Will they boost insurance premiums in Florida?
January 11, 2025
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CEO: Florida homeowners insurer Citizens seeing price pressure ease
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State’s insurer of last resort, Citizens, successful in reducing its exposure, CEO Tim Cerio says
After sympathy, the apocalyptic, fiery scenes from the Los Angeles area are likely to give rise to a question from the other disaster-prone state now paying the country’s highest average premiums: Is this going to affect my insurance rates?
The short answer is no. It is not expected to affect Florida homeowner policyholders — not immediately, anyway,
Luckily for other parts of the country, much of the wreckage from this burning that’s being called one of the most destructive in California history will be borne by local insurance coverage and won’t affect the market at large, several insurance industry and reinsurance experts agree.
How Florida can escape insurance devastation of California wildfires
“The tragic California wildfires will have no impacts on the Florida insurance marketplace, similar to how Florida hurricanes have no impact on the California insurance market,” Mark Friedlander, director for corporate communications for the insurance industry-backed Insurance Information Institute, wrote in an email.
“Risk is rated at the local market level. National insurers typically have subsidiaries that operate in large markets like California and Florida. They rate risk specifically to that market, not across the United States.”
Mixed outlook for insurance
Like many insurance industry explanations, that might seem to defy logic. And not everyone is convinced these wildfire losses won’t make capital scarcer for reinsurance that insurance companies must buy to make sure they can withstand a catastrophe.
Reinsurance is the instrument by which insurance companies get backup funds to cover a catastrophic level of claims triggered when disasters — like wildfires or hurricanes — hit. The cost of reinsurance is the single biggest factor in determining premiums for windstorm losses.
“It could affect Florida insurers, and it would, in fact, affect them through the reinsurance markets,” said Zac Taylor, an assistant professor of management in the built environment at Delft University of Technology in the Netherlands. “Reinsurance markets are global. … One risk could impact the overall availability of capital and the cost of capital for other risks around the world.”
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Investors could get spooked by the scenes of loss coming from the Golden State, Taylor said.
Still, it’s going to take years for the wildfire losses to get digested. And luckily, a good part of the market has already locked in their reinsurance rates for the coming year.
“January 1 reinsurance renewals across the U.S. show declining rates, which is a good sign for 2025 June 1 hurricane season renewals for Florida insurers,” Friedlander said.
Taylor, however, notes that the cost of reinsurance is softening only after a steep upward trajectory.
Here are some of the other factors at play for what impact the wildfires will have in the insurance industry:
In Florida’s favor
- Like Florida, the major insurance companies have stopped insuring California property. As a result, a good deal of what has gone up in smoke was likely insured by the California version of Florida’s Citizens Property Insurance Corp., called the California FAIR Plan. The plan insures properties that private insurers don’t want to directly insure due to high risk. Like Citizens, it has the authority to levy a premium on all who pay an insurance premium, so the loss could be spread out among a vast number of policies if the nonprofit insurer’s reserves run dry.
- A minimal slice of the catastrophe bond market is exposed to fire losses, according to reporting in Bloomberg News. Roughly 12% of the catastrophe bond market is on the hook to cover wildfire damages, according to what Florian Steiger, CEO of Icosa Investments AG, a Swiss-based investment firm, told Bloomberg News. Most of the losses will be absorbed by primary insurers and junior reinsurance layers, Twelve Capital, a catastrophe bond fund manager, told clients in a note published on Thursday, Bloomberg News reported.
- The projected loss from the wildfires, although it did double to $20 billion overnight, would have to grow much bigger to spill into the global reinsurance market, according to one expert.
Anne Geggis is the insurance reporter at The Palm Beach Post, part of the USA TODAY Florida Network. You can reach her at [email protected]. Help support our journalism. Subscribe today
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