Could Florida’s home insurance rates rise due to Japan disaster?

Hurricane insurance prices in Florida could stay flat or rise due to the earthquake and tsunami in Japan.

That’s because costs for reinsurance, or catastrophe insurance for insurers, could rise if claims payouts for recent disasters in Japan, New Zealand and Chile are high enough to reduce the global pool of capital, said Bob Hartwig, president of the Insurance Information Institute.

Policyholders pay for reinsurance costs through their premiums. Claims payouts for the Japan disaster could cost up to $25 billion, Bill Keogh, president of EQECAT, said in an interview last month. EQECAT provides consulting and software to insurance and reinsurance companies to help them project the risk of hurricanes.

“Reinsurers say, ‘Yes, there could be an impact whereby enough of the global reinsurance capacity has been effectively utilized to pay claims so global [capacity for capital] has shrunk, so prices rise.’ Others, including some brokers, say, ‘No, there is still sufficient capital and prices will be relatively flat,'” Hartwig said.

Hartwig said there is agreement that reinsurance prices won’t drop this year. The prices are also based in part on Florida insurers’ decisions on what to cover and how much reinsurance to buy.

He said a change in a hurricane risk prediction model produced by RMS and used by many insurers and reinsurers to help calculate premiums could also increase rates for those that weigh the model more heavily than other models. The change could increase projected worst-case scenario damages by up to 25 percent and it would increase damages for inland areas, according to reinsurance broker Guy Carpenter & Co.. The new RMS model still needs approval from the Florida Commission on Hurricane Loss Projection Methodology.

Keogh said EQECAT’s risk prediction model for Florida will factor in recent data for hurricanes and that Florida has dodged direct hits in five years, but that won’t necessarily effect prices.

He added that the model for Florida will also account for an increase in the number and intensity of hurricanes that are projected due to global warming. “What you saw last year was an extremely active year. It wasn’t an extremely active landfall year,” he said.

Some National Oceanic and Atmospheric Administration researchers believe global warming could increase the intensity of hurricanes but not necessarily the number.