INDIAN RIVER COUNTY — Despite surviving another year without a major hurricane hitting the Treasure Coast, many beachside homeowners are finding their property insurance going up and in some cases their insurer leaving the state or going out of business.
How is it that without the hit of a major hurricane drawing down insurance reserves and reinsurance rates trending lower, homeowner insurance rates are escalating?
“It is a difficult issue. It is not as simple as in the Midwest or Northeast where you have many carriers writing policies,” said Brad Emmons of Vero Insurance. “In Florida, you have limited options. One of the things I recommend for new home buyers is ask questions about the carrier, ask questions about the coverage, ask questions about deductibles and if they are not satisfied with those answers then they should be talking to someone else because these are important matters.”
Many insurance agents lay the blame on state lawmakers who kept premiums low in the years after hurricanes Frances, Jeanne and Wilma, preventing insurance companies from building up their decimated reserves.
They also forced insurers to give wind mitigation credits for homeowners that took steps to protect their property from hurricane damage.
“In the short term, it was great for consumers. Premiums on homeowners’ policies were reduced anywhere from 20 to up to 70 percent,” Emmon said. “The long-term thing was that companies like Allstate and State Farm were being forced to give back 60 to 70 percent of the earnings they made the year before because of the discounts that were made available to consumers.”
And during this same time, non-hurricane related claims were on the rise. Scott Johnson of the Florida Association of Insurance Agents said in a recent speech that since 2007, non-hurricane losses for property insurers have gone up 65.5 percent.
“The pool money is cut in half, but you still have your water claims, you are still having your fire and vandalism,” said Gene Waddell of Waddell Insurance Group. “Quite frankly they (insurance companies) have a 100 percent loss ratio without the wind even blowing, because the Legislature has mandated all these credits that are sucking the life out of the premiums.”
So under this scenario, insurance companies have been forced to keep their premiums artificially low, are paying out more on non-hurricane claims and have been unable to build up their reserve funds should the next catastrophic event hit Florida.
In fact, some say Florida insurers are losing money. A study by the St. Petersburg Times reported that two-thirds of insurers in Florida are operating in the red, and in the first eight months of 2010, state regulators have “approved 45 property insurance rate increases with the average hike at nearly 13 percent.”
Among the increases was 29 percent to Northern Capital Insurance Co., 28.8 percent to Homewise Insurance Co., 24.8 percent to American Mercury Insurance and 21.3 percent to Tower Hill Preferred Insurance.
According to insurance agents like Emmons and Waddell, what the Florida Legislature did was remove the competitive forces from the market place and turn the one-time insurer of last resort — state-backed Citizens Property Insurance — into a competitor in the private market by freezing its rates.
(The state approved a 10.3 percent increase for Citizens this past September.)
The state also set up the Florida Hurricane Catastrophe Fund and required insurers to buy their first layer of re-insurance from them.
As Emmons noted it was good for consumers in the short run, but in the end we all have to pay. The state realized Citizens and the Catastrophe Fund were in fact under funded, and to cover that gap have mandated that we all pay the shortfall on our own property insurance.
“If you look at your homeowner’s policy or your auto policy, you go to the bottom line and you have a premium and then there are about five lines of assessments that have come about because the state has run at a deficit for its Catastrophe Fund and for Citizens and all of us pay for that deficit,” Waddell noted.
And there were other factors as well. Insurance agents point a finger at public adjusters who seek with homeowners to re-file claims up to five years after the initial disaster. In order to meet the demand of late Hurricane Wilma claims, the Citizens and the Catastrophe Fund officials have requested $700 million more in bonds.
While there are obvious cases of fraud with public adjusters, who take a cut from the homeowner of any money they obtain, insurers have unsuccessfully lobbied to reduce the amount of time a claim may be valid to three years.
“However,” as the St. Petersburg Times noted, “consumer advocates say a longer time period is warranted because some storm damage problems may be hidden. Moreover, homeowners may be victims of faulty repairs, like a leaky roof allegedly fixed by their carrier only to surface as a far worse problem a couple of years later.”
Another factor causing an increase in rates on the Treasure Coast, is, believe it or not, sinkholes. The state has been hit with a plethora of damage claims from sinkholes that the insurance industry was ill-prepared to meet.
The FAIA’s Johnson points to Citizens taking in $19.6 million in premiums for sinkhole coverage and being hit with $97 million claims.
However, the situation is not entirely bleak. Waddell says there are strategies homeowners can employ to keep premiums in check.
“The approach of most of my client base is to have high deductibles be it $2,500, $5,000 or $10,000 and they take care of the day-to-day things,” he said. “You also have a 2 percent or 5 percent hurricane deductible. Some people just don’t cover for the wind at all. One word of caution: Don’t cancel your homeowner’s completely. There are two components to your homeowner’s policy: your personal liability coverage and your property coverage. Your personal liability coverage protects you from lawsuits.”
Both Waddell and Emmons said they hardly, if ever, write polices for their customers with Citizens. And they point out the market is starting to come back as some mainly regional carriers are writing policies.
Emmons stressed that consumers should work with an agent and make sure due diligence is done on the financials of the company with whom they take out a property insurance policy.
“When you are talking to an agent, ask many questions,” he said. “How many years have they been in business? Do they write business nationally? What was their experience handling claims in 2004-2005? And ask about their balance sheet.
“We have carriers that are here locally that are writing claims for multi-million dollar homes that have $15 or $20 million in capital surplus. If I own that property I am going to ask questions, and I am not going to have a high degree of confidence in that company’s ability to pay a claim even if they are re-insured with A-rated carriers in Bermuda and London.”