With property insurance on the rise, the city decides to take a chance: It drops wind damage insurance. But will its backup plans be enough in the face of a hurricane?
By LORRI HELFAND, Times Staff Writer
Published September 24, 2006
LARGO
Like Floridians statewide, Largo officials face a scary spike in property insurance rates.
So they've made a rare choice:
Ditch the city's insurance for wind damage, basically leaving the town's facilities without hurricane coverage.
"The property insurance market in Florida is crazy," said Human Resources Director Susan Sinz, who presented the city's insurance plan to city commissioners last week.
Largo had two key options: buy full coverage for almost four times the amount it paid last year or shell out a bit more than budgeted and get minimal wind coverage for its properties, which are valued at a total of $205.6-million.
"We're taking a calculated risk," acknowledged City Manager Steve Stanton.
The city's game plan includes beefing up reserve funds to self-insure city facilities, relying on federal aid for declared disasters and, as a last resort, going into debt.
Largo has about $2-million in its risk fund and $7.3-million in general fund reserves. Money saved by not buying wind coverage would be transferred to the risk fund and built up over time, said Kimball Adams, city management services director. Largo also is counting on the Federal Emergency Management Agency to reimburse a percentage of losses if a major disaster is declared.
And, as a last resort, the city plans to take out a long-term loan to cover repair or replacement costs.
Largo is "rolling the dice," said Dave Marcus, vice president of the southeast region for Arthur J. Gallagher & Co., an insurance brokerage firm whose clients include government entities.
Marcus knows of no other municipalities in Florida that are currently without wind coverage.
"I have not seen our clients in the public sector just go bare," said Marcus, whose company has clients throughout Florida.
FEMA spokeswoman Dasha Castillo said governments don't need insurance to be eligible for public assistance if they're in a disaster-declared area. But, the agency says, governments that get federal aid to rebuild a facility must buy insurance for that structure.
Moreover, Castillo noted, there are no guarantees that damage to a particular facility will meet FEMA eligibility standards.
And FEMA doesn't provide aid if a facility experiences major damage during some other storm event that isn't considered a disaster.
Stanton said he realizes that risk. If a tornado wiped out City Hall, he said, Largo would be on its own. And receiving federal aid can take time.
Pinellas County risk management director Beth Wininger said the county is still waiting for FEMA reimbursements for minor damage from two years ago.
But Largo officials say they have little choice. For fiscal year 2006, Largo's insurance premium was $404,730 for property insurance, which included wind coverage.
The city budgeted $600,000 for similar coverage for fiscal year 2007. But it was looking at spending nearly $2-million and that wasn't an option, Stanton said.
Nor was spending $670,000 to receive just $5-million of coverage for wind damage with a $500,000 deductible.
Largo's not alone.
Other municipalities face similar hard choices.
"I don't know if we will be able to get insurance at a reasonable price," said Sharon Walton, Clearwater's risk manager.
For fiscal year 2006, Clearwater budgeted about $2.9-million. For the upcoming fiscal year, the city budgeted $4.3-million to insure about $360-million of property.
Clearwater, which is self-insured for the first $500,000 of a claim, has layered policies with several companies that cover various amounts of damage.
Walton said she wouldn't rule out self-insuring for some levels of coverage in the future if the premiums are too high.
Pinellas County government also faced a rise in costs for much less coverage.
The county, which renewed its policy in March, pays about $4-million for $85-million worth of property coverage, said Wininger. Last year, the county paid about $3-million for $630-million worth of coverage.
Largo Mayor Pat Gerard says she's not comfortable about going without wind coverage.
"But I also know everyone else is in the same situation," said Gerard, who serves as vice president of Pinellas programs for a nonprofit.
All sorts of agencies are nixing wind coverage, she said.
"I'm glad we have some resources, and I'm glad we left the tax rate where it was because we'll need it," Gerard said.
The city still plans to purchase insurance to cover damage from "other perils," which include events such as fire, explosions and riots. City commissioners scheduled a special meeting for Friday, aiming to buy insurance by Oct. 1, when the city's current policy comes up for renewal.
