Florida, federal property insurance 'welfare' programs moving to market rates

September 12, 2013 

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A car moves slowly through a flooded street in Holmes Beach in June 2013 as Tropical Storm Andrea moves over Anna Maria Island. Property owners will be paying lower premiums for property insurance in 2015. GRANT JEFFERIES/Bradenton Herald

GJEFFERIES@BRADENTON.COM Buy Photo

Property insurance policies in Florida are about to get more expensive -- in some cases, a lot more. The potential impact could bring sweeping change to some communities, particularly those along the coast. Many property owners in Manatee County and other coastal communities in Florida will be hit with double-digit insurance rate increases in the coming months.

This state of affairs boils down to one common denominator: Both the state of Florida and Congress created what amounts to property insurance welfare programs for political purposes -- to please the electorate. The state-run Citizens Property Insurance Corp. and the federal National Flood Insurance Program set policy premiums artificially low, thus placing the risk of a catastrophe on taxpayers.

Now, operating with buyer's remorse, both the state and federal governments are reversing course, letting rates rise to market levels. The cost of that past political folly will now be borne by today's property owners.

This week's decision by the Office of Insurance Regulation to allow Citizens to increase rates by a statewide average of 6.3 percent will be particularly tough on coastal counties, where 10 percent hikes are likely. These increases will arrive in January and February 2014.

On top of that, the National Flood Insurance Program is scaling back on subsidized premiums and raising rates on low-lying properties beginning Oct. 1, only weeks away. Older homes could be hit with 20 percent increases annually.

With some 12,000 flood insurance policyholders inside high-risk floodplains, Manatee County has one of the highest number of subsidized policies in Florida along with Sarasota County and the Tampa Bay region.

Manatee County is also home to a large number of Citizens policyholders, some 27,500.

And there's yet another property insurance issue on the horizon. A large number of Citizens customers can expect to find a disconcerting piece of mail soon, since the state-run insurance giant intends to shed 400,000 of its 1.22 million customers -- by shifting those policies into the private insurance market. Those letters will come from one of the state's private carriers taking over their homeowner policies by Nov. 5.

However, policyholders can reject the takeover and remain with Citizens, although those property owners can be forced into the private market in January as insurance agents will be allowed to cherry-pick Citizens policies. On the other hand, property owners who agree to the takeover will be joining companies that can increase premiums by any amount upon a policy renewal. There are other provisions in the law that complicate the issue, and policyholders should consult their insurance agent to find the best solution to their situation.

Gov. Rick Scott and the Legislature are intent on lowering the risk on Citizens by shedding policies. Should a major hurricane strike Florida and Citizens cannot cover the losses, state law allows the company to impose a "tax" on other lines of insurance as well as an assessment on all state taxpayers.

Florida has escaped a hurricane strike for a record seven years, and Citizens holds a record $6 billion surplus, enough to cover damages for a once-a-half century hurricane. But Tallahassee -- like Washington, D.C. -- wants to put property insurance on more actuarially sound ground.

In passing the Biggert-Waters Act in 2012, Congress eliminated sub-market premiums on low-lying properties in the aftermath of Hurricane Katrina, which left the flood insurance program $18 billion in debt.

This one-two punch in property insurance is bound to have a major impact on Florida's real estate market. We can virtually rule out a political solution.

For many homeowners, the cost of living in Florida will increase sharply. Our fear is soaring property insurance will alter the cultural landscape as policyholders who cannot afford the new rates sell their properties to the more affluent and to investors.

The politics of the past are coming back to haunt the future.

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