Floridians Subsidizing Major Insurer’s Deficit
Like countless other residents of the state, Thelma Williams of Merritt Island, a community near Tallahassee, noticed a dramatic rise in her homeowners insurance bill this year. Williams was able to stomach the $600 increase because she needed the hurricane coverage. What she didn’t realize, according to the News-Press, was that the bill wasn’t just for her home.
Her bill included more than $100 extra to insure someone else’s beach house.
She is picking up the slack for Citizens Property Insurance, whose $515 million deficit in 2004 will be spread out amongst all other clients. And now, after having their accounts battered by storms in 2005, Florida homeowners again will be hit with an assessment. This time, the deficit is projected at $1.4 billion — meaning surcharges of 17 percent on a typical policy.
About 97 percent of it will be for homes exclusively on the coast, including 5,700 with values over $1 million.
“I’m a fair person,” Williams said, but the surcharges give her pause. “It’s a double-edged sword, isn’t it?”
Bankrupted two straight years by storms, lawmakers and residents fear the damage a truly catastrophic hurricane would cause Citizens, the second largest Florida insurance provider. Citizens is allowed, by law, to add on to all property insurance premiums as much as 20 percent a year from each of its three business accounts. It is therefore capable of 60 percent surcharges on owners’ already escalating premiums.
This perpetual subsidy of homes on the coast has residents demanding a change in who pays to rescue the state insurance pool.
“When you are looking at people inland paying their own share of insurance premium and then having to subsidize someone’s second home, that doesn’t seem just. Can’t we give those folks a break? To me it only seems logical that the people who are paying to prepare for the storm and then paying again to recover not be taxed a third time by paying someone else’s homeowners insurance,” said Jeff Grady, president of the Florida Association of Insurance Agents.
The agents’ association, along with certain legislative and real estate groups, propose using the sales tax windfalls that hurricanes generate to cover Citizens’ deficits.
“Let the storm-begotten taxes cover the storm-begotten losses,” said Representative Bob Allen, a Merritt Island Republican.
State chief financial officer Tom Gallagher, a candidate for governor in 2006, finds himself alone among Florida’s top political leaders in supporting the bailout. Officials have their own plans for the Florida tax windfall, from sales tax holidays to property tax rebates.
House Insurance Chairman Dennis Ross contends that Citizens’ coastal rates don’t cover its coastal risks, despite repeated efforts to raise premiums, including an average 80 percent rate hike currently under review. The Lakeland Republican believes that bailing out the company would set a bad precedent, and proposes a new and separate insurance pool for second homes and businesses. Charge higher rates, and in the event of a deficit, let them be the ones to pay it.
That’s contrary to Citizens’ basic premise — providing available, affordable insurance to Florida’s economy, one that is concentrated on the coast.
“I believe I can defend protecting the homestead property,” Ross said. “We want to protect the policyholders in this state from a continuous blank check to Citizens.”
How this is resolved remains to be seen, but it appears a popular solution will be tough to find. With a widespread money shortage and differing views among industry and political forces, the state’s property owners may have no choice but to grin and bear these increases, making the total cost of their Florida home loans and insurance even more expenses.
