[Times photo: Cherie Diez]
Robert Kaniss has lived in the same house for 40 years, but his insurance company told him last month that his homeowners policy would not be renewed. "It's a "gotcha.' It's just plain "gotcha,'" he said.
Insurance customers still paying the price
By JEFF HARRINGTON, Times Staff Writer
© St. Petersburg Times
published August 18, 2002
ST. PETERSBURG -- Robert Kaniss has deep roots here. Born in St. Petersburg 56 years ago next month, he has lived in the same house for 40 years and has worked for decades appraising and setting diamonds at a family-owned jewelry store downtown.
"My father's been doing it since 1925, and I'm the last of the Mohicans," he jokes.
Kaniss' sense of humor and his sense of place were hurt last month after he received a letter from Clarendon Insurance. His longstanding homeowners policy was not being renewed.
The reason: hurricanes.
Ten years after Hurricane Andrew slammed into South Florida, homeowners across the state are still paying the price as insurance companies like Carendon seek to reduce their potential losses.
Even after premiums doubled or tripled for many homeowners in the years after Andrew, another round of big rate increases is underway. And homeowners like Kaniss are skeptical.
"I think it's strictly a holdup on the part of the insurance companies," Kaniss said as he scrambled to find replacement coverage in the middle of hurricane season. "It's a "gotcha.' It's just plain "gotcha."'
The situation has worsened in recent months after an Andrew-inspired moratorium expired. It had kept insurance companies from dropping more than 10 percent of their policies in any one county in a single year.
Consumer groups, insurance companies and regulators disagree about how much Florida property owners have recovered from Andrew and what role it plays in the latest insurance scare.
Still, there's no doubt Andrew transformed Florida's insurance market, redefining what a cost-conscious insurance company considers risk and what a cost-conscious homeowner expects as an annual premium.
Andrew's damage was stunning: $16-billion in insured losses; 85,000 houses, 38,000 apartments and almost 11,000 mobile homes damaged or destroyed.
But the storm also exposed serious flaws in the Florida insurance market. Premiums were too low. Insurers did not have enough capital. Everyone underestimated the devastation a major storm could wreak on the state's aging, wind-sensitive housing stock.
For nearly a decade, Andrew was the disaster by which all others were measured.
The Sept. 11 terrorist attacks supplanted Andrew as the most costly insured catastrophe ever. But Andrew remains unchallenged as the largest natural disaster on record in terms of insured losses, not just in the United States, but the world.
Andrew also remains unparallelled in producing 700,000 claims strewn across thousands of miles.
Eleven insurers went insolvent at least partly because of Andrew, and surviving insurers were reluctant to stay in Florida.
"We had a bunch of companies wanting to leave. We had 1.2-million homeowners we knew of who were not going to be renewed and they had nowhere to go," recalled Florida Insurance Commissioner Tom Gallagher, whose initial stint in the job coincided with Andrew.
Bob Hunter, director of insurance for the Consumer Federation of America, recalls hundreds of angry Allstate customers who were about to lose coverage converging at a hearing on the issue.
Hunter, who ran the National Insurance Consumer Organization at the time, proposed a simple solution: a moratorium forbidding insurance companies from abandoning policyholders. "I don't think the Legislature or the governor had much of a choice," Hunter said.
Gallagher calls his reluctant decision to back that temporary moratorium the toughest in his career because it seemed unfair to force a company to keep a policy.
But it did stem the bleeding and bought time for the state to create the Florida Residential Property and Casualty Joint Underwriting Association (commonly called the JUA). Today, its successor still covers any homeowner who cannot find insurance in the open market.
The state fund was designed to be a last resort, not a bargain. By law, the JUA's rates were set higher than market rates to encourage people to search hard for insurance in the private market.
For many homeowners, the search after Andrew was fruitless. The JUA swelled to nearly 1-million policies by late 1996.
Through the 1990s, Florida's insurance fixes came in fits and starts.
Most significant for the long-run, the state built up a catastrophe fund for insurers to tap for the next big disaster. There was no such cushion before Andrew.
The fund now has $11-billion to help pay off claims if a major hurricane hits, with another $9.6-billion set aside for the season that follows.
Last year, after fierce debate, stricter building codes were approved with special provisions for new homes near the coast. In recent years, the state gradually deflated the JUA, giving bonuses of up to $300 per policy to insurance companies that took policies out of the state-run agency. Many of the JUA "takeout companies" were startups with no track record.
