Hurricane rates likely to go up
By JIM SAUNDERS
Tallahassee Bureau Chief
TALLAHASSEE — Worried their hurricane-prone state is exposed to massive financial risks, Florida lawmakers Wednesday started considering proposals that would lead to higher property-insurance rates.
The increased rates would hit customers of the state-backed Citizens Property Insurance Corp. and customers of private insurance companies.
A Senate committee started debating a proposal that likely would lead to average increases of 10 percent to 11 percent a year for Citizens customers. Privately insured homeowners could see varying increases.
A House committee is expected to take up a similar proposal Friday.
Senate Banking and Insurance Chairman Garrett Richter, R-Naples, offered a dire picture of the financial risks facing the state if a major hurricane hits.
State and industry officials say Citizens does not charge high enough rates to cover the potential damages of its policyholders. At the same time, a state program that sells reinsurance — a crucial form of backup coverage — could come up billions of dollars short if it had to help pay claims after a catastrophic storm.
"We’re stuck (if a major hurricane hits)," said Richter, who is sponsoring the Senate bill. "We’ve got to go to Washington with our hat in our hand, and we don’t know what Washington is going to do."
Rep. Pat Patterson, a DeLand Republican who is chairman of a key House insurance committee, said the state can only deal with hurricane risks through insurance premiums or borrowing money after a catastrophe. He said lawmakers are trying to avoid huge amounts of debt.
"We don’t have an insurance problem in Florida," said Patterson, whose Insurance, Business & Financial Affairs Policy Committee will hear the issue Friday. "We have a hurricane problem in Florida."
But taking steps to raise rates could be politically unpopular — especially as families struggle through the economic recession.
As an indication of the angst, Sen. Mike Fasano, a New Port Richey Republican whose district is filled with Citizens customers, repeatedly raised questions Wednesday about changes that would affect Citizens rates.
Richter put off a vote in the Senate Banking and Insurance Committee, saying he wanted time to work on questions raised by Fasano and other senators.
The proposals come two years after lawmakers held a special legislative session to deal with skyrocketing insurance costs. Among other things, they froze Citizens rates and dramatically expanded the amount of low-cost reinsurance the Florida Hurricane Catastrophe Fund sells to insurance companies.
But now, Citizens’ rates are 40 percent to 55 percent below what is considered "actuarially sound" — a measurement of whether enough money is being paid to cover risks.
Also, the catastrophe fund would not be able to fully meet its obligations to help pay claims after a major storm. Lawmakers in 2007 expected the fund to be able to issue bonds to help raise money, but officials say the meltdown in the nation’s credit markets has made that impossible.
A key part of the Senate bill would allow Citizens to raise rates up to 10 percent a year for each policyholder until the rates are considered actuarially sound. The actual rate increases could be slightly higher than 10 percent because of other changes in the bill. Patterson said the House version would allow 10 percent statewide increases, but individual policyholders could see increases of as much as 20 percent.
The Senate bill also would gradually reduce the amount of reinsurance coverage the catastrophe fund sells. That is expected to increase rates for homeowners because insurers would replace the low-cost state reinsurance with more-expensive coverage from the private market.
The amount of the increases likely would vary. But under one scenario, a Senate analysis indicates policyholders could see an average increase of 3 percent to 5 percent.
Also, the Senate bill would allow private insurers next year to seek other rate increases based on a measure of inflation in the insurance industry.