The report comes weeks before the start of the 2012 annual legislative session. Lawmakers have proposed bills to reduce the financial risk to Floridians of state-backed Citizens and are considering other proposals.
With 79 private home insurers, Florida has more companies selling residential property insurance than any of the other eight coastal states the report evaluated. It's followed by Texas, which has 69. A few national insurers that sell most homeowners policies nationwide have scaled back from the state, leaving smaller Florida-based insurers to fill the gap, according to the report.
"Despite the high number of insurers and the relatively high total premium amounts sold in
Florida, the State’s private homeowners insurance market has the [lowest claims-paying reserves] of any catastrophe-prone state other than Texas," the report says.
The report notes the average premium for $1,000 in coverage has decreased since December 2005, despite increasing in the first half of 2007, largely because people are buying more coverage. Many have also increased their deductibles in order to minimize rate hikes.
The report recommends the state:
Increase premiums for state-backed Citizens Property Insurance policyholders by more than the 10 percent a year allowed. If this doesn’t happen, the report says it would take five more years to make some policyholders’ rates as high as they’re supposed to be.
Have insurers, including Citizens, provide less coverage. “Limited coverage would make insurance more affordable,” the report noted. Citizens’ board has started reducing the coverage it will offer and plans to implement new ways of doing that starting in May.
Reduce how much cheap backup coverage the state sells. The Florida Hurricane Catastrophe Fund was expanded in 2007 to allow insurers to pass savings from it to consumers. In recent years, legislators started shrinking how much coverage is offered and raising its rates.
The report backs proposals to do more of that in order to avoid “difficult, or even unaffordable, future assessments.” Nearly all Floridians are subject to paying fees to offset deficits in the catastrophe fund.
Shift the state's focus from making rates affordable to making them fair. If regulators and lawmakers want to make rates affordable, they should subsidize premiums just for low-income Floridians instead of most policyholders.
Don’t inflate discounts to policyholders that hurricane-proof their homes but keep encouraging them to do so. “Several studies have shown the cost effectiveness of mitigation in reducing hurricane” claims costs, according to the report. “Other studies have shown that homeowners may opt not to engage in windstorm and storm surge mitigation due to a perceived lack of affordability and/or uncertainty about the cost-benefit outcomes.”
For instance, some homeowners have complained the past two years that insurers are taking away legitimate discounts when trying to find ones that aren’t deserved.
Require home sellers to disclose the cost of hurricane insurance. This is already required for property taxes and for flood insurance. The disclosure may result in some people changing their minds about wanting to live in risky, coastal areas. Former Gov. Charlie Crist supported a state law that would have required home sellers to disclose how hurricane-resistant their properties are starting this year but the state Legislature overrode his veto of a bill repealing the requirement.
Provide tax breaks and other incentives to insurers that want to sell property insurance in Florida. “A premium tax credit will help offset the cost of holding catastrophe reserves to pay for losses due to severe storms in Florida’s future,” according to the report.
Image: Graph from a report last week by FSU's Florida Catastrophic Storm Risk Management Center.