As Zeta approaches, 'We're already getting teams ready for claims' insurer says

The frequency and severity of claims filed due to increasing numbers of daily events and catastrophes linked to climate change causes rate increases, the co-founder of a Florida insurance carrier said.

 “I can't tell you what the future holds, but I can say that we certainly have seen an increase in the frequency, which means the number of claims that we get for a given number of policyholders,” Stacey Guilianti, cofounder and chief legal officer of Florida  Peninsula Insurance Co., told Insurance Rate Reporter.

Even a small increase in claims by policyholders from 4.7% to 5.2% in a given year looms large, with the carrier needing to hire more people and more outside vendors. The carrier needs more field adjusters and examiners. And all the costs get passed along to the policyholder, because that’s who funds the losses.

Carriers are not only seeing an increase in the number of claims, but also in their severity. They can run catastrophe models, flooding models and lightning strike models to try to determine the future.

When Florida Peninsula puts its data into the models, it shows rates have to increase because the frequency and the cost of losses are rising. Guilianti said that includes daily events like hail, wind and groundwater, plus a larger number of catastrophes.

This year is a case in point, with named storms already up to Zeta, and that storm probably will affect the carrier and its policyholders.

“We're already getting teams ready for claims in the panhandle of Florida,” he said.

He said according to scientists and the modelers, this is happening partially because of a change in climate.

A catastrophe and losses don’t have to happen in the state for Florida carriers and policyholders to feel the effects. Reinsurance costs certainly rise based on modeling of losses that show more hurricanes that are stronger and wider, affecting more homeowners. But the reinsurers have to make up the losses for an earthquake in New Zealand or wildfires out west.

“That has to be made up even in years where there's no hurricanes in say the Southeast, they have to make up for it somehow,” Guilianti said.

As reinsurers are not regulated the way insurance carriers are, they will pass along their losses from wherever they occur across the board to all carriers, who in turn pass them along to customers.

“Because they're not regulated in the same way, they don't have to go in front of the state of Florida or the state of Georgia or the state of New York and ask for a rate increase,” he said.

“There's still a market principle that they have to abide by, but they don't have to abide by any regulatory standards in the same way that primary carriers do. So, you know, we're at their mercy in some respect,” he said.

The state created the Florida Hurricane Catastrophe Fund to help raise or lower limits. By changing the pricing, it forces reinsurance companies to negotiate to keep business.