The cost of rebuilding homes in Florida dropped about 5 percent from 2009 to the first half of 2010, but you'd never know it from your property insurance bill.

State law says premiums must be fair and reasonable, but it doesn't require them to be adjusted when rebuilding costs decline. And regulators don't control how insurers se trebuilding costs.

Insurance companies say other costs, such as claims payments, continued to rise as the economy tanked. Agents say homeowners haven't asked whether their homes' replacement costs should be adjusted downward. And agents have little incentive to raise the issue.

"One would think insurance rates would decline," said Bill Newton, executive director of Florida Consumer Action Network. "Instead, we've had increases either directly or through losing… discounts."


When the economy crashed in 2008, so did Florida's construction industry.

Building costs in Florida dropped 4.78 percent from 2009 to mid-2010, according to Xactware Solutions, a research firm that produces a quarterly index used by insurance companies to calculate rebuilding costs.

Another index widely used by insurers, produced by Marshall & Swift/Boeckh, shows a smaller decrease. Both indices are starting to rise again, as materials costs climb.

Roger Zahn Jr., president of Zahn Luxury Builders in Lighthouse Point, said his company used to provide prospective customers with an average quote of $200 or $225 per square foot to build a typical home from the ground up. Now it's $175 to $190.

"It's gone down considerably" because builders are being forced to cut costs and workforce expenses to compete for the few jobs available, he said. "It's supply and demand really. There's no work out there."

A letter from Zahn helped Gail Bierworth, a retiree who lives in Lighthouse Point part of the year, convince Citizens Property Insurance to lower her windstorm insurance premium, with a replacement cost that dropped to $347,000 this year from $698,000 last year.

With the lower replacement cost, Bierworth's windstorm premium fell to $1,315 from $2,346.

"If I needed the $600,000 in coverage I would have had to pay the high premiums," she said recently. As building costs go up, she said she's worried the industry will "grab onto that" and increase the rebuilding cost. But she's prepared to pay more if construction costs rise considerably.

Most homeowners' premiums go directly to cover the cost of rebuilding or repairing. Some pay for marketing, employees' salaries and other administrative costs.

In general, insurance companies say they've had to raise rates in Florida in recent years because premiums are not keeping up with expenses, including more claims for non-catastrophic issues such as sinkholes. They also say they've been too generous with discounts for strengthening homes against hurricanes.

Insurers point to other factors that may raise the cost of replacing South Florida homes: high-end finishes, such as granite countertops and expensive appliances, as well as years-old home improvements that may be overlooked by the homeowner, such as room additions and remodeling.

Insurers also have to take into account that it can cost more to rebuild an older home than to build a new one, said a representative of Marshall & Swift/Boeckh. It can be costly to duplicate old designs and materials.

Consumer advocate Newton questions insurers motives. He points out that reinsurance – insurance that insurers buy to cover their risks -- has dropped in price. He notes that insurance company investments earned less in recent years.

Paul Mack, president of Mack, Mack & Waltz Insurance Group in Deerfield Beach, said insurance companies usually don't accept applications for lower replacement costs.