Sandy insurance claims: Claims from Sandy in the U.S. Northeast could boost Florida insurance rates

A surge of insurance claims from Superstorm Sandy in the Northeast could boost rates in Florida, some insurance professionals fear.

Initial estimates put insurance exposure in the Northeast at more than $10 billion. Some of those payouts are expected from reinsurance companies, the same ones that provide insurance to insurance companies in Florida to help them cover their risk. If reinsurance rates spike, that in turn could push up property insurance rates in Florida.

Reinsurance makes up as much as 40 percent of premiums for some small insurers in Florida that have limited capital to cover potential losses from a disaster, according to the Insurance Information Institute, an industry group.

Florida professionals differ over how much claims from Sandy might affect the reinsurance market.

Some agents who sell insurance expect fallout.

"I'm sure there will be a trickle-down effect on reinsurance" in Florida, said Ron Kornbluh, president of Brokers Insurance Group of Margate.

That could tick up property insurance rates in Florida, which many analysts had expected to flatten out next year, said Dirk DeJong, president of Frank H. Furman Inc. insurance agency in Pompano Beach. Rates could rise up to 10 percent on some hard-to-place insurance policies, DeJong said.

But other industry leaders predict little or no effect for reinsurance and Florida rates.

Lynne McChristian, the Florida representative for the Insurance Information Institute, said reinsurers entered this hurricane season with historically high levels of capital and likely can cover losses without rate hikes. Plus, major damage in the Northeast stems from flooding, handled by the government's National Flood Insurance Program and not by private insurers or reinsurers, she said.

Florida's Insurance Consumer Advocate hopes the Northeast flood claims can bring attention to the burden on Floridians. The state now buys about 30 percent of all flood insurance coverage nationwide, because some federal home loan programs require the coverage in a state seen as vulnerable to hurricanes. Flood coverage is not required in many other states.

"Perhaps this will open a discussion about what's fair in flood coverage. It might resonate now that it's not unique to Florida to be exposed to catastrophic risk," advocate Robin Westcott said. "And if we can get parity and more money coming into the flood insurance market, you can assume Florida premiums later will come down."

Sandy's impact depends too on the way insurance companies manage claims. Too often, companies end up paying big bucks on lawyers and adjusters to trim payouts on claims that they consider inflated, said Charles Stephens, an insurance adjuster based in Dania Beach. Poor management — instead of fair payouts on claims — leads reinsurers to raise premiums on those sloppier firms, he said.

"There must be transparency in claims, and there's no need for litigation in most cases," Stephens said. He suggests online auction bidding by contractors on repair work to help cut costs on claims.

Insurance experts say it will take weeks more to tally Sandy's claims, losses for companies and the effect on reinsurance. Until then, the debate on local consequences is sure to persist..

Said McChristian: "It's like trying to predict the stock market."