With the start of the 2009 Atlantic hurricane season just 11 days away, now is the time for Gulf Breeze residents to review their homeowner property insurance and ensure that they have sufficient coverage.
“You should always insure for the replacement cost of your property, not just the cost of your home or business mortgage,” Kirk Ball, state chairman of the Florida Association of Insurance Agents, told the Gulf Breeze Area Chamber of Commerce Governmental Affairs Committee earlier this month.
Ball, Chief Operating Officer of Fisher-Brown Insurance in Pensacola, visited the Chamber on May 6 to discuss the most pressing state insurance issues and how they relate to the business community. Ball traveled the state in recent months speaking and leading efforts to focus attention on property insurance, particularly windstorm insurance. His efforts helped prompt lawmakers to pass legislation to bolster or improve Florida insurance laws.
Much of lawmakers’ attention focused on Citizens Property Insurance Corp., the state’s so-called ‘insurer of last resort’ for property owners who cannot acquire coverage from private companies. Citizens is a not-for-profit, tax-exempt corporation whose public purpose is to provide policyholders with affordable property insurance protection.
Even with a surplus of $3 billion, experts agree Citizens is woefully underfunded when compared to its exposure of over $400 billion. If in 2009 a major hurricane hits any of the state’s most populated coastal areas, or a series of storms hits Florida as was the case in 2005, it’s virtually assured that Citizens would not have the resources to cover policyholders’ losses.
“If the public thinks there is a surplus, that would be misinformation at best,” James Malone, Chairman of Citizens’ Board of Governors, said in February. “Any kind of significant storm event would or could wipe that ($3 billion surplus) out in a few, short hours.”
Making Citizens actuarially sound is vital to residents’ interests. That would mean that the total premiums Citizens collects should be more than enough to offset the indemnities paid out.
“If Citizens was actuarially properly funded tomorrow, it would take about a 55-percent rate increase today to make it where it would be actuarially sound,” said Ball, who served on the state Citizens Mission Review Task Force (CMRTF).
The CMRTF was cautious about recommending a rate increase that would shock the public, so it advocated using a ‘glide-path’ approach to increase rates 10 percent a year over the next number of years so Citizens could become actuarially sound.
“The reason you want this is, if Citizens is called to pay losses, under state law everybody who has an insurance policy in Florida other than worker’s compensation or a medical malpractice policy, can be assessed to make Citizens whole,” Ball said.
“To avoid assessments, a rate increase has to be effectuated. It’s the lesser of two evils. It will take a period of time for those rates to catch up and make Citizens actuarially sound, but it’s a start.”
Ball could not be specific about the length of time such a rate increase would need to be administered.
“If indeed it’s underfunded by 55 percent, with a 10-percent rate increase, you’d think that it would take 5.5 years,” Ball said. “But that’s unclear, because values will change. It will be over a long period of time – longer than 5.5 years, I’m sure.”
Additionally, lawmakers voted to implement a cash build-up over a five-year period for the Florida Hurricane Catastrophe Fund. The CAT Fund sells up to $29 billion in lower-cost backup insurance (referred to as reinsurance) to the private carriers that write homeowners policies in Florida. This reinsurance helps insurers protect their capital by covering a portion of the losses an insurer would face after a major storm.
Using both its surplus and bonding capabilities, the Cat Fund estimates it can only meet approximately $17 billion of its obligation to private carriers; almost $12 billion short of where it needs to be.
This deficit would be realized in the event of a large storm and made up through assessments on all Florida policyholders. However, lawmakers also supported reducing the size of the CAT Fund at a pace of $2 billion a year over the next six years.
Meg Peltier, Chief Executive Officer of the Chamber, urged property owners to ensure they are adequately covered. Don’t ignore the fine print.
“Ask your agent or broker if you are sufficiently covered for ‘replacement value,’ ” Peltier said. “For less than $200, you can have your home or business inspected to learn what you can do to mitigate your properties and possibly lower your insurance premiums.
“It is up to each of us to be proactive,” she added. “If you wait until the first storm, you will certainly regret it.”