Posted on 07/21/2007 3:34:27 AM PDT by jsh3180
Seven months after Florida lawmakers expanded the government's role in the state's insurance market, rates should be lower and insurers should be willing to write more policies.
Just the opposite is happening. What went wrong?
Legislators themselves are stumped but are acknowledging they should never have pledged such big savings to homeowners. They say reforms need more time to work. But some wonder whether government should take even a bigger role in the insurance market -- possibly taking over all windstorm coverage, for example.
Sen. Bill Posey, the Rockledge Republican involved in negotiating the massive insurance reform, said lawmakers could move only so far so fast and that the ''culture of instant gratification'' made it difficult to meet expectations in the first place.
''You can't turn the Queen Mary around on a dime,'' Posey said. ``This is a big ship and it will take time.''
One emerging explanation for the higher rates is that new rules, expanding a state catastrophe fund to help insurers cover losses if a massive storm hits, may have backfired.
The expansion of the Hurricane Catastrophe Fund was the centerpiece of the reform plan to lower rates for Florida homeowners because it would allow insurers to buy cheaper backup insurance and pass the savings on to policyholders. The CAT Fund now can cover $28 billion in losses.
The big assumption was that insurers would buy more of their reinsurance from the CAT Fund.
Some have done just that. But instead of passing along the savings, they are buying additional ''reinsurance'' in the private market. The stated reason: They fear the CAT Fund won't have enough money to pay their claims. Besides covering private insurers, the CAT Fund also backs up the state-run Citizens Property Insurance, the state's largest insurer, with 1.3 million policies and growing.
INCREASE DENIED
In denying Florida Farm Bureau's request for a rate hike on Friday, Insurance Commissioner Kevin McCarty noted the company's ''business decision'' to spend $6 million on more reinsurance ``rather than passing the savings on to their policyholders.''
The company, which plans to challenge the denial, told regulators it needed the additional backup coverage to protect against the possibility of a major storm this season.
Steve Geller, the Democrats' Senate leader from Cooper City, was the mastermind behind the reinsurance fix and said Friday it would work only as long as insurers followed through on passing along their savings.
''I'm very disappointed with what's happening,'' Geller said.
James Massie, lobbyist for the Reinsurance Association of America, said that if the state had not interfered, homeowners' premiums would in fact be lower. That's because, as it turns out, the price of private reinsurance has dropped as much as 20 percent from last July.
''If the state had done nothing this year, they would have seen the 10 percent reduction in homeowners insurance,'' Massie said.
This much is clear: Gov. Charlie Crist's January pledge that ''help is on the way'' has yet to materialize for thousands of people, few are seeing the average 24 percent rate reduction that state legislators touted, and politicians from both parties are looking for new ways to meet the expectations they raised.
Already, nearly two dozen companies have filed for rate hikes, ranging as high as 95 percent.
Rep. Jack Seiler, a Wilton Manors Democrat, said that in finalizing the reform bill, lawmakers relied on industry-supplied data they were unable to double-check given the time constraints of the 10-day January special session.
Given that, Seiler says, promising big savings to homeowners was a mistake. Still, he said, the reforms should work, but they need time.
Crist couldn't be reached. A spokeswoman pointed out the governor has repeatedly said the insurance plan in January was a big first step, and more changes are needed.
Alex Sink, the state's chief financial officer, said she has asked Insurance Commissioner McCarty to come to the next Cabinet meeting in two weeks to explain why insurers aren't filing for lower rates. ''It's very disturbing. But we don't have the facts and figures to say it was a mistake yet,'' Sink said.
A bigger problem, some legislators say, is the effect of the plan's freezing rates for Citizens until 2009.
If Citizens doesn't collect enough premiums to cover its losses, insurers have to pay out the money up front and then make it back from policyholders over time.
Insurers also fear they can't compete with Citizens' lower rates. Before January, Citizens was required by law to charge some of the highest rates in the state.
LAST RESORT
Rep. Dennis Ross, a Lakeland Republican who cast one of the two votes in the 160-member Legislature against the plan, believes the state's plan was doomed from the start because the state can't tap banks or other sources of capital -- as private insurers can -- to replenish the CAT Fund if it runs dry. It has to assess Florida taxpayers.
