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02 OCT 2013

Calm hurricane season over, but rocky waters ahead for Florida insurance scene

October 02, 2013

Gray Rohrer, 11/27/2013 – 02:04 PM

Saturday marks the last day of one of the mildest hurricane seasons on record, both in terms of named storms and legislative action on property insurance issues. The calm seas, though, belie an undercurrent of turbulence for homeowners.

Many homes in coastal areas face skyrocketing flood insurance premiums starting next year, and some are having trouble selling their homes because of federal legislation tagging next year’sNational Flood Insurance Program rate increases to home sales and other title transfers.

State lawmakers have pledged to find a state-based alternative to the NFIP if private companies don’t step in to offer cheaper flood coverage. There are signs private companies are looking into the market, and the Office of Insurance Regulation has set out guidelines for writing the new business and promised to fast-track review of new filings. The process, though, is likely to take longer than affected homeowners would need to avoid rate shock next year.

In addition to the new flood issue, lawmakers are likely to contend with state entities designed to stabilize the market: Citizens Property Insurance Corp. and the Florida Hurricane Catastrophe Fund, or Cat Fund.

Citizens marked the eighth straight year without major hurricane damage in the state, and with $6.8 billion in surplus the 11-year-old company is in its best-ever financial shape. But the company has moved to that position by pushing customers into the private market, drawing the ire of critics who say the new companies aren’t as financially stable.

Citizens’ total policies have dropped by 312,550 this year, down to 1,062,191. The company remains the largest property insurer in the state, however, covering $330.8 billion worth of property.

“Mother Nature has been kind and again spared Florida from a major storm. Here at Citizens, we have been busy taking advantage of that good fortune by continuing to reduce our exposure and policy count,” Citizens president and CEO Barry Gilway said.

Legislative action related to Citizens may hinge on the progress of the clearinghouse, designed to come online Jan. 2 and designed to shop new and renewal Citizens customers in the private market.

But lawmakers who have been pushing for Citizens rates to rise faster — they have a 10 percent cap on annual rate hikes, except for noncatastrophic sinkhole coverage — will continue to push for changes to the Cat Fund as well, despite the state reinsurance fund’s healthier financial outlook after the string of weak storm seasons.

After two straight years when its reserves and borrowing capacity wouldn’t have been enough to cover its liabilities, the new estimates show the Cat Fund has $12 billion in reserve and could borrow at least $6 billion — about $1 billion more than its maximum $17 billion coverage limit.

Still, free market advocates want more state reinsurance to be pushed into the private market. Lawmakers have resisted such changes in recent years, fearing the more expensive private reinsurance would push insurance rates higher.

“Now that the Cat Fund is at its healthiest, the time is right to shift some of that risk to the private market, so the Cat Fund is never again in a position where it is selling fake coverage,” Christian Camara, director of R Street Florida, a free market think tank, said last month when the latest Cat Fund estimate was released.