The latest news of a major insurer withdrawing exposure from a disaster-stricken U.S. state comes amid media reports from AAA Insurance that it will reportedly remove certain policies from its portfolio by non-renewal because it Appears to manage its Florida exposure.
AAA Insurance in Florida is part of the Auto Club Group and offers auto, homeowners insurance and bundles coverage in the state.
Media reports said the company was the latest to seek a divestment, citing disaster risk as the reason for the move.
The report quoted AAA as saying that Florida’s “catastrophic hurricane season in 2022 has led to unprecedented increases in reinsurance rates, making it more expensive for insurers to operate.”
It added: “We are encouraged by the regulatory changes that have come into force recently and are confident that they will deliver positive outcomes.
“These improvements will take some time to fully materialize, and until they do, AAA, like all other providers in the state, has been forced to make difficult decisions to manage risk and disaster risk.”
The company was quick to clarify that AAA is not withdrawing from Florida, but instead not renewing certain policies after they meet their terms.
This is said to represent only a small portion of AAA’s total policies, and the company said it will continue to actively create new policies and will continue to increase its number of policies year-on-year.
Customers claimed on social media that policies they had kept were now also facing steep rate hikes.
“We do not take this decision lightly, but it is a necessary decision to reaffirm our commitment to the state and those we cover,” AAA said in a release. A difficult time. AAA insurance agents are willing and able to help them find alternative coverage.”
AAA’s move is just the latest in a string of insurers pulling out, or withdrawing, in states such as Florida and California.
What these initiatives have in common is a desire to better manage risk at a time when it is more expensive to manage risk through reinsurance.
But it’s not just reinsurance costs, it’s litigation-related challenges and inflationary impacts, both cost and social inflation.
In recent months, Bankers Insurance and AIG subsidiary Lexington Insurance have withdrawn coverage in Florida, while Allstate has suspended coverage of new homeowners, condo and commercial property insurance in California at the end of 2022, and AIG and Chubb have also reportedly withdrawn high insurance. Assess property risks in California.
Most recently, State Farm indicated that it would exit the California property insurance market, ceasing to write business and personal property and casualty properties, citing growth in exposure, rising catastrophe risk and challenges in the reinsurance market.
Then, Farmers Insurance announced that it would relax some of its efforts to underwrite properties in California, saying it would limit the number of new policies it now writes each month.
Farmers then announced it was withdrawing from Florida, where the company would stop writing new Farmers-branded auto, home and umbrella policies, as the company looks to manage its exposure in the state.
We also canceled our nationwide business and plan to re-underwrite some real estate business.
As we have said before, insurers are losing confidence in their ability to charge risk-appropriate rates to cover all their costs in every region in which they operate.
Moves to more closely manage exposure are therefore not surprising, and given that reinsurance costs have risen significantly, these moves are likely to become more frequent as insurers look to use every tool at their disposal to manage more profitably its books of account.
Florida, of course, remains probably the most challenging insurance market and faces the highest possible reinsurance prices.
However, this risk remains attractive to the reinsurance and insurance-linked securities (ILS) markets, as evidenced by Citizen’s recent renewals and our news earlier today on the progress Citizen’s population reduction program is making.
However, it’s not at any cost. Reinsurance capital believes that it is compensated enough to take long-term risk and make a profit in most years.
The major insurers need to do the same, and you only have to look at the statistics of the performance of the major insurers in Florida over the past 6 years or so to realize that something has to change.
The question now is what effect this will have on citizens at a time when they want to reduce their own population, but it looks like the new policy may be coming in as much as going out via takeout.