Fitch Ratings points out some of the distortions that Florida’s regulatory structure creates in the insurance market. The full story via The Insurance Journal is here. But here is my bullet-point summary:
- Since Hurricane Andrew rate regulation has depressed prices below the fair premium resulting in:
- Little incentive for a well capitalized insurer to remain in the market or for a start-up insurer to capitalize well.
- Highly rated national insurers have withdrawn from the market and have been replaced by state-sponsored entities and thinly-capitalized Florida-only insurers.
- The risk of insolvency among the small Florida-only hurricane insurers is high.
- Disincentives for smaller companies in Florida to grow
- Regulations allow companies of up to a certain size to qualify for limited apportionment status. Limited apportionment companies may obtain prompt cash recoverable payments from the Florida Hurricane Catastrophe Fund, the state-sponsored reinsurer, in the event sustained hurricane losses pierce the attachment point.
- Any significant amount of insured damage from Wilma is likely to result in Citizens making a second assessment to insurers, following a $515 million assessment earlier this year.
- These assessments are ultimately passed on to policyholders. The assessments are transfers of losses from the higher-risk coastal areas to the lower-risk interior areas.
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