Those assessments could be tacked onto all policies -- auto, homeowners, commercial -- for as long as 30 years.
Insurance agents such as Alex Soto, president of InSource, a Dadeland agency, also are worried about the additional risk the CAT Fund is taking on.
SPEED REQUIRED
The bill passed in January ''said insurers have to pay claims in 90 days. Then we create a hurricane fund that could be underfunded. You have to be careful what you wish for,'' he added.
To allay concerns about the CAT Fund's ability to pay claims quickly, officials approved plans this week to borrow $3 billion to $7 billion.
Those funds would be stashed in the bank, along with the $5.2 billion the CAT Fund expects to have by year's end from premiums collected from insurance companies and money borrowed last year. All would be available to cover claims.
While some lawmakers like Ross believe the state has no business being in the insurance business, others are considering moving in the opposite direction.
A proposal floating through Tallahassee would make Florida the windstorm insurer for the entire state. Bob Milligan, the state's insurance consumer advocate, has been studying this.
Said Sink: ``I have been open-minded about it. But I want to see more analysis. The very idea is pretty frightening to me.''
The Associated Press contributed to this report.
Duhhhhhhhhhhhhhhh....get a clue and try the word "government" for your answer.
ping
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
Florida’s insurance problems started years ago when they got into the insurance “business” with the disaster called “Citizens Insurance”.
New Governor Crist tried to play the big brother assist in this lower property tax b.s. scam. He failed like the punk he is.
Crist talked like he was going to help everyday taxpayers by “lowering property taxes”. Shrinking govt. waste. “how many dog parks do we need”?
Well from $6500 a year I’ll get about a $200 dollar savings.
Local politicos all over are decrying the deal screaming the world was coming to an end. Cops and firemen were going to be pared and life as we know it would be forever changed.
Like politicians every where Crist is a P.O.S. lying bastard.
Taxes in Florida are foolishly high and they are killing the golden goose as “snowbirds” who previously would buy vacation homes here are going elsewhere.
Tazes are too hing and the insurance industry are making Florida too expensive for most folks.
Florida needs to keep low taxes and has a vested interest in not permitting unreasonable increases in insurance rates. I say the latter because Florida cannot sustain average income demands greater than 48K tops, if that much. 300% overnight rate increases are a financial disaster with that in mind. People cannot sell, either. Markets have been crippled by the greed of local counties who have raised assessments and will not adjust them to reflect true market value.
It's going to get a lot worse before it gets better in SoFlo.
And I'm not recommending any speculators even in the next year. Wait until we fix the tax problem or you be sharing the misery.
I’m a general Contractor in the Fl Keys. believe me, I know all about how insurance and taxes have affected my slice of Florida business. Thankfully, I’m still busy as can be, but I’m one of the lucky ones. There’s a big shakeout going on....alot of contractors who have not been around as long as I or were marginal anyways are going belly up. I’ve had 3 new custom home contracts cancelled by owner in the last 18 months due mainly to insurance, but to a lesser degree property taxes.
The home I live in, that I built in 1995 and homesteaded for taxes...well, I’m paying 25% or less than what a new property owner would pay today. Yipee for me, but in a way it has turned around and bit me in the butt as prospective buyers are turning away.
The average figure for someone like you would be - paying 45% less than a new property owner, not 25%
Florida governments have definitely gone on a spending spree the last 7 years. Fueled of course by real estate inflation bubble and the higher taxes they rake in from that. As far as cutting government spending, cutting county spending- My bet is most of the new bloated spending of the last 7 years is irrevocable. Is buried in fat contracts and pensions& bennies for government workers.
Crist definitely is a punk what with his photo-op grandstanding global warming conference. When will it break that he’s a homo too?
In denying Florida Farm Bureau’s request for a rate hike on Friday, Insurance Commissioner Kevin McCarty noted the company’s ‘’business decision’’ to spend $6 million on more reinsurance ``rather than passing the savings on to their policyholders.’’
this is one of the core reasons that eventually there will be NO insurance for florida....the florida govt. fails to understand that insurnace companies purchase reinsurance to offest catastrophe losses....without it..they potentially could become insolvent and then NO one has insurance....
when the govt. gets involved.....eventually everything turns to shi-ite!!!
