More Private Insurance Available For High-Risk Coastal Properties In The U.S., According To Latest I.I.I. Residual Markets White Paper

Florida’s State-Backed Residual Policy Count Drop Drives 14 Percent Decrease Nationally

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NEW YORK, June 7, 2016 — High-risk coastal property owners in the United States are increasingly able to buy coverage from private-sector insurers, thereby reducing the exposure of state-run residual property insurers, according to the Insurance Information Institute (I.I.I.)


The I.I.I.’s just-released Residual Market Property Plans: From Markets of Last Resort to Markets of First Choice, shows that the insured value of the residual property market in hurricane exposed states continues to decline. Between 2011 and 2014, total exposure to loss in the plans fell cumulatively by 30 percent. The paper examines state plans in Alabama, Florida, Louisiana, Massachusetts, Mississippi, New York, North Carolina, South Carolina, and Texas. 


State-run residual property insurers nationally had 2.77 million residential and commercial policies in-force as of year-end 2014, a 14 percent decrease from the 3.22 million policies in-force only a year earlier (2013). The U.S. residual property insurance policy count reductions have been led by the state-run Florida Citizens Property Insurance Corp., which had about 660,000 policies in-force at the end of 2014. This was down from 1.5 million residential and commercial policyholders statewide in 2012.


Co-authored by Dr. Robert Hartwig, an economist and the I.I.I.’s president, and Claire Wilkinson, who writes the I.I.I.’s award-winning Terms+Conditions blog, the white paper analyzes the changes taking place within the U.S. residual property insurance market. It reviews the growing availability of high-risk property insurance from private carriers and cautions against an over-reliance on state-run property insurers.


“While private insurance transfers and spreads risk, ensuring that sufficient funds will be available in the event of a loss, state-run schemes act rather as a conduit to pass along their cost to other insurance buyers, even those who have never filed a claim, live nowhere near the coast, and in some cases have no property exposure at all,” the co-authors wrote.


Many state-run residual market property insurance plans charge rates that are not actuarially sound and therefore do not accurately reflect the risk of loss. This means a major hurricane could expose residents in certain states to billions of dollars in post-storm assessments, the paper notes.


Residual property insurance plans are state-administered, and issue policies to high-risk property owners who have difficulty obtaining either residential or commercial coverage from private-sector property insurers. Should a state-run plan have trouble meeting its claims-paying commitments following a major natural disaster, residual property insurers often have the power to impose surcharges on all of a state’s property and auto insurance policyholders to help the plan pay its bills. 


Nonetheless, residual markets remain a primary source of insurance for many high-risk coastal properties, even as hurricane-prone states have worked to reduce the number of policyholders in their residual property insurance plans.




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