News & Updates


Seeking shelter against the wind

OUR OPINION: No choice but to increase windstorm-insurance rates, again

It’s the moment South Florida homeowners dread. The annual windstorm-insurance bill arrives and — cue the creepy sound track from Psycho — you open it to find another huge increase staring you in the face. You ask: How much more of this can I take? 

The answer, if you live anywhere deemed highly vulnerable to hurricanes, is that you should be prepared to take a lot more. The Legislature has approved a series of annual increases, and the grim reality is that even though the coming hikes are sure to be painful, lawmakers had little choice under the current windstorm-insurance structure.

Averting a crisis

Citizens Property Insurance, the state-run program, has a green light to increase rates to 10 percent annually until they are ”actuarially sound” — generating enough revenue to cover possible future claims. It can also raise rates 1 percent more each year to recover the cost of payments required to bolster the Florida Hurricane Catastrophe Fund, the state’s back-up insurance reserve. Private insurers can pass on up to 10 percent of their reinsurance costs to policyholders through through expedited rate filings.

Amid a deep recession, this obviously is a terrible time to increase insurance premiums. However, it was either that or face a crisis if the hurricane season ravages Florida and the state’s insurance programs don’t have the resources to fill the need — a scenario that remains distinctly possible.

A report produced for the Legislature last year by Citizens estimated that in case of a 100-year storm, the worst-case scenario, the probable maximum loss to the state’s insurer of last resort would be $24 billion. Even after three hurricane seasons without a major devastating storm — and with $7 billion-plus in back-up insurance from the CAT Fund — the reinsurance reserve — this would still leave Citizens more than $10 billion in the hole.

The deficit would be covered by all Florida policyholders through a surcharge. Not good. Most of us are still paying surcharges from eight successive storms in 2004 and 2005. The bigger the shortfall, the bigger and longer-enduring the surcharges would be.

No magic solution

It could have been worse. Some insurance experts say rates are 30 percent below where they should be. An early version of the bill passed by the Legislature called for a ceiling of 20 percent on annual increases, instead of 10 percent.

But just because we’re being hit with ”only” a 10 percent increase doesn’t mean all is well with the state’s windstorm insurance plan. There is no magic solution, but lawmakers need to come up with more imaginative ideas. One proposal would have the state collect every dollar available for windstorm insurance and build up a huge reserve. This may not work, but 10 percent annual increases from here to eternity isn’t a good plan, either.