“Today, many residual property market plans have shifted away from their original mission as insurers of urban properties into major providers of insurance in high-risk coastal areas. It is important to recognize that many operate at deficits, or from slim positions of surplus, even in years with little or no catastrophe losses,” write the report’s co-authors, Dr. Robert Hartwig, president of the I.I.I. and an economist, and Claire Wilkinson, author of the I.I.I.’s award-winning Terms+Conditions blog. “A variety of factors are at play here, including the fact that state plans may be prohibited from charging a rate that is commensurate with the risk being assumed.”
The 3.31 million U.S. residential and commercial property insurance policies in-force in 2011 were primarily acquired from one of the 30-plus Fair Access to Insurance (FAIR) Plans or six Beach and Windstorm Plans, the report states. The cumulative exposure to loss in the U.S. residual property insurance market grew to a record-high $884.7 billion in 2011, up 17 percent from 2010’s $757.9 billion figure and higher than the previous record of $771.9 billion, set in 2007, the I.I.I.’s white paper states.
Florida’s Citizens Property Insurance Corporation wrote more than half (1.7 million) of the 3.31 million residual market policies that were in-force nationally as of year-end 2011. Residential and commercial property owners migrate to the residual market when they are unable to acquire an insurance policy in the standard market.
The claims-paying capacity of FAIR and Beach and Windstorm Plans are relatively limited and often exhausted quickly in the event of a severe storm, although some plans now purchase reinsurance to provide an additional layer of protection. If their coffers become depleted, state-run property insurers of last resort have a number of options available, the report explains. One includes levying assessments against the state’s participating insurers; in many states, the insurers are then allowed to recoup these assessments by imposing a rate surcharge on their policyholders. Bond issuances and accessing the capital markets are other ways these insurers can raise the monies needed to meet their financial commitments.
The 54-page report also provides specific analysis of the state-run property insurers of last resort in Alabama, Louisiana, Massachusetts, Mississippi, New York, North Carolina, South Carolina and Texas. In addition, the I.I.I. regularly updates its Issues Update paper on
Residual Markets.
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