When shopping for or renewing homeowners or commercial property insurance in Florida, you may notice a term in your policy called a “Hurricane Minimum Earned Premium” (MEP). This provision often catches property owners by surprise, especially if they’re considering changing carriers mid-season. Let’s break down what this means, why it exists, and how it can impact your insurance decisions.
What Is a Minimum Earned Premium?
A minimum earned premium is the portion of your insurance premium that is considered “non-refundable,” even if you cancel your policy before the term ends. It represents the amount the insurer requires to cover the risk they assume as soon as the policy becomes active. Most non-admitted policies have a 25% earned premium clause, meaning one fourth of their premium is fully earned after the coverage is bound. However, in hurricane prone areas including Florida, many carriers have started implementing Hurricane Minimum Earned Premiums which applies specifically during hurricane season.
Why Do Insurers Use Hurricane Minimum Earned Premium?
Florida insurers face extraordinary exposure during hurricane season, which runs from June 1st through November 30th. A single storm can generate billions in claims, and insurers need stability to manage that risk.
Without hurricane MEPs, some property owners might buy a policy just before a storm is forecasted, then cancel shortly after if they avoided damage. This would allow them to essentially “rent” coverage only when they knew they were at high risk. Hurricane MEPs prevent this practice and ensure that all policyholders share in the cost of maintaining the insurance pool throughout the storm season.
How Does a Hurricane Minimum Earned Premium Work?
- Timing: The MEP typically applies if you cancel a policy during hurricane season.
- Amount: Many carriers set the hurricane MEP at a percentage of the annual premium, often minimum 25% to 100% depending on the insurer and depending on how long the policy was active during storm season
- Example: If your annual premium is $10,000 and your policy has a 100% hurricane MEP, cancelling mid-season could mean no refund of unearned premium. If it’s 25%, you’d still owe at least $2,500, even if you cancel early. As a reminder there are also typically fully earned fees, such as inspection or broker fees that cannot be refunded either.
- Scope: The provision may apply whether you voluntarily cancel or move your policy to another carrier.
What Property Owners Should Know
- Review Your Policy Carefully: Not all carriers apply hurricane MEPs the same way. Check your policy for specific wording.
- Plan Timing of Policy Changes: If you’re considering switching carriers ensure your policy was not active during hurricane season.
- Budget Accordingly: Treat the minimum earned premiums as a potential sunk cost if you anticipate changes during storm season.
- Understand It’s About Stability: MEPs aren’t just about protecting insurers; they help ensure the overall insurance market doesn’t collapse under opportunistic cancellations.
The Bottom Line
Hurricane Minimum Earned Premiums are one of the many ways Florida insurers manage catastrophic risk. While they can feel restrictive, they play a role in keeping coverage available and stabilizing premiums for everyone.
If you’re unsure how your policy’s hurricane minimum earned premiums work or considering changing carriers during storm season it’s best to reach out to your agent and carrier. Our team at Insurance Resources can also be there to talk to you through the details and help you make the best decision. Contact us at 727-345-0242 for a policy review.
