’05 storm bills on the rise

Miami Herald--May 16, 2008

BY BEATRICE E. GARCIA

Floridians are still paying for the hurricanes of 2005 — and the tab is growing.

The Florida Hurricane Catastrophe Fund soon could be tapping all state residents holding insurance policies to raise another $600 million to cover storm losses.

Insurers are seeing more losses from Wilma and three other hurricanes that year than they initially estimated. Many claims have been reopened as payments were underestimated or homeowners discovered additional losses.

Right now, the Catastrophe Fund is tacking a 1 percent charge onto just about every kind of insurance policy in the state through 2012 — and that is still not enough.

Jack Nicholson, executive director of the fund, said the surcharge could be extended for a couple more years to cover the shortfall. Another possibility is to increase the percentage of the annual assessment.

”It could be more than [$600 million], but that’s what we’re looking at right now,” Nicholson said.

It doesn’t bode well for Floridians that losses from the 2005 storms continue to mount just as another hurricane season is about to get under way. And if a major hurricane makes landfall in Florida, the Catastrophe Fund could face huge losses.

The fund, established in 1993, sells lower-cost back-up insurance to companies selling homeowners’ coverage in Florida. This reinsurance covers a portion of the money insurance companies have to pay in claims after a major catastrophe, allowing the insurer to preserve some of its own capital.

SAVINGS INTENDED

In 2007, state insurance laws were changed and the Catastrophe Fund was expanded to sell more lower-cost back-up insurance. Insurers were supposed to pass along the savings from the cheaper reinsurance to policy holders in the form of lower rates.

Somewhat lower rates materialized for some, but not all consumers. Yet the additional risk certainly did materialize for all. The Catastrophe Fund’s maximum exposure is capped by law at $29.1 billion. In 2005, it was $16 billion.

”We’re stacking up a lot of risk right now,” said state Rep. Dan Gelber, the House minority leader and Miami Beach Democrat.

During this year’s legislative session, lawmakers backed away from a bill that would have reduced the fund’s risk, despite an aggressive push by Florida Chief Financial Officer Alex Sink.

Sen. Bill Posey, the Republican from Rockledge who chaired the Senate Banking and Insurance Committee, said the bill died because of “the concern about higher rates.”

For Florida residents, there’s no escaping the fund surcharges. It doesn’t matter which company provides insurance coverage and the surcharge can be tacked onto multiple policies.

Consumers with auto, home, boat and motorcycle policies would be hit four times. Business owners would also get tagged. Only medical malpractice and workers compensation policies are exempt.

Worse yet is that the Catastrophe Fund surcharge isn’t the only one showing up on insurance policies. Many consumers are seeing up to five surcharges totaling 8.4 percent on their policies. For a homeowner with a $4,000 premium, that’s $336.

A 1.4 percent assessment that extends through 2017 is meant to cover the 2005 deficit for Citizens Property Insurance, the state-run insurer.

The Florida Insurance Guaranty Association imposed a 2 percent assessment last year to raise more money to pay off claims left after the three Poe Financial companies failed after the 2005 hurricane season. FIGA also had imposed two surcharges in late 2006 to cover the Poe claims.

Nicholson said 2005 storm losses have increased by an additional $1.4 billion since the Catastrophe Fund calculated its initial deficit and asked state residents to make up the shortfall.

The total insured residential losses from 2005 now stand at nearly $27 billion in Florida alone. Nicholson said the fund is covering 33 percent of those losses. Policy holders covered by the state-run insurer, Citizens Property Insurance, could face the biggest tab when it comes to covering shortfalls.

SHIFTED BURDEN

In addition to the Catastrophe Fund assessments that could grow, lawmakers have shifted the burden of covering Citizens’ future deficits to its own policy holders. These homeowners and businesses could be assessed up to 45 percent of their annual policy premium if there is a catastrophic storm.

That scenario is slightly better than what Citizens policy holders faced before the law was changed this year. It could have been a maximum of 60 percent for houses getting the homestead tax exemption and up to 90 percent for vacation and second homes and for businesses.