Home insurance prices likely to rise by 10 percent
BY JULIE PATEL | South Florida Sun-Sentinel
Monday, May 25, 2009
TALLAHASSEE — The Florida Legislature passed sweeping legislation this spring to allow home and condominium insurers to boost statewide rates by up to 10 percent. The measure aims to reduce financial risks for Floridians if a major hurricane hits.
But the bill is in sharp contrast to laws the past two years that aimed to hold property insurers accountable and lower premiums after they doubled or tripled in some cases after the 2004 and 2005 hurricanes.
As you start planning your budget and insurance decisions this year, you may want to take the legislative changes into account since Gov. Charlie Crist is expected to sign the bill into law. To help you get started, here are some key details on the impact and what you can do.
What will happen to the cost of my policy?
Citizens Property Insurance policyholders in South Florida are expected to see their home insurance premiums increase by up to 10 percent annually until their premiums are "financially sound" — enough to offset claims and other expenses.
How many years will that take?
To be financially sound, state-backed Citizens projects that policyholder premiums in Broward County must increase by anywhere from 15 percent to 85 percent, depending on the neighborhood. But that is only based on data through 2007, so it could change significantly when new information is in.
More than half of Citizens’ 1 million policies are in South Florida.
Other insurance policyholders in South Florida also could see their premiums increase up to 10 percent annually. That’s because the bill would, among other things, allow increased rates for the Florida Hurricane Catastrophe Fund and create a quicker process for insurers to pass to policyholders certain back-up coverage costs.
What’s my financial risk if there’s a major hurricane, and how would that be reduced by legislation this year?
In a worst-case scenario — which is highly unlikely — Citizens policyholders could be charged up to 45 percent of their premiums to help offset potential costs. If that’s not enough, automobile and property insurance policyholders not with Citizens could be charged up to 18 percent of their premiums or the remaining deficit, whichever is greater, to make up the difference. If that’s still not enough, there’s yet another fee that could be charged to all policyholders, including Citizens customers.
If there’s a major hurricane and there are deficits in the catastrophe fund, which sells cheaper backup coverage to insurers so they can pass the savings to consumers, then policyholders could be charged up to 10 percent a year.
Emergency fees after hurricanes aren’t subject to taxes, commissions or profit factors, which is why legislators expanded public insurance programs in years past.
But this year, the state projects a bonding shortfall if there’s a major hurricane because of the global credit crunch.
To address that, the insurance bill this year boosts premiums for Citizens and the catastrophe fund to help build reserves to pay claims, reducing the risk of deficits. It also gradually shrinks the catastrophe fund by $12 billion so it’s liable to pay less in damages. Increasing Citizens’ rates will encourage policyholders to shop around, which would shrink the insurer to reduce Floridians’ risk.
Will the legislation change State Farm’s decision to leave Florida’s property insurance market?
Lawmakers passed another bill this year that would allow large private insurers to essentially charge what they want, which lawmakers say could prompt State Farm to stay but the company hasn’t confirmed that it will.
"I have my concerns about it," Crist said about the measure recently during his annual hurricane conference in Fort Lauderdale. "To not have the Office of Insurance Regulation be able to regulate insurance rates deeply concerns me."
Is there anything I can do to offset premium increases that are in the pipeline?
Boost your deductible enough to decrease your premium. It’s a way of dropping insurance for minor damages but having coverage in case your home is destroyed.
Also, check to find out what discounts your insurer may offer for taking steps to fortify your home against hurricanes and other risks. Ask your insurance agent to provide you with a written estimate for each home improvement you can make to reduce risk and your premium.
Possible upgrades include smoke detectors, burglar alarms, sprinkler systems and hurricane shutters or impact-resistant glass.
Should I shop around for a better rate?
It doesn’t hurt to shop around, especially because some insurers limit how many policies they sell in any one ZIP code.
If you decide to switch insurers, you should move fast, with hurricane season just one week away.
Julie Patel can be reached at firstname.lastname@example.org and 954-356-4667.