INSURANCE
repairing and rebuilding costs , and the effects of extreme weather combined with rapid population growth in areas at higher risk for storms and fires . There is also legal-system abuse and regulation that “ strays from its core purpose ,” Ward says , referring primarily to how states manage their insurance markets .
For example , he explains , until late last year California prohibited insurance companies from basing their rates on “ catastrophe models ” that project disaster risk . This restricted premium increases based on climate-prediction calculations , preventing carriers from raising premiums to keep up with the ever-rising costs of claims . As a result , many large carriers quit the state .
To stop the flow of insurers leaving California , the state insurance commissioner recently rescinded the rule , allowing carriers to use catastrophe models and to price in part of their reinsurance costs . “ These reforms will help California ’ s market recover its equilibrium ,” says Ward .
In Florida , regulators were forcing insurers to accept contractors ’ estimates for rebuilding costs , which he says led to a wave of lawsuits as insurers rejected contractors ’ estimates as “ overinflated .” Costly suits and countersuits ensued , he says , leading more than a dozen carriers to go out of business between 2020 and 2022 as litigation became too expensive .
Since then , however , legislative changes have curbed the lawsuits and helped stabilize the market , he says . As a result , 60 % of the state ’ s top 10 carriers have now expanded their business , 40 % have filed to decrease rates , and nine new insurers have begun offering coverage , according to data from Florida ’ s Office of Insurance Regulation .
“ When regulators or politicians attempt to suppress rates artificially , that creates even bigger problems ,” Ward adds . Insurers , he says , should be “ allowed to set rates that are commensurate with risk .”
The Future
Apparent improvements in Florida ’ s insurance market are a testament to the power and value of appropriate oversight , says Michael Zmistowski of the Financial Planning Association in Tampa , Fla . The state has formed a stability unit , he says — a multidisciplinary regulatory collaboration that “ provides enhanced monitoring [ of ] insurers ’ solvency , rates , proposed contracts , underwriting rules , market practices , claims handling , consumer complaints , litigation practices and outcomes , and any other issue related to compliance with the insurance code .”
Still , it ’ s too soon to say whether these changes will have a lasting effect . In January , official data showed that the statewide average premium for an all-perils single-family home policy had increased more than 3 % in the most recent quarter , which was more than double the modest increases of the two previous quarters .
“ I ’ d think insurance premiums in risk areas will keep going up ,” says Steven Podnos at Wealth Care in Merritt Island , Fla . “ I don ’ t see an easy solution . It ’ s a market-risk issue .”
The Results Are In
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MARCH 2025 | FINANCIAL ADVISOR MAGAZINE | 53