Florida Homeowners Insurance Crisis

Florida Homeowners Insurance Reforms

Following is some information from a press release issued by the Florida Association of Realtors (FAR). It seems to be the most comprehensive list of reforms I have seen:

Legislators roll back Citizens premiums, insure non-homestead properties  

TALLAHASSEE, Fla. – Jan. 23, 2006 – Charged with the daunting task of reducing homeowners insurance premiums for millions of Florida property owners, the Florida Legislature last night passed a 167-page bill that could lower premiums between 5 percent and 40 percent and provide other insurance relief to millions of property owners. Gov. Charlie Crist is expected to sign the legislation today. 

“Florida’s 160,000 Realtors® congratulate Governor Charlie Crist for his commitment to reducing property insurance costs, and to the Legislature for acting in a truly non-partisan manner to provide relief those who call Florida home,” says Nancy Riley, 2007 president of the Florida Association of Realtors (FAR). “This is a good first step in reenergizing the housing sector of our economy so buyers can take advantage of very attractive interest rates. But there’s more work to be done in order to create a vibrant and competitive insurance market. FAR’s leadership and public policy teams will continue to work with legislators throughout the 2007 legislative session to keep the American Dream of homeownership alive for all families.”

Here’s how legislators intend that to happen:

Lower rates

• Allow property owners to exclude windstorm coverage from their policies;
• Allow policyholders to exclude contents coverage;
• Remove the requirement that Citizens Property Insurance Corporation charge the highest premiums in the state;
• Repeal Citizens’ Jan. 1, 2007 rate increase and freeze rates at the Dec. 31, 2006 level.
• Eliminate the cap on deductibles so a homeowner can choose a deductible other than the standard 2 percent, 5 percent or 10 percent in current law. However, the policyholder must execute a written statement demonstrating understanding and intent, and must obtain approval by a mortgage or lien holder if the deductible is over 10 percent on a home valued under $500,000.
• Allow non-homestead properties to be eligible for Citizens coverage effective March 1, 2007;
• Authorize Citizens to write multi-peril policies in the windstorm pool, which will result in a direct decrease in premiums for at least 110,000 policy holders.  

Protect policyholders

• Require all Florida-only insurance company subsidiaries to have a surplus of at least $50 million in liquid assets to help ensure that policyholders can receive payment when they need it;
• Require insurance companies to evaluate the hurricane-security of a structure rather than the date of construction when determining risk and establishing premiums. Age of the home may not be used as the sole reason for rejection of coverage;
• Require insurance companies to give at least 100 days written notice, or written notice by June 1, whichever is earlier, for any non-renewal, cancellation or termination of a homeowners policy that would be effective between June 1 and Nov. 30;
• Require insurance companies to expedite payment of claims following a storm. Insurance companies must pay or deny a property insurance claim within 90 days of notice of the claim with an exception for factors beyond the control of the insurer. Violation is subject to penalty under the Insurance Code, subjecting the insurance company to disciplinary actions against its license;
• Prohibit excess profits by property insurers.

Expand the market

• Require any insurance company that writes homeowners policies in other states and writes auto insurance in Florida to sell homeowners insurance in Florida effective Jan. 1, 2008;
• Allow Citizens to write statewide commercial insurance policies and to determine policy limits and premiums;
• Allow Citizens to sell traditional homeowners policies to 350,000 customers who currently buy only windstorm coverage from Citizens;
• Enable insurance companies to purchase additional backup insurance from the state’s Hurricane Catastrophe Fund at rates lower than on the private reinsurance market;
• Repeal a law that had called for insurers to pay extra into the fund to build up its reserves;
• Allow state regulators to waive a deposit requirement for foreign-based reinsurance companies. The idea is to lure more worldwide reinsurers to sell coverage to Florida companies, raising the possibility they'll be able to find additional cheaper reinsurance.

“Today, property owners in Florida are very happy,” says John Sebree, FAR’s vice president of public policy. “The goal of the one-week special session was to lower property insurance rates. It’s what the citizens were seeking and what the Governor promised. 

“But this is just the beginning of meaningful reforms,” he adds. “Available and affordable property insurance remains a key issue for Florida Realtors, and FAR will press legislators for additional reforms during the 2007 legislative session that begins March 6.”

There has been some criticism of the reforms. For example, raising the wind deductible to 10% for a lower premium is a win for the insurance companies. If you can afford to self insure you can take the risk but the ones who will take these policies for the lower premium are usually those who can least afford it. One person said:

The majority of hurricanes that hit land are weaker cat 1 or 2 storms, even the severe hurricanes core damage is limited and the vast majority of damage is not cat 4 or higher damage but 1,2, or 3 (3 very bad). The weaker wind damage most will receive will not total the property but only cause serious repair such as roof, wind, door, fence, pool, etc damage. Where as with a 2% wind deductible the insurance company would be on the hook for a hell of a lot more in claim payout, not so if the majority raise there deductible to 5%, or higher.