St Augustine Real Estate Information

TALLAHASSEE, Fla. – April 21, 2008 – Headed into the final two weeks of the legislative session, several property insurance bills winding through the state House and Senate are like the hurricanes they’re preparing for.

They’re moving slowly, gaining speed and could hit homeowners hard.

Some may divert cash from your wallet to protect the state’s future financial health. But others could save you from looming rate increases.

The House and Senate both want to slice $3 billion from the state Hurricane Catastrophe Fund, leaving it with $25 billion to help insurers pay claims after big storms. This would reduce the state’s storm risk, a good long-term move for everyone. But there’s a downside.

Insurers would have to buy pricier backup coverage elsewhere, which could bump up your rates from roughly 2.3 percent to as much as 8.6 percent in South Florida, according to state actuaries.

Those opposed to shrinking the catastrophe fund, including Senate Minority Leader Steve Geller, say if a major hurricane doesn’t strike, residents still would have to deal with rate increases.

And Geller said that’s not smart in a year in which the economy is souring and the subprime mortgage meltdown has put a record number of Floridians on the brink of losing their homes in Foreclosure.

The good news is several bills still on the table offer hope of rate relief.

Legislation in the House and Senate would exempt sales tax on certain products that help make homes more hurricane-proof, such as shutters and ground anchor systems. In addition to the sales tax savings, this might prompt more homeowners to safeguard their homes, which could help bring rates down.

The Senate passed a bill that would freeze Citizens Property Insurance Corp.’s rates for six months longer, from January to July 2009. For Citizens’ 1.2 million policy holders – about half concentrated in South Florida – that’s favorable.

But all homeowners policies in the state are subject to assessments to offset Citizens’ deficits if a big enough hurricane strikes and drains the state-backed insurer. So postponing a rate increase for the state’s largest property insurer could mean everyone pays more later. And we’re all paying for Citizens’ shortfall in 2005.

However, another part of the bill would reduce the maximum assessments for certain Citizens policy holders from 90percentto 30 percent of annual premiums and reduces the maximum assessment for everyone else from 10 percent to 8 percent of annual premiums.

Another possible perk for homeowners in the same Senate bill is a requirement that the state develop a system that rates how hurricane-proof homes are. Insurers would be required to offer discounts based on the ratings, which could save homeowners big bucks. The rating would also have to be disclosed when selling a home, which could make it easier for consumers to find homes that qualify for insurance discounts.

Some provisions in the Senate bill won’t lower most homeowners rates, but they could keep rates from increasing. Rates dropped by a statewide average of 15 percent last year because of a sweeping property insurance law passed last year. Parts of the law were temporary and the Senate’s bill would make them permanent.

If the bill, written primarily by Sen. Jeff Atwater, R- North Palm Beach, and Geller, D- Hallandale Beach, fails to pass in the House, the savings could vanish and your rates could shoot back up.

For instance, the Senate legislation would make permanent a requirement that insurers get state approval before raising your rates and it would end their ability to have an arbitration panel settle a disagreement with state officials about rates. The panels often pick a rate halfway between what the state and insurers ask, so companies have an incentive to ask for more than they need. Take Nationwide Insurance Co. of Florida, which asked for a 72 percent rate increase in 2006. An arbitration panel approved a 54 percent increase and the state had no recourse after the decision.

Another part of the legislation broadens laws insurers are subject to and beefs up penalties for insurers that violate the laws. That appears consumer-friendly, but opponents say the provisions could indirectly raise rates since state laws don’t explicitly prohibit insurers from passing fines or legal costs to consumers.

Not so, say insurance regulators. “Our actuaries dissect every aspect of a rate filing, and would never allow a company to pass through or recoup an administrative fine received for violating Florida law,” Office of Insurance Regulation spokesman Tom Zutell wrote in an e-mail.

The Senate bill would prohibit Citizens from selling new policies that only provide windstorm coverage. Critics say that would eliminate an option – buying state windstorm coverage and using a private insurer for other risks – that’s often cheaper.

But Citizens’ Board Chairman G. Bruce Douglas said that’s impossible to know and the bill prohibits insurers from cherry-picking: “We should no longer allow insurance companies to make easy money on the more profitable theft and fire coverage in Florida while dumping all the wind exposure to Citizens and to all Floridians.”

A bill that’s got momentum in the House and Senate would use $250 million from Citizens for loans to insurers that agree to take policies from the public property insurer. The idea could expand competition and in turn, help lower rates in the next few years.

Another proposal that’s popular in both chambers would provide businesses with more property insurance options, but the benefits may end there. The bills would allow insurers to offer businesses a new type of property coverage with rates that aren’t fully regulated by the state and that are exempt from fees to offset Citizens’ deficits. The unregulated rates may be higher on average but businesses that opt for the new insurance would save on assessments to bail out Citizens if a major storm hits.

That would also mean a smaller pool of policies to tap for assessments, which could mean fewer homeowners and businesses would shoulder the burden of replenishing Citizens with cash.

2008 South Florida Sun-Sentinel, Julie Patel. Distributed by McClatchy-Tribune Information Services