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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]It’s not just a Florida issue:
https://www.sfchronicle.com/california-wildfires/article/insurance-state-farm-18125433.php[/quote]

Insurance risk hasn’t really changed much in the past year in Florida or California. Insurance companies always say they are reducing their insurance exposure because of lawsuits or construction costs or some other nonsense they blame on the states but I worked on this issue as a Congressional staffer and they dropped more policies after the 2008 financial crisis than they did after Katrina. 
The profits of an insurance company come more from its investments than from its insurance underwriting. Insurance is a mechanism to create a huge float of reserves that they seek to invest in high-return investment schemes, which often are boom and bust markets like commercial real estate, mortgage backed securities, etc. 
When their investments are earning high returns they are willing to expand their insurance business in riskier areas to collect much more premiums to invest. When their investments are losing money they cut their insurance exposure to reduce the amount of capital they are required to hold for paying claims. 
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These are the posts that get people coming back. Kudos. [/quote]

Eh, your pp's comments are not entirely accurate.  Yes financial markets affect insurers, and so a big financial crisis will have a large nationwide impact. Florida is not experiencing a nationwide phenomenon though.  It is facing something very state-specific.  What's going on in Florida is risk-related and fraud-related.

The risk is big weather events.  Big national insurance companies, led by State Farm, began reducing exposure after the 2004-2005 hurricanes.  It happened again after Irma and Michael in 2017-18. And every big hurricane year causes insurers to reprice or retrench.  This is not the result of the 2008 financial crisis, or any swings in the stock market.

State Farm holds 18% of insurance policies nationwide, but only 6% of Florida.  Allstate has 9% nationally but only 1.6% in Florida.  USAA, Liberty and Farmers have 20% of the national market, but 5.2% in Florida (Farmers isn't even in Florida now.)  Combined this means that the top five insurers, the most stable insurers, who cover half the homes in America, only provide insurance to 12.8% of homeowners in Florida.

The result was a lot of smaller insurance companies cropped up, but they are particularly vulnerable in big claim years.  They are poorly capitalized, their risk is concentrated in one geography, and many rely on reinsurance from private capital.  14 of these insurance companies went belly up in the last five years and the state has had to levy extra fees on policies to keep its own insurance guaranty program solvent.  For the ones that survive, their reinsurance costs have gone up because the hedge funds backing them adjust for losses.

The fraud is a roofing scam that has been going on for several years. In the scam, roofers claim to find damage then say they will get the roof fixed guaranteed if the homeowner signs and Assignment of Benefits, which makes the roofer the beneficiary of the policy.  This allows them to sue the insurance company, and I'm sure they hope some fraction of those lawsuits get settled.  And the costs get passed on to you, the consumer.

It's bad, but it's not the global financial markets.  This is Florida.

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I’ve followed this for decades in coastal windstorm markets and they yo-yo in a cycle that isn’t explained by increased risk or lawsuits, but by extreme disasters and investment trends. All of the private insurers want to limit their exposure in any specific hurricane risk location and do so by cherry-picking the well-built expensive houses with cars, boats, and business policies to bundle. The older and modest homes are dumped into the state last-resort pool. After an Andrew or Katrina insurers have to pay out billions at once and some stop writing in coastal markets. That causes other insurers to stop because they don’t want too much exposure in one place. Eventually, they all want to go back in and cherry-pick those nice bundles again. The yo-yo effect shows up in the state wind pools where their exposure suddenly doubles or triples with no time to build up reserves so they are gouged by reinsurers. That’s where I noticed the effect of their investment portfolios. After Katrina, insurers dumped coastal policies into state pools from Cape Cod to Brownsville, forcing them all to jack up premiums and send it all to Bermuda reinsurers. Just when the exposure in the state pools started to stabilize, the financial crisis resulted in another mass pullout of coastal markets. 2010 was much worse than 2007 for state pools. The investment trends affect the high-risk disaster coverages only, because they have extreme timing risk that could require billions of dollars in claims at once. Auto, life, fire (other than wildfire), etc. lines have predictable claims every year so the premiums cover the risks and those lines are not affected by investment losses. [/quote]

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