Costliest Year Yet

Costliest Year Yet

TRENDS by Janet Leiser | Senior Editor

From life insurance to workers' comp to property coverage, insurers take risks on their clients. They gamble they'll take in more than they pay out.

While there's anecdotal evidence that Florida appears to be surpassing California when it comes to the cost of property insurance premiums, statistics from the national Insurance Information Institute don't lend much credence to the claim.

Insurance premiums collected by casualty property companies in California amounted to $58.4 billion in 2005, compared to $35.6 billion collected in Florida during the same time. The statistics, however, don't include state funds.

But there appears to be some credibility to the claim when you divide the amount of property casualty premiums collected in 2005 by the number of homes in each state in 2003 (the latest year available from the Institute). Those figures show Floridians pay higher rates than Californians. The amount is $7,738 per insured home in California, compared to $8,738 per insured home in Florida.

Premiums also rose faster in Florida in 2005. Premiums collected in California rose only 2.8% from the previous year, compared to a 10.1% spike in the Sunshine State. In Illinois, direct premiums decreased 1.8%.

On property casualty premiums, California and Florida were followed by New York, Texas and Illinois when it came to the highest amount of premiums collected.

In all, property casualty insurance is a big segment of the insurance industry, with $478.5 billion in premiums written in all the states.

In 2005, five states accounted for 90% of the record $61.8 billion in insured property-casualty losses. Those with the highest catastrophe losses were Louisiana ($27.2 billion), Mississippi ($12.3 billion), Florida ($9.9 billion), Texas ($2.8 billion) and Alabama ($1.5 billion).

About $57.7 billion of the $61.8 billion in losses was attributed to five hurricanes - Katrina, Wilma, Rita, Ophelia and Dennis.

If you compare hurricane losses to earthquakes, tremors don't come close to causing as much monetary damage. In 1994, a California quake caused as much as $20 billion in losses. But seven of the 10 most costly quakes that occurred on the country's West Coast since 1933 recorded losses in the millions instead of billions.

States with the most insured homes in 2003 (latest year available) were California (7,552,537), Texas (4,090,661), Florida (4,078,105), New York (3,682,095), Pennsylvania (3,373,807), Ohio (3,205,227) and Illinois (3,079,898). The other states all have less than 3 million insured homes.

The 10-year low for insured catastrophe losses in the United States was in 1997 when losses were $2.6 billion. The highest loss in the past 10 years was in 2005, when losses totaled $61.8 billion.

REVIEW SUMMARY

Trend. Premiums are rising faster in Florida than any other state, even earthquake-prone California.

Key. Historically, earthquakes cause far less monetary damage in the United States than the hurricanes that hit the East Coast. Recent years have tipped the scales and insurers are responding.

Not all insurance needs reform

Tampa lawyer Mary Ann Stiles proudly says Florida's workers' compensation insurance now works better than ever: Premiums have decreased on average 43% since reform passed four years ago.

"In my opinion, it's the only insurance that's working in Florida," says Stiles. "It took years to get us there and it took some very tough decisions by the Legislature."

She worked on behalf of Associated Industries of Florida (AIF) for more than 15 years, spearheading the effort to reform workers' comp.

The reform worked so well after it was passed in 2003 that Stiles had to let 16 lawyers go since there wasn't enough work to go around at her firm.

As for property insurance, Stiles says, "It ain't fixed."

From experience, Stiles knows there are no easy solutions. It took her 15 years to convince legislators that the workers' comp system was set up to reward litigation and it had to be changed.

Tamela Perdue, a shareholder with Stiles, Taylor & Grace in Tallahassee, is now general counsel for AIF, which represents thousands of the state's businesses.

Perdue says the biggest problem is that government is telling insurance companies how to run their business and how much to charge, instead of allowing the market to correct itself following the hurricanes of recent years.

"They need to allow rates to be actuarially sound in the private market and they're not doing that," Perdue says. "No one wants to pay more, but that's the reality of what's required for the protection people want."

Perdue has heard that the Legislature isn't going to undo what was done in the previous special session, at least not this year, she says, adding: "We think they should, but we don't anticipate they will."

One of the business group's biggest concerns is that if the worst case scenario occurred, with a hurricane directly hitting the state, business owners would face as much as a one-time 84% assessment to cover losses.

"We think assessment is another word for tax," Perdue says.

As for the 84% assessments employers would face, she says, "Businesses can't afford that."

Since the legislators don't appear poised to deal with the issue, she says, maybe luck will help.

"The longer we go, the more time these funds have an opportunity to build up," Perdue says.

AT A GLANCE

States with Highest Property

Insurance Losses, 2005

Rank State Losses (000)

1 Louisiana $36,597,704

2 Florida $29,744,145

3 California $28,794,456

4 New York $17,672,626

5 Mississippi $12,649,173

6 Illinois $12,213,925

7 Michigan $10,757,040

8 New Jersey $10,292,230

9 Georgia $7,704,619

10 Massachusetts $6,551,336

Source: Insurance Information Institute

Businesses by State, 2004*

Rank State Number Firms

1 California 674,635

2 New York 428,425

3 Texas 373,059

4 Florida 370,789

5 Illinois 253,720

Source: Insurance Information Institute, U.S. Department of Commerce, Bureau of Economic Analysis and Bureau of the Census. *About 98% of businesses purchase business insurance or self-insure.

