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Insurance plan hard on the rich

The Senate plan outlines dramatic increases for high-end homeowners and a $1-million cap on Citizens' windstorm coverage.

By JONI JAMES
Published March 15, 2006

TALLAHASSEE - High-end homeowners and property investors who depend on Florida's insurer of last resort for hurricane coverage, beware: It looks increasingly likely state lawmakers will dramatically raise your insurance costs.

The leadership of the Florida Senate on Tuesday released its plan for reforming the state's insurance marketing, including prohibiting Citizens Property Insurance Corp. from writing any windstorm coverage for homes worth more than $1-million.

The Senate plan also would require non-homesteaded properties covered by Citizens to pay a 25-percent surcharge on their premium. To avoid a surcharge, property owners would have to be eligible for Florida's homestead exemption, which gives a tax break to Florida residents on their primary home.

Affected Citizens customers would have two years to find a private insurer before being dropped by Citizens under the plan, which is to be discussed for the first time today in the Senate Banking and Insurance Committee. Committee Chairman Rudy Garcia, R-Miami, is the bill's sponsor.

Senate President Tom Lee, R-Valrico, called the proposal "tough medicine. But the risk of the status quo is much greater."

The Senate plan embraces two notions first advanced last month by the House leadership: That non-homesteaded property owners with Citizens should pay more than homesteaded owners, and that Citizens' coverage should be capped for owners of more expensive property.

Chief Financial Officer Tom Gallagher advocated such a cap last year, arguing wealthy homeowners could likely afford to find coverage in the "surplus lines" market of insurance coverage that isn't regulated by the state.

Citizens, which is run by the state, has struggled to handle an influx of policies rejected by the private marketplace out of concerns over exposure to hurricane and sinkhole losses. But that has meant more exposure for all Florida policyholders, since Citizens is backed by the state.

Under Florida law, when Citizens runs a deficit, it has the power to tax all property insurance policyholders, regardless of their insurer. That happened after both the 2004 and 2005 hurricane seasons, leaving all property insurance policyholders facing assessments this year and next. For a policyholder with a $1,500 annual premium, the two years of assessments are expected to top $170.

"I think we all agree we are going to have to depopulate Citizens," Lee said. "And the key for me is we have to have an alternative market."

The Senate plan also would:

Require private insurers to handle all claims for their customers who get windstorm coverage from Citizens - a provision private insurers oppose.

Create a new class of property inspectors trained to determine a home's hurricane-worthiness and to recommend improvements.

Provide state grants for homeowners who agree to retrofit their homes to reduce losses.

Create an alternative dispute system for sinkhole claims.

Require companies that assume Citizens' policies to hold them for five years, instead of the current three, before qualifying for government bonuses.

Force Citizens to reduce its windstorm exposure by 10 percent by February by changing where it will write coverage.

Create new oversight and ethics provisions for Citizens' board and employees.

A separate insurance plan pushed by the House last month lost some of its steam Monday. House leaders, arguing that insurance companies wouldn't return to Florida's market without more flexibility, want to allow companies to raise their rates statewide an average 10 percent annually without review.

On Monday, House Insurance Committee Chairman Dennis Ross said that proposal would be changed to reduce the maximum the company could increase rates in a single area from 25 percent to 15 percent.

Legislative leaders in both chambers have agreed that higher rates are likely inevitable if Florida is to resuscitate its ailing private market.

More than one out of five homeowners depend on Citizens for coverage as private insurers have fled the market or stopped writing policies to limit their exposure during a more-active hurricane cycle.

"If we ease up on the regulatory involvement, I believe we can get the capital back in the market. And with more capital and less risk for the companies, rates will come down," Ross said. "But we have an uphill battle."

Joni James can be reached at 850 224-7263 or jjames@sptimes.com

[Last modified March 15, 2006, 01:31:19]