Florida Homeowners Insurance Rate Increase

With the official start of the 2009 hurricane season only three weeks away, Florida property owners can anticipate higher homeowners insurance rates.

New legislation approved by the Florida Legislature more than a week ago would raise rates 10 percent for homeowners covered by Citizens, the state-run insurer. Gov. Charlie Crist is expected to sign it into law.

Privately held insurance companies can also pass on the cost of back-up reinsurance to their policyholders, up to 10 percent a year, under the legislation.

Sen. Mike Fasano, R-New Port Richey, said Friday he can’t speak for the governor but said the governor’s office has indicated to him that it feels better about the bill after changes were made in the Senate and in conference with House members.

Fasano helped amend the bill, reducing the 20 percent increase that was initially proposed for Citizens policyholders and making sure the bill didn’t contain “only provisions that were overwhelmingly in favor of the insurance industry.”

For Citizens policyholders, the increase would be a flat 10 percent of their current premium, regardless of where their homes are located and whether they have only windstorm coverage from the company or a policy that includes fire and theft protection. The increase would hit when their policies renew next year.

The 10 percent annual increases would continue until Citizens rates are actuarially sound. That means the company is accumulating enough from premiums to pay for possible future claims.

“It’s not a matter of greed. It’s necessary,” says Dulce Suarez-Resnick, a personal lines agent at Brown & Brown’s HBA Division in Miami.

“I’m encouraged the Legislature took some responsible steps to lower Florida’s hurricane insurance risk this session,” Alex Sink, Florida’s chief financial officer, said in a statement referring to provisions in the proposed insurance law.

The legislation allows Citizens to raise its rates gradually and reduces the size of the Florida Hurricane Catastrophe Fund, which sells back-up insurance to the carriers operating in Florida.

Bill aids insurers

Regulators expect private carriers to take advantage of the legislation’s provisions as soon as they put in place their reinsurance coverage for this hurricane season. So some Florida policyholders could see these increases if they renew their policies later this year.

Some lawmakers, regulators, insurers, agents and business groups argued that higher rates are needed because Citizens doesn’t have enough money to pay all the claims it might see if a massive storm were to hit the state.

Why would Citizens see a shortfall? Its rates have been frozen since the start of 2007, yet it has continued to provide insurance coverage for risky properties in coastal areas, such as older homes and condominium buildings that many private insurers prefer not to insure.

Of course, these likely insurance rate increases come as the recession has hit Florida hard. Consumers, many unemployed or taking pay cuts to keep their jobs, are hard-pressed to cover household costs, including insurance, at current levels.

Owner’s costs triple

William Ycikson, a Miami Beach homeowner, has seen his windstorm premiums nearly triple after the eight hurricanes that hit Florida in 2004 and 2005. “I can’t see paying more.”

Ycikson, who is self-employed, is toying with the possibility of dropping his windstorm coverage since he has paid off his mortgage and the coverage isn’t required. He also faces a tough decision: Help his retired father cover a higher insurance bill or advise him to forego hurricane coverage as well.

It’s a risky move, but one that many Floridians are weighing to keep their insurance costs down. Without windstorm insurance, repairing any damage to their homes caused by a hurricane would have to be covered by Ycikson or his father, who also lives in Miami Beach.

If a major hurricane hits a densely populated section of the state such as South Florida or Tampa Bay, both Citizens and the Florida Hurricane Catastrophe Fund could face substantial shortfalls.

The big concern among insurance regulators in Tallahassee and business people around the state is that such a deficit would have to be covered by all Florida policyholders through one or more surcharges.

‘Tax’ is assessed

“What this means for Floridians – those who own a home, business or auto policy – is that we will be stuck with assessed ‘hurricane taxes’ that can be tacked onto our policies for years to come,” says Barney Bishop, executive director of Associated Industries of Florida, a business lobbying group.

Several surcharges to cover deficits from the 2004 and 2005 storms are now added to almost all insurance policies in Florida, except worker compensation and medical malpractice policies, and will remain for at least another five years.

Groups backed bill

Associated Industries, the Florida Chamber of Commerce, other business groups and some nonprofit organizations lobbied hard to be sure the new insurance legislation reduced risk for the CAT Fund and allowed Citizens to raise its rates.

“It’s a vicious circle. We have more people coming for help and we have fewer donations to help them,” Sheila Hopkins, associate director for social concerns/respect life for the Florida Catholic Conference. She says surcharges on insurance that her organization must pay out of its operating budget take away funds that could be used to provide social services.

The new legislation reverses changes made in early 2007 after a special legislative session expanded the CAT Fund. Urged on by newly elected Gov. Crist, lawmakers hoped the savings from additional, less-expensive reinsurance companies could buy from the CAT Fund would be passed on to policyholders as lower rates.

Many homeowners did see at least a small drop in rates. Also, a requirement that insurers double the mitigation credits given to homeowners who add hurricane shutters or reinforce garage doors also provided savings on insurance premiums.

Meltdown has impact

But the meltdown of the financial markets has reduced the ability of the CAT Fund and Citizens to sell bonds to provide the cash needed to pay claims after a massive storm.

The new Florida legislation reduces the amount of reinsurance the CAT Fund can sell by $2 billion a year through 2013, thus reducing the risk the fund faces. The legislation would require insurers to pay additional premiums over the next five years to build reserves in the fund more rapidly. Citizens would be allowed to increase its rates 1 percent annually during this time to recover the cost of extra payments it will be making to the CAT Fund.

Even insurance agents aren’t immune to pain of rising costs and shrinking incomes. Suarez-Resnick says she is in the process of refinancing her mortgage because she knows that her homeowners policy premiums will be going up next year. Staffing at her agency has been cut nearly 10 percent and salaries reduced in the past year.

Nestor Rivero, who owns Tropical Insurance in West Miami-Dade, says he had to cut support staff to eight employees from 11, including laying off the receptionist who had worked for him for 21 years.

“This is absolutely the worst time to have to absorb an increase,” says Suarez-Resnick.


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