A sharp increase in claims have been driving up auto insurance and homeowner premiums in the state of Florida, although the state has not been hit by a hurricane since the last five years, a new study has shown.
In the last six years since Hurricane Wilma hit Florida, there has been a sharp rise in ‘everyday claims’ as well as the new and reopened claims from the past storms, that have gone up by 80%.
Lynne McChristian who is Florida’s representative for the Insurance Information Institute has stated that Insurers are seeking rate increases based on a number of factors. They are not merely going by the projections of the future claims such as the catastrophic claims due to natural disasters, but based on claims that have already been paid out.
This month alone there have been two affiliates of Allstate that have requested rate increases averaging at more than 30%.
Castle Key Indemnity Co., as well as Castle Key Insurance Co. has stated that rates for some individuals may go up by 68%.
One of the biggest drivers in terms of cost was the legislative change during 2005, during which insurers were required to make a full replacement cost for home renovations upfront, state industry officials.
The only state which had such a provision was Florida. Whereas, in the rest of the states, insurers first pay the homeowners who have bought a replacement cost policy that is of an amount that is equivalent to the cash value, and then pay the remainder of the amount towards repair work or after the replacement of the damaged item.
However, the representative from the Institute stated that tying payouts to the actual receipts was a standard measure to keep the costs low.
As per the legislation enacted this year, the laws in Florida will authorize the payment of the actual cash value for the structural repairs, just as it is with the other states, although full replacement costs should be paid out upfront for the contents in a home.
The other factor that is boosting payouts is the provision that allows homeowners a period of five years to claim for damage caused due to a hurricane. The other states normally have a one-year deadline, although some states may sometimes extend that period on a yearly basis in case there are major storms. Florida’s claim period would be limited to 3 years now following the legislation that has been passed this year.