I know, not more talk about insurance, especially a week after the beginning of hurricane season. But if the Wall Street Journal can put it on their front page, I can report it.
Reinsurance is apparently the reason for the increase in insurance rates around the country. And if you don’t know what reinsurance is, like it or not, I’m going to tell you.
Simply, as if anything related to insurance is simple, reinsurance is insurance for insurers. Reinsurance lets insurers sell policies in vulnerable areas without the risk of being wiped out by a single disaster. The reinsurance market is a global entity that spreads the risk globally, allowing local insurance companies to provide insurance in risky areas, like Florida.
According to the Wall Street Journal, the reinsurance market is unregulated and is one of the major drivers of the high cost of property coverage across the country. Last year this came to a head after the reinsurance companies suffered a sharp drop in profits and started raising rates and cutting coverage at the start of last year.
This, of course, has had consumer advocates complaining that reinsurer profits have come at the expense of homeowners. The advocates have called for a federal reinsurance program, similar to the national flood insurance program, to protect consumers from unrestrained cost increases. The reinsurance industry says they’re the wrong target and are only responding to the increase in losses in the home insurance industry.
Wherever the blame lies, at least in Florida there is a round of reinsurance renewals currently underway, as well as in other high-risk states, that will help determine whether more premium increases are in the future. Interestingly, insurance brokers who are tracking a round of reinsurance policy renewals in June say they expect premiums to stay fairly level in Florida; we can only hope. However, there is some new money coming into the industry which may help to lower prices assuming this year’s hurricane season is overstated even though this year’s prediction is calling for the largest number of major hurricanes ever forecasted.
Since everything related to insurance influences the real estate market, the increased cost of reinsurance will be affecting the availability of home insurance. If there isn’t insurance available or the cost of the insurance is unreachable for buyers, it will slow the real estate market. Nevertheless, Lisa Miller, a Florida-based insurance adviser, indicates the 2024 reinsurance costs are going to be better.
We don’t usually talk specifically about reinsurance since the cost of it has always been built into our insurance company’s overall costs. But it is now becoming an issue on its own and hopefully will help explain to the average homeowner why insurance has gone up and what the future may hold.
The good news for us is across the country, approved home insurance rates are higher in Texas, Louisiana, Washington state and several more states than in Florida. The West, including California, is exposed to wildfires and the Midwest, tornadoes, both of which can be just as or more devastating than hurricanes.
I guess what I’m saying is there are no risk-free places to live, but some reasonable legislation or big brains should get together and see what can be done for the average homeowner. Think that will ever happen?
