the number of
Insurers blame rampant fraud, excessive litigation and inappropriate premium levels. Recent events lend some credence to this argument. To date, ten property and casualty companies are in liquidation, four of which are in bankruptcy.
CAUSES Although they have been spared in recent years from devastating natural disasters,
Historically, the state has pushed carriers for lower premiums regardless of underwriting risks. However, over the past several years, what has been particularly detrimental to carriers has been pro-consumer legislation that has resulted in an extraordinary number of claims and litigation. The main pieces of legislation that are believed to pose undue risk to carriers: the requirement to provide full roof replacement if there is damage to 25 percent of the roof, and the ability for attorneys to have their fees paid by the carrier if a claim is ultimately paid.
The well-intentioned legislation created the unintended consequence of encouraging roofing contractors to aggressively solicit business and for lawyers to take on litigation. As a result,
Oddly enough, premium increases have also been the driver of new citizen policies. One of the criteria required to qualify for a citizen policy is to show that the premiums from a
In May of this year,
STORM STRIKE, DEFICIT DISASTER Of the many articles being published about the citizen surge, none speak of the larger potential impact that will affect both citizen and non-citizen policyholders.
What happens if a storm hits and citizens run a deficit as a result of the volume of claims submitted?
THE STATE HAS THREE MECHANISMS IT CAN IMPLEMENT TO RECOVER A CAPITAL LACK.
1. Citizen policies may be assessed a one-time fee of up to 45 percent of their premium; 2. If the first level assessment is insufficient, the state may then assess a one-time fee on all private market policyholders, including, but not limited to, homeowners, auto and specialty lines and the surplus up to 2 percent of the premium; 3. If they turn out to be insufficient, the state can assess citizens and all private market policy holders up to 30 percent of the premium per year until the deficit is eliminated.
The administrative and logistical challenge to collect on these estimates would be enormous, and its impact on the timing of claims payments for such a catastrophic event is difficult to project. With the most ominous months of the hurricane season ahead of us and our exposure to citizen risk continuing to increase, let’s hope we don’t have to find out.