Property Casualty

Premiums by State, 2005*

Rank State Dir. Premiums (000)

1 California $58,441,047

2 Florida $35,637,503

3 New York $33,402,076

4 Texas $32,705,076

5 Illinois $20,831,275

6 Pennsylvania $19,577,606

7 New Jersey $17,234,149

8 New York $33,402,076

9 Michigan $16,018,872

10 Ohio $13,790,612

Source: National Association of Insurance Commissioners annual statement database, Highline Data LLC and Insurance Information Institute

Florida's Leading Writers of Property

Casualty Insurance, 2005*

Rank Company Direct Premiums Market Share

1 State Farm IL Group $4,317,400,315 12.1%

2 Allstate Insurance Group $2,519,084,793 7.1%

3 American International Group $2,151,160,532 6.0%

4 Progressive Group $1,777,884,510 5.0%

5 Berkshire Hathaway Insurance Group $1,625,210,410 4.6%

6 Liberty Mutual Insurance Group $1,425,254,335 4.0%

7 Nationwide Group $1,295,736,584 3.6%

8 St. Paul Travelers Group $1,188,908,139 3.3%

9 Zurich Insurance Group $1,163,173,627 3.3%

10 Hartford Fire & Casualty Group $1,033,763,752 2.9%

Source: National Association of Insurance Commissioners annual statement database, Highline Data LLC and Insurance Information Institute.

*Before reinsurance transactions and excluding state funds.

Florida's Leading Commercial Auto Insurance Writers, 2005*

Rank Company Direct Premiums Market Share

1 Progressive Group $317,544,455 14.9%

2 Auto Owners Group $151,763,646 7.1%

3 Zurich Insurance Group $145,199,593 6.8%

4 St. Paul Travelers Group $125,850,959 5.9%

5 Allstate Insurance Group $119,385,318 5.6%

6 American International Group $89,953,207 4.2%

7 Kingsway Group $85,261,240 4.0%

8 State Farm IL Group $81,678,686 3.8%

9 CNA Insurance Group $76,310,993 3.6%

10 Nationwide Group $67,274,959 3.2%

Source: National Association of Insurance Commissioners annual statement database, Highline Data LLC and Insurance Information Institute.

*Before reinsurance transactions, excluding state funds.

Florida's Leading Multiple Peril Insurance Writers, 2005*

Rank Company Direct Premiums Market Share

1 Zurich Insurance Group $301,335,666 14.6%

2 Nationwide Group $158,519,334 7.7%

3 St. Paul Travelers Group $157,999,780 7.7%

4 Hartford Fire & Casualty Group $128,163,304 6.2%

5 CNA Insurance Group $121,162,304 6.2%

6 QBE Insurance Group $113,082,943 5.5%

7 State Farm IL Group $86,785,882 4.2%

8 Maguire Corp Group $85,752,868 4.2%

9 Auto Owners Group $66,677,859 3.2%

10 Allstate Insurance Group $64,390,167 3.1%

Source: National Association of Insurance Commissioners annual statement database, Highline Data LLC and Insurance Information Institute.

*Before reinsurance transactions, excluding state funds.

Value of Insured Coastal Properties* ($ billions)

Coastal

Rank State Coastal Total Exposure Percentage

1 Florida $1,937 $2,443 79%

2 New York $1,902 $3,124 61%

3 Texas $740 $2,895 26%

4 Massachusetts $662 $1,223 54%

5 New Jersey $505.8 $1,505 34%

6 Connecticut $405 $641 63%

7 Louisiana $209 $552 38%

8 South Carolina $149 $581 26%

9 Virginia $130 $1,140 11%

10 Maine $117 $202 58%

Source: AIR Worldwide and Insurance Information Institute.

*Vulnerable to hurricanes.

Florida's Leading Writers of Workers Comp Insurance, 2005

Rank Company Direct Premiums Market Share

1 Liberty Mutual Insurance Group $769,844,999 20.8%

2 American International Group $474,920,713 12.8%

3 FCCI Mutual Insurance Group $227,836,965 6.1%

4 Zenith National Insurance Group $219,488,971 5.9%

5 Hartford Fire & Casualty Group $197,670,775 5.3%

6 Zurich Insurance Group $137,531,233 3.7%

7 St. Paul Travelers Group $133,178,280 3.6%

8 CNA Insurance Group $120,709,526 3.3%

9 AmCOMP Group $108,995,232 2.9%

10 First Commercial Mutual Co. $205,406,854 2.8%

Source: National Association of Insurance Commissioners annual statement database, Highline Data LLC and Insurance Information Institute.

Florida's 10 Leading Writers of Life Insurance, 2005*

Rank Company Direct Premiums Market Share

1 John Hancock Consolidated $2,052,356,547 7.4%

2 American International Consolidated $1,935,574,877 7.0%

3 Metropolitan Group Consolidated $1,788,699,100 6.5%

4 Aegon USA Inc. Consolidated $1,611,602,472 5.8%

5 Allianz Insurance Consolidated $1,470,527,551 5.3%

6 Hartford Fire and Casualty Consolidated $1,336,952,514 4.9%

7 ING America Insurance Holding Group $1,318,313,921 4.8%

8 Prudential of America Consolidated $1,309,921,679 4.7%

9 AXA Insurance Group Consolidated $1,219,910,413 4.4%

10 Principal Financial Consolidated $825,050,758 3.0%

Source: National Association of Insurance Commissioners annual statement database, Highline Data LLC and Insurance Information Institute. *Before reinsurance transactions, excluding state funds.

Florida's Leading Writers of Homeowners Insurance, 2005*

Rank Company Direct Premiums Market Share

1 State Farm IL Group $1,175,850,317 21.0%

2 Allstate Insurance Group $495,663,212 8.9%

3 Poe Financial Group $402,430,257 7.2%

4 Tower Hill Insurance Group $285,914,090 5.1%

Source: Insurance Information Institute.

*Excludes Citizens Insurance, run by the state.