Legislators Continue Push For Insurance Reform; Non-Homestead Premiums May Soar

A recent legislative push to reduce the burden of Florida homeowners to bail out debt-riddled Citizens Property Insurance would translate to substantially higher payments for many of the state’s residents, according to the Sun-Sentinel.

The new measure would hit people living east of I-95 — those who already pay the highest insurance rates in South Florida — particularly hard. Florida insurance premiums could jump by as much as 110 percent for Citizens customers who own property without a homestead exemption.

The Florida State Legislature has been grappling with the issue for weeks and are determined to reach a conclusion. The same bill would force the company to increase rates for policyholders who live on or near costs statewide, homestead exemption or not. This is thought to be an onerous move, because the company (already the state’s home insurer of last resort) already charges higher prices than all other wind insurance providers.

The House measure, along with a Senate bill that would price Citizens home insurance 25 percent higher on properties without homestead tax exemptions, is sure to anger the state’s many part-time residents — a whopping 1.2 million people as of 2005, according to a study by the University of Florida. Some experts think raising premiums for snowbirds who own second homes here could drive many away and harm South Florida’s economy.

It all comes down to a simple question: If state-backed Citizens racks up a deficit, who foots the bill? Insurance Commissioner Kevin McCarty said that while protecting Floridians from paying Citizens’ debts is a laudable goal, legislators must still consider the impact of their actions.

“I think we have to be cognizant of the issue of the perception of how we treat our seasonal residents as well as the tourists… who contribute mightily to the tax base as well as the economy of Florida,” McCarty said.

Dennis Ross, Chairman of the House Insurance Committee, said it’s an issue of fairness.

“This is a paradigm shift if you will,” he said. “It’s basically saying, ‘We’re going to change the way we do business here.’ If you’re exposed to a risk, then by your choice, you’re going to have to pay.”

The legislation crafted by Ross’ committee shifts the burden (or a very large amount of it) onto people who own coastal homes without homestead exemptions, along with those who live in Citizens’ coastal zones. Ross believes the move should lessen the amount of assessment for the majority of Florida’s citizens, many of whom are still footing Citizens’ tab from 2004.

Citizens levied a 6.8-percent assessment on all Floridians with homeowners insurance policies to cover a $516 million deficit after the 2004 hurricane season. That means homeowners with a $2,000 annual premium paid a one-time $136 charge toward Citizens’ debt — regardless of their insurer. Another, larger Citizens assessment is expected soon, unless legislators decide to use state sales tax revenue (as proposed March 7) to offset the insurer’s 2005 shortfall.

That deficit is estimated at $1.36 billion.

Citizens, the largest home insurance firm in South Florida, is seeking its biggest price increase for coastal properties — as much as 67 percent in Broward County and 51 percent in Palm Beach County east of I-95.

Although the lawmakers are still studying the effect of separate pricing for homestead and non-homestead properties, a Sun-Sentinel analysis shows the financial benefit could be minimal. About one-quarter of the single-family homes east of I-95 in both Broward and Palm Beach counties do not have a homestead exemption, the analysis shows. Only 8 percent of non-homestead real estate in both counties is worth more than $1 million.

“I think they’ve got to look at it real closely and see if you can charge, not based on the risk of the property but the type of ownership there is,” said State CFO Tom Gallagher, who supports limiting Citizens’ financial impact, but is hesitant to treat homestead property preferentially.

Under the new plan, Citizens would be required to buy enough reinsurance for homestead properties to cover a “1-in-100″ hurricane, and for its non-homestead account to cover a “1-in-250″ hurricane. This is the estimated equivalent of losses from a Category 5 hurricane slamming into South Florida every 100 and 250 years, respectively. The result is Citizens paying up to $1.57 billion, a cost that will be passed on to policyholders in the form of a premium increase.

Some real estate professionals think charging higher rates to non-homestead property owners could adversely impact South Florida real estate. Because snowbirds are a big part of the Florida home loan market, it’s easy to see how turning them away could mean negative ramifications for all residents.

“If we give them a reason to think twice about buying here … that would certainly have a dampening impact on the market,” said Brad Hunter, South Florida director for Metrostudy, a marketing research firm. “It seems like to me a little bit of ‘Let’s tax people that aren’t here to vote against the tax.’ Which is typical Florida fashion.”