not be much relief in the form of lower insurance premiums.
Rates could actually edge higher because of higher back-up insurance costs.
The slowdown in the economy is crimping premium revenues as home sales dwindle and foreclosures continue to mount. Insurers and agents catering to businesses are seeing a slowdown as well because companies are downsizing. Consumers and business owners are looking to trim insurance costs, even if it means cutting back on some coverages.
”Reinsurers are citing higher catastrophe losses which will be the reason for higher reinsurance rates down the road and that will impact rates on primary insurance. We will be seeing higher premiums,” says Robert Hartwig, chief economist for the Insurance Information Institute, an industry trade group.
Primary insurers buy reinsurance to cover a portion of the losses they might experience during a year. That way, they won’t have to use all their surplus cash to pay claims. While insurers aren’t allowed to recoup past losses in their rates, Florida does allow companies to include the cost of reinsurance. In 2006, surging reinsurance costs accounted for much of the jump seen in homeowners’ rates that year.
Jim Massie, Florida counsel to the Reinsurance Association of America, says there will be even greater demand for reinsurance coverage since the drop in the financial markets has eroded the investment income for both reinsurers and primary insurers.
Investment income is the primary fuel of many insurers’ surplus funds, since insurers typically pay out most of the premiums they take in for claims.
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