7 years without storms but Florida rates
keep rising !
I just read the following article and it reminded me that I have been about to write something on the ruthless way that insurance rates are being pushed up with no valid reason; and why Citizens, the insurance company of last resource, sponsored by the State of Florida is under constant pressure from legislators and lobbyists to relentlessly hike its rates and limit the quantity of policies it writes, so that they can be taken over by ...guess who?
Notwithstanding the good work at keeping rates at bay during many years, it looks like Citizens is a thorn in the insurance companies' flesh. Years ago they claimed that Florida was too risky to cover. We decided to live without them and assume the coverage by ourselves with Citizens, which happens to be a pretty good idea.
But apparently these same insurance behemoths had second thoughts or they just decided that at very high premiums, we were definitely worth the risk. I suspect that the undermining of Citizens, the constant criticizing of its management, the angst about its possible insufficient reserves, are part of a larger plan to come back at their own (very expensive) terms.
We, real estate people, who worry about affordability, are alarmed by the recent premium increases. These have added to bank's unusually strict demands and delays in granting mortgage loans, that have hampered many purchases of middle class buyers.
I have not sold a single property to a local buyer in the last 5 years. I have not sold anything that wasn't hard cash. And the new insurance rates are becoming an additional hurdle.
Read on:
It's been nearly eight years since Hurricane Wilma raked the
southern end of Florida and caused billions in damages, the last of eight
hurricanes to hit the state in 2004 and 2005.
Yet even as the state has been spared from additional
hurricanes since that time Florida's fragile property insurance market has
resulted in nearly year after year of steadily rising insurance rates for
homeowners."We have no choice to continue to pay it," said Henry
Kempf, a customer with state-created Citizens Property Insurance Corp. who owns
a home in New Port Richey. "We will
have to afford it in order to have the peace of mind. "
Annual reports prepared by Florida's Office of Insurance
Regulation show that the department has been approving more than 100 rate hike
requests a year since 2009 - including requests to hike rates by double-digits.
That includes increases for Citizens, the state's largest
residential property insurer with nearly 1.3 million policyholders. A report
released in January by Florida State University concluded that homeowners in
the state paid nearly $8 billion in premiums in 2011. And sometimes the
financial impact doesn't just come from rate increases. The state-created
Citizens, for example, has tightened its policies to cut down on discounts it
offers or raised deductibles connected to sinkhole coverage. Citizens is
supposed to be for property owners who can't get private policies.
For Kempf the whole situation is frustrating: "No one
is watching out for the people of Florida. Everyone has their own agenda."
Hurricane storm season officially starts Saturday and
federal forecasters predict it will likely be more active than an average
hurricane season. The prediction issued last week calls for 13 to 20 named
Atlantic storms, seven to 11 that strengthen into hurricanes and three to six
that become major hurricanes. This storm
season, however, may prove even more crucial than ever for homeowners in the
Sunshine State. That's because some are predicting Florida may be finally
reaching the end of a volatile period for insurance rates - if the state can
avoid disaster this year.
"There are some early signs we have reached price
equilibrium," Florida Insurance Commissioner Kevin McCarty said last week.
Locke Burt, chairman and president of Security First Insurance, the state's
fourth-largest residential insurer, predicted his company will likely not ask
for a rate hike in the coming year. The
reasons for Florida's steadily-increasing rates are varied and have triggered
endless argument especially among state lawmakers and others in the last two
decades. The biggest expense remains the
cost of "reinsurance" - which is the money an insurer spends with an
out-of-state or foreign company to provide the company financial backing in
case of major claims.
Other causes that have been cited include millions in other
types of losses such as sinkholes. A Pulitizer Prize-winning series in 2010 by
the Sarasota Herald-Tribune pointed out how insurers paid out millions in
bonuses to company executives or had large overhead costs compared to the rest
of the nation.
Plus, McCarty conceded all rate filings are allowed to
include some percentage of profit for private insurers. Sean Shaw, the former insurance consumer
advocate for the state, put the blame on the Florida Legislature for siding too
often with the insurance industry.
"The senior citizen living on a fixed income simply
can't keep paying increase and increase with no real explanation," said
Shaw, who is now an attorney with a Tampa firm that represents policyholders.
"When will the consumer stop taking it on the chin and when will the
Legislature say enough is enough?"
Insurance industry officials argue insurers in the past did
not charge adequate rates to deal with the real risk of covering homes in
hurricane-prone Florida. The fragile nature of the market has been exposed by
storms such as Hurricane Andrew in 1992, a Category 5 storm that destroyed much
of the South Florida city of Homestead, and the series of storms that battered
the state in 2004 and 2005.
Burt, using data collected by McCarty's office, contends
that while the average premium has gone up since 2007 that the actual coverage
provided to homeowners has also gone up. Burt said that means the average
premium per $1,000 in property value has actually gone down during that time
period. Insurance companies, by law,
cannot raise rates in order to recover money paid out during a storm. But practically speaking, a large hurricane
can still trigger rate hikes. Large storms and huge damages can prompt
reinsurers based outside the state to raise their rates, which translates into
higher costs for the insurers covering homeowners. "If there are no hurricanes, those guys
are happy, happy, happy,"" said Burt, whose Ormond Beach-based
company has about 180,000 policyholders.
Burt added that insurers need to purchase adequate
reinsurance each year to make sure they have the resources in a case a big
storm strikes the state. "We don't want to be a thinly capitalized Florida
company that is going to blow away when the wind blows,"" he said.
The reason Burt and McCarty predict rates may stabilize is
that reinsurance costs declined this year.
But that may not be enough for the roughly 1 in 5 residential
policyholders who belong to Citizens.
Citizens insures older homes as well as homes in hurricane
risky coastal areas. Citizens has also pretty much become the only insurer
available in sinkhole prone areas such as Hernando and Pasco counties said John
Reddin, who runs an insurance agency in Spring Hill. A big debate this past legislative session
centered on whether Citizens is charging enough to cover its risk.
Citizens' rates - for most types of coverage but not all -
cannot go up more than 10 percent a year. Some legislators such as Sen. David
Simmons argued that Citizens rates are distorted and that the law needed to be
changed to allow rates to go up higher for some customers.
In the end, the sweeping legislation pushed by Simmons was
not adopted. But Citizens will likely file for another series of rate hikes
later this summer that will take effect in 2014.
From Bradenton Herald – May 27, 2013
Henry B. Nathan is a Real Estate Professional.
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