It’s a pretty simple question. Why aren’t property insurance rates dropping now that insurance companies are paying less for the reinsurance they purchase to cover claims?
After all, the companies often react to rising reinsurance costs by requesting rate increases. With reinsurance costs dropping an estimated 15 to 20 percent, shouldn’t the companies be offering comparable rate decreases?
To his credit, state Chief Financial Officer Jeff Atwater has been trying to get an answer to that question since August. So far, he’s been told it’s not that simple, and he’s been promised a study from the Florida Office of Insurance Regulation that will analyze how reinsurance costs affect rates.
Not exactly the answer Atwater wanted, but it’s a start and will hopefully shed some light on the reasons the rates don’t automatically decrease when reinsurance costs drop.
The insurance companies say it’s not a simple formula. Rates depend on the overall cost of doing business, not just the cost of reinsurance. Some years when reinsurance costs rise, the companies are denied rates increases, and they spread those costs over years. Different companies purchase different amounts of reinsurance, and some companies may not be experiencing a drop in reinsurance costs.
Those reasons sound perfectly logical. But they skirt around the fact that the companies invoke higher reinsurance costs when raising the rates.
That’s really what Atwater is getting at. “Year after year, insurance companies have been telling their customers and the Legislature that the ‘simple’ explanation for the higher rates they are charging was due to reinsurance costs going up,” Atwater writes in a letter to Kevin McCarty, the commissioner of the Florida Office of Insurance Regulation. “Furthermore, they made presentations that if reinsurance rates were to fall they would pass those savings along to their customers. But now that insurance companies are experiencing a significant decrease in the cost of their reinsurance, they are not lowering costs for consumers.”
Atwater has also been told it may be early yet for the drop in reinsurance costs to have affected rates.
And there is evidence some may be dropping. As the Tribune’s James L. Rosica reported, insurance companies have filed nine requests for rate decreases since July, with four approved.
Of course, more than 20 requests have been made to raise rates.
It might be asking too much for the study underway to result in lower insurance rates. But the study might still be considered useful if it manages to shed some light on why the insurance companies make it sound so simple when they want to raise the rates, and so complicated when they are asked to lower them.