State of Shock

State of Shock

INSURANCE OVERVIEW by Isabelle Gan | Contributing Writer

Hold onto your business insurance policies if you can: Local insurance agents warn it's getting harder to renew policies as insurance carriers continue to decrease their risk exposure in Florida.

"If they get a renewal quote," says Bradenton insurance agency owner Bob Fowinkle, "they better pay it and be quiet, because they might not get any coverage otherwise."

Fowinkle, of Moore-Fowinkle and Shroer Insurance, says insurance carriers are choosing not to write new policies for commercial property and casualty lines, slapping on more restrictions or pulling out of the state altogether.

Following the last two hurricane seasons, large carriers such as Allstate Insurance Co. have announced they will be discontinuing commercial property coverage in the state. Those that are choosing to underwrite new policies or renew existing ones are doing so with more restrictions, refusing properties with weaker construction or too much value.

The upheaval in the industry is being felt by a variety of business owners and entrepreneurs. Some are worried about how it will impact the economy, especially if there is another heavy hurricane season in 2006.

And on a more personal level, insurance agents are seeing a growing number of irate business owners walking through their doors wondering why their carriers have dropped them.

In one recent case, Fowinkle had to scramble to look for a new insurance company to cover liability, wind and property coverage for a client operating a business near the Intracoastal Waterway.

"Nobody would touch it because it was a [wood] frame building," Fowinkle says. "We used to write [policies] for frame buildings without any problems. Suddenly it's a problem."

Higher premiums

There seems to be no relief in sight as insurance carriers continue to opt out of the Florida market. Just last month, Poe Financial Group notified its agents that it will no longer renew or insure new homeowner or commercial lines business for thousands of policyholders with its Southern Family Insurance Group.

Industry experts say there isn't enough new insurance capital coming into the state to fill in the void.

And when insurance policies are available, agents say business owners are complaining of the costs.

At Fowinkle's Bradenton office, the client with the wood-frame building had no choice but to pay a $14,000 premium with Lloyd's of London, a surplus lines insurance company based in the United Kingdom.

As a non-state licensed company, Lloyd's is a last resort for insurance agents since premiums are typically much higher. Fowinkle's client had to contend with a 180% rate increase from his previous $5,000 premium with a state-licensed carrier.

"I'm seeing anywhere from 5% to a 33% increase on premiums for commercial," says Fowinkle.

The causes of higher premiums to Florida property owners are twofold. After the 2004 and 2005 hurricane seasons, insurance companies were faced with rate hikes themselves from reinsurance, back-up insurance that insurance carriers buy to increase capital. Those added costs are eventually absorbed by policyholders.

At the same time, Citizens Property Insurance Corp., Florida's state-run insurer of last resort, levied a 6.8% surcharge last year to help pay a $516 million deficit from the 2004 hurricane season.

By law, Citizens can assess private insurance companies to increase its capital. The companies in turn pass the assessments to its policyholders.

Insurance companies are bracing for another assessment this year after Citizens reported last month a $1.73 billion shortfall from the 2005 hurricane season.

'Piecemeal' coverage

The assessments are especially punishing to commercial insurance policyholders, says Jim Valek, partner and co-owner of Valek Insurance and Bonds in Sarasota.

If a contractor, for example, has a packaged policy covering property and liability, the Citizens assessment will be based on the total premium, he explains.

"Say the contractor has a $50,000 premium for liability and a $1,000 premium for property because he only has a small office, the assessment is on the whole $51,000 premium," he says.

To avoid that, he recommends businesses opt for separate policies for property and liability coverage.

Still, agents say, higher premiums will be the least of a business owner's worries if no new significant insurance capital enters the Florida market in the coming year.

It is estimated that about $500 million a year of additional capital is needed to support the insurance market, according to The Task Force on Long Term Solutions to Florida's Hurricane Insurance Market.

"Any insurance company can only write a certain amount of policies in a given area," Valek says. "Right now, there are not a whole lot of insurance carriers in the area who can write policies any more. And we're only a quarter of the way into the year."

That has especially lead to obstacles for large commercial properties worth millions of dollars.

"We thought it would get better. But after January, it's continued to get worse," says Lenny LoCastro Sr., president of LoCastro Insurance Services in Venice. LoCastro has had to be creative with a multi-million dollar property in Venice.

"No insurance carrier wanted to take on $10 million worth of wind-storm coverage," he says.

To offer the client an insurance policy, LoCastro resorted to a "piecemeal" coverage through multiple companies, which creates more administrative work and requires higher premiums.

He sees the current trend as a deterrent to future commercial building.

"Buildings are still being constructed," he says. "But they're not taking into consideration the cost of insurance."

And it's going to be a shock when they find out how much it costs," he predicts.

Valek is bracing for hard times.

"I can really see this hitting the economy," he says. "If you can't get insurance, then you might take on more risks or close up shop and go to another state."

FLORIDA INSURERS' MARKET SHARE, 2005

Overall commercial

Company Premiums written Share

Bridgefield Employers $527,276,368 4.3%

Progressive Express $361,301,785 2.94%

Zurich American $289,631,430 2.36%

Commerce & Industry $271,134,557 2.21%

FCCI $251,276,760 2.05%

Continental Cas. $229,601,421 1.87%

Auto-Owners $229,177,282 1.87%

Zenith $219,488,971 1.79%

First Professionals $215,979,791 1.76%

Ace American $205,875,955 1.68%

Travelers Property Cas. Co. of America $199,676,462 1.63%

Commercial Multiple Peril (liability portion)

Philadelphia Ind. $53,483,650 6.25%

Nationwide Mutual Fire $33,015,527 3.86%

Travelers Property Cas. Co. of America $30,668,961 3.59%

Southern-Owners $30,378,371 3.55%

FCCI $28,945,875 3.38%

QBE $26,977,397 3.15%

Zurich American $26,647,271 3.12%

Hartford Fire $25,302,712 2.96%

Allstate $24,857,034 2.91%

Old Dominion $24,578,689 2.87%

State Farm Florida $20,047,564 2.34%

Commercial Multiple Peril (non-liability portion)

Maryland Cas. $86,190,627 7.13%

QBE $86,105,546 7.12%

State Farm Florida $66,738,428 5.52%

Northern Ins. Of NY $43,801,523 3.62%

Nationwide Mutual Fire $42,647,960 3.53%

Travelers Property Cas. Co. of America $39,027,330 3.23%

Allstate $31,329,649 2.59%

Philadelphia Ind. $31,147,742 2.58%

Hartford Fire $26,183,194 2.17%

Zurich American $25,125,537 2.08%

Assurance Co. of America $24,654,820 2.04%

Other liability

National Union Fire Ins. Co. of Pittsburgh $144,180,168 4.89%

Continental Cas. $102,975264 3.49%

Ace American $95,031,391 3.22%

Federal $64,495,274 2.19%

Zurich American $58,064,398 1.97%

Auto-Owners $52,457,191 1.78%

Illinois National $52,023,587 1.76%

New Hampshire $50,077,171 1.70%

State Farm Florida $49,406,200 1.67%

Mid-Continent $49,378,387 1.67%

American Home Assurance $39,909,173 1.35%

Source: Florida Office of Insurance Regulation.