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Florida homeowners take a direct hit

A spate of bad news about hurricane insurance, including a 7 percent increase to subsidize state-run Citizens, could threaten the state's economy.

Hurricanes cause Floridians a lot of grief, and that's just when the homeowners' insurance bill arrives in the mail. Policyholders not only face rate increases - some by double-digit percentages - but also a bailout of the state-run insurance program for those who can't find coverage elsewhere. Some unlucky homeowners face increases of 50 percent or more.

It's as though the bad news on hurricane insurance never ends. State Farm, the largest homeowners' insurer, is asking for an average rate increase of 8.6 percent (but 33 percent in Hernando County). Allstate wants an average 28 percent bump, and Nationwide announced its intention to stop writing new homeowners' policies a month after it won a 21 percent rate increase. That's gratitude for you.

Then there's Citizens Property Insurance, the state-run company for those cast off by private insurers. It is in such a deep hole it needs a subsidy from every policyholder in the state, whether they're with Citizens or not. And it's legal. Add another 7 percent on average to every Floridian's property insurance bill. Legislators could have covered that extra cost with unexpected sales tax revenues tied to last year's hurricane repairs, but they declined.

So homeownership has become punishingly expensive when you combine skyrocketing insurance costs and home prices that have already reached outer space. Who is to blame for this miserable state of affairs?

Charley, Frances, Ivan and Jeanne head the list. An unprecedented quadruple hurricane strike on the state last year put a strain on resources. And insurers expect the storm risk to increase over the next five years based on past cycles. Yet the insurance industry must share some responsibility.

By refusing to write more policies, insurers send more homeowners (up to 30,000 a month) to Citizens, which is required by law to offer the highest premiums so it doesn't compete with those same private insurers. Citizens has become the second largest homeowners' insurer in the state, and it tries to limit its growth by paying bonuses to other private insurance companies to take policies off its hands. When Citizens gets in trouble it has a guaranteed fallback position - assess every policyholder in the state, as happened this year. It's a vicious cycle, much like a hurricane's swirling winds.

There is a silver lining: Despite the devastation visited on the state, insurers paid out a reported $22-billion last year. Still, the burden needs to be addressed before the cost of hurricane insurance begins to hurt the economy.

Proposed fixes are floating around. The state could dedicate a sales tax increase to insurance relief, though try getting that past antitax lawmakers. Consumer advocates favor a moratorium on rate increases, or at least a cap. The insurance industry says that would be counterproductive, driving more insurers out of the state. The industry would like companies to be able to build up their own reserves - tax free, of course - to pay for catastrophic losses. That might reduce the amount every policyholder pays into the state's catastrophe fund (another added cost of hurricane insurance). And enhance corporate profits.

U.S. Rep. Mark Foley, R-Jupiter, has a bill in Congress that would allow insurance companies nationwide to create such a catastrophe fund for anticipated loses, but spokesman Jason Kello acknowledges that explaining the urgency to representatives of landlocked states is a challenge.

Citizens would like to cap hurricane coverage, particularly on coastal property, at $1-million. Such a cap already exists on risk from other perils and might reduce future bailouts.

A legislative task force created earlier this year will begin meeting soon to recommend insurance reforms. It should consider all of those suggestions, and more. There likely isn't one solution, but whatever the group comes up with will have to balance the interests of consumers and insurers to be credible.

As a character in the movie Key Largo notes, a hurricane "blows so hard the ocean gets up on its hind legs and walks right across the land." That is the price Floridians pay for living on the sea's edge. But when it comes to hurricane insurance, they need some price relief.

[Last modified August 24, 2005, 01:15:20]