Hurricane deductibles in play as offset to Florida reinsurance challenges

We’ve learned that some Florida homeowners and property insurance carriers are using hurricane deductibles as a way to offset some of the costs related to the reinsurance challenges they face at this year’s renewals, with some already imposing specific deductible percentages.

Homeowners insurers in Florida are looking at options to help them manage potentially higher retentions, as well as higher pricing in their reinsurance arrangements for 2023 and beyond.

With global reinsurance rates having risen considerably at January 1st, the market is anticipating further double-digit increases at the rest of the renewals in 2023, including the key Florida June 1st reinsurance renewals.

More onerous terms and conditions are also likely to be imposed on Florida specialist homeowners and commercial property insurers, and as has been seen at renewals around the world in January, reinsurers have generally imposed higher attachment points, resulting in carriers retaining more risk lower down.

One way the insurers in Florida can offset this, at least to a degree, is through the use of hurricane deductibles.

Hurricane deductibles are enshrined in statute in Florida, but insurers can impose them at different levels, and policyholders can select how much, depending on the options their insurer makes available.

All insurance companies must offer hurricane deductible options of $500, 2 percent, 5 percent, or 10 percent of the policy dwelling or structure limits, unless a specific percentage deductible is less than $500.

But Artemis has learned that insurer American Traditions Insurance Company has written to its agents and partners, to explain that a 5% deductible will now be enforced on certain policies.

American Traditions said that, “We are facing reinsurance costs that could increase as much as 50% this upcoming renewal which is placed on June 1st.”

That’s despite the reforms enacted in Florida and it means insurers, like American Traditions, are facing significant additional reinsurance costs this year and to try and minimise the passing on of those costs to its policyholders, the carrier is looking to the hurricane deductible.

American Traditions explained, “Florida property carriers will see tens of millions of dollars in additional expense to purchase reinsurance adequate for their current exposure. Reinsurance costs are passed to the consumer and we must make efforts to reduce our reinsurance expense so that our policyholders are not faced with extreme renewal premium increases.

“One way to decrease reinsurance costs is to increase hurricane deductibles on existing exposure. Effective May 1, 2023, all American Traditions Insurance Company HO3 (site-built) renewal offers will include a 5% hurricane deductible.”

“Lesser deductible options will still be made available pursuant to Florida Law,” the carrier said, but the standard offer has been set at the 5% deductible level.

The company further said that, “Our company remains committed to Florida and we expect that many other carriers will also have to face some hard decisions regarding exposure for the upcoming hurricane season.

“These reinsurance challenges are far greater in scope than most Florida carriers have ever experienced and without changes all policyholders will face reinsurance rate increases.”

We understand that American Traditions is not the only Florida insurance carrier that has looked to the deductible as a lever to offset its upcoming reinsurance renewal challenges.