Second, abolish property tax. Replace it with a sales tax. That is the only fair way. Pay a flat rate when you buy your property, 6% or so and never pay again. I pay over 2500 a year for property taxes and my neighbor with a similar house pays 600 a year. That is just wrong.
Third. Get Crist out of office as soon as possible. He is a disaster.
Fourth. Make insurance companies offer less than market value for coverage. I do not need 500,000 dollars worth of coverage but my insurance company will not let me buy less even though I have a much lower mortgage. They base minimum coverage on the value of the house.
Maybe you misunderstood, what I meant to say is, I’m only paying 25% of what a new homeowner would pay, not 25% less. In fact it’s more like 75% less.
Thanks!
Between that and soaring property taxes, the real estate industry in Florida is being killed off by slow strangulation.
Don't expect government to fix this. In spite of their brave talk and chest-beating, they haven't accomplished a damned thing. How utterly and pathetically typical.
You are right, no area should have different levels of taxation for two different people. Especially a state which gets most of its money from said tax.
And secondly you aer right let insurance companies charge whatever they want for whichever property. Dangerous areas, like building in the center of a hurricane area on a sandy beach, stick construction.. then they pay the risk.
On the other hand build a concrete-foam home that costs more on solid ground and you don’t need insurance! The free market is the one to figure it all out.
“Fourth. Make insurance companies offer less than market value for coverage. I do not need 500,000 dollars worth of coverage but my insurance company will not let me buy less even though I have a much lower mortgage. They base minimum coverage on the value of the house.”
That is because the pattern of loss severities on property is linked to the total value of the property. Thus insuring a property for less than its full value exposes the insurer to larger losses than anticipated in the rates. This excess exposure is addressed in the coinsurance provision.
http://www.eqgroup.com/coinsurance.htm
Property insurance rates are based on the property value.
http://en.wikipedia.org/wiki/Coinsurance
http://demonstrations.wolfram.com/PropertyCoinsurance/
There is room in the marketplace for an insurance product that bases rates on the full property value (which is necessary, as explained above), but limits the amount covered to one’s mortgage balance. Ask several agents in your area, and see if this market need is being addressed. I suspect it probably is, though you may have to ask for it in several different ways before your agent figures out what you want. Try several agents; not all of them are equally sharp.
However, as your other three points indicate, this may be the least of your problems. Sorry about that, but people get the government they elect.
25%?lower? I built my own house - I was a roofing contractor - in 91 and I pay less than half of what my neighbors pay here in port saint lucie, Florida for their brand new houses.
For me, Florida was a paradise compared to Pennsylvania, where you couldn't get a job without being in a union and the taxes were, and still are, sky high for virtually no service rendered at all to the middle class, unless you count the incredibly sh*tty roads and infrastructure inherent in the tri-state area.
Since I still own real in Pa, I can say that my property taxes here are about half of Pa, but the property insurance would be higher if I carried any here.
The auto insurance there is well higher, not to mention the State, County, and township income taxes.
Balance that out with the other 1,394 different taxes and fees in Pa and you will remain poor there on my income here.
Newcomers are suckers in Florida and California. People who have lived in same house for a 10-20 years pay lots less than new buyers
In California Proposition 13 made this happen
In Florida it all started out innocently enough as a way to keep property taxes low and stabilized for Seniors only who would otherwise lose homes. Then like most liberal do-gooder projects other people clamored to horn in on the action. So that now all families who have sat tight in the same house for years have seen their property taxes go up very slowly from the year they bought their house. The law was instituted in 1992
Why would anyone want to retire down here and be a sucker? Be a fool? Paying the freight for all his neighbors who are dug in and pay lots less property taxes than him. The variation between identical houses, same neighborhood, can be as much as 75% less taxes for the long time Florida resident. It's variable depending on when your dug in neighbor bought his house
The real estate bubble made this all happen. If house values and assessments were the same as 5-10-20 years ago there would be very little variation in property taxes between newcomer and old timer
This is shocking!
Do Crist and his mentor know this?
Since I still own real in Pa, I can say that my property taxes here are about half of Pa, but the property insurance would be higher if I carried any here.
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You don’t have FL property insurance?
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