Why Florida Needs National Insurance Coverage
A recent decision by Florida’s “insurer of last resort” threatens to hinder development throughout the Sunshine State, according to an editorial in today’s Bradenton Herald.
In a statement, the beleaguered, state-run Citizens Property Insurance said it will no longer issue risk coverage for building projects under construction.
The growing Florida insurance debacle was instigated by the 2004 and 2005 hurricane seasons. An unprecedented number of brutal storms left Florida’s private insurance companies in a world of hurt. The state’s private firms had an estimated $18 billion in premiums from 11.9 million residential policy holders, including more than 1 million mobile home owners. These companies proceeded to pay out $38.5 billion in damage claims.
Two million homeowners filed claims, resulting in a mass exodus from the private insurers and drastic increases in home and business premiums.
During 2004 and 2005, Citizens Insurance collected $1.2 billion in premiums from about 815,000 policy holders. The company also paid out more than $3.9 billion in claims for damages, resulting in a $2.2 billion deficit. Because Citizens does not have the option of leaving the state, it has been raising property insurance premiums at alarming rates.
During the 2006 Florida Legislature session, lawmakers tackled an insurance bill which was intended to bail out Citizens and encourage private insurers to provide more coverage in the state. At present, all homeowners who have insurance - from either Citizens or private insurers - are paying an assessment to reduce Citizens’ deficit.
Now it appears even that bailout is not enough, as Citizens is reducing its risk by stopping vital coverage for new construction. Without coverage, no commercial lenders will underwrite projects, and developers will be forced to either halt or find private coverage.
According to the Florida Association of Realtors, the escal
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ating cost and limited coverage of property insurance appears to be impacting the state’s real estate climate. The previously hot housing market has seen a negative turn since late last year, resulting from both the insurance problem and steadily climbing Florida home loan rates.
Sales were off 15 percent in December 2005 from the previous year, and are down 30 percent in May compared to a year ago. This was before Citizens’ move to drop wind coverage for builders. If the weakening continues, the Florida economy could suffer, and the U.S. economy right along with it. A slow Florida housing market could mean lower tax revenue, an increased deficit, and a swelling economic burden.
“Slowing housing activity often precedes an economic slowdown. With Florida as the largest and most consistent generator of jobs in the country, a downfall in Florida will inevitably have national repercussions,” a report from the National Association of Realtors states.
Clearly, something needs to be done. One proposal, backed by builders as well as the Realtors, is national coverage from a federal catastrophic insurance fund.
The idea would be to permit insurance companies to better manage risk and widen availability at reasonable costs. As with federal terrorism insurance, coverage on unknowable events would allow the private market to continue its presence, meaning Citizens Insurance would have some much-needed help in covering Florida.
“A federal catastrophic insurance program will not only benefit Floridians, but also residents living near the Mississippi River (flooding), people in Kansas and Oklahoma (tornadoes), West Coast residents from San Diego to Alaska (earthquakes), Texans and Coloradoans (wildfires), and numerous other people in cases of unforeseen and ‘unpredictable’ natural disasters - far more frequent and/or much more destructive than would be expected based on normal historical patterns,” the Realtors noted.
The concept is sound and the need is dire. Hopefully, either this solution or a more immediate fix surfaces to defuse the crisis. Soon.