The strategy was costly and had mixed results. The JUA shrunk to fewer than 100,000 policies but the wind pool, another state-run insurer of last resort that is devoted exclusively to windstorm coverage, swelled to more than 400,000 policies.
This month, the shrunken JUA merged with the state's wind pool into a state-supervised agency called Citizens Property Insurance.
Sam Miller of the Florida Insurance Council, a statewide trade group, asserts that all of the changes have put Florida in better shape to deal with a major hurricane than any other state. "We can handle another massive storm like Hurricane Andrew, maybe something twice Andrew, and everybody's claims will be paid," he said.
But has Florida done enough? Some doubt it.
"The state is certainly still haunted by the specter of Andrew, so much that an Andrew-like event occuring today has the potential to be every bit as devastating as Andrew itself was, and that is unfortunate," said Bob Hartwig, chief economist with the Insurance Information Institute.
Hartwig, who recently wrote a 19-page report detailing Andrew's longstanding effects on the insurance industry, credits Florida for adopting stricter building codes and building its catastrophe fund.
But the effort has been undermined, he said, by the state's failure to adopt "anything remotely approximating" a land use plan to discourage new coastal development.
As a result, the stream of people moving into Florida is still flowing at 800 or 900 new residents a day. Coastal building continues. And insurers keep wincing at the growing risk.
If a storm of Andrew's intensity hit Florida today, insured losses could range from $20-billion to nearly $50-billion depending on the track of the storm, according to Hartwig's report. Up to 10 percent of the affected area's businesses would close. Tens of thousands of jobs would be lost.
The doomsday talk bothers Hunter of the Consumer Federation of America.
"I think the industry has greatly overreacted to Hurricane Andrew," he said. "It was greater than what was predicted, but I think now they've gone too far."
He describes some of the hurricane models used to predict losses -- and therefore set rates -- as "a little bit like alchemy. ... They're acting like Andrew is a middle-high for them in the formula and projecting that things can be much worse. ... How can you take 100 years of data and project 10,000 years of losses from it?"
Just a few years ago, the state Department of Insurance under then-Commissioner Bill Nelson was preaching recovery. The JUA was down; the catastrophe fund was up; and there hadn't been any major hurricane damage in Florida for years.
But the new decade has brought new problems.
The expiration of the moratorium on dropping policies is affecting some coastal homeowners. More troubling perhaps are issues far removed from hurricanes.
Insurance kingpin State Farm, which writes a third of all homeowners policies in Florida, decided to stop selling new homeowners policies statewide and not renew any existing condominium association policies after state regulators refused the company's request to raise rates a second time in six months.
Among the reasons for the insurer's pullback: rising costs leading to higher claims, more sinkholes, the sluggish economy and a problem Florida is bound to hear more about: mold claims. Toxic mold, a fungus that grows in damp places such as inside homes with little air flow, can cause severe respiratory problems.
Hartwig, the economist with the insurance institute, said the mold issue could be a major problem even if only a fraction of homeowners ever file a claim. "And the last thing Florida needs is another stressor on its homeowners insurance market," he said.
Some Floridians and consumer activists wonder whether insurers are using fear of another Hurricane Andrew as a pretext to drop longtime policyholders when the real threat is that those customers live in older homes most at risk of problems such as mold damage.
It makes homeowners like Elizabeth Gall wonder.
Gall, 75, received a notice from Clarendon stating that the homeowners insurance on her Clearwater home was not being renewed because a "sophisticated computer model" determined the insurance company had too much exposure to hurricane damage in her area.
"It has no connection to how we may otherwise view you as a customer," the letter said assuringly.
"Well, isn't that ducky?" Gall said, doubting that hurricane exposure was Clarendon's only motive. "There are a lot of old houses around here. I'm sure that has something to do with it."
Miller of the Florida Insurance Council insists "nonrenewals" are not only relatively isolated but a necessary part of the balancing act to keep insurance companies writing business in a hurricane-prone state.
"So you're nonrenewed," he said. "I was nonrenewed years ago but it's all intended to make sure we can handle this incredible risk that nobody else has."
For all of Florida's efforts to prepare for another major hurricane, Miller said, Andrew's legacy lives on.
"I never said we recovered."
-- Jeff Harrington can be reached at firstname.lastname@example.org or (813) 226-3407.