Citizens Property Insurance Corp. yesterday announced underwriting changes that will make thousands of previously uninsurable Florida homes eligible for homeowners’ insurance.
Florida Realtors advocated for the changes, which took effect Oct. 31. They allow Citizens to write policies on homes that had repaired sinkhole damage but were previously ineligible because the repairs either exceeded policy limits or weren’t done according to a structural engineer’s requirements. To qualify under the new guidelines, property owners must provide proof that repairs were made, including certification from a professional engineer, receipts and photos.
The announcement was made during a luncheon at the West Pasco Board of Realtors attended by nearly 300 Realtors from Pasco and Hernando counties, legislators and representatives of the insurance industry.
“What happened yesterday directly benefits 20,000 property owners – many of them elderly,” says Greg Armstrong, broker-owner of Coldwell Banker F.I. Grey & Son Residential Realtors, New Port Richey. “Indirectly, though, it benefits the entire Tampa Bay area.”
Realtor Bob Memoli agrees. For nearly a decade, he’s had transactions repeatedly fall apart because buyers couldn’t obtain mortgages without insurance, and owners weren’t able to sell because they couldn’t prove to an insurer that sinkhole damage had been repaired.
“My whole market is located in ‘sinkhole alley’ (Hillsborough, Pinellas, Hernando and Pasco counties),” says Memoli, a broker with Floridian Luxury Realty in Trinity, Fla. “Imagine the impact to home values, community values and quality of life if the only buyers were investors. It would be devastating.”
Citizens officials began to understand the problems some homeowners and buyers faced through talks with Florida Realtors, which led to the change.
“We’re Realtors’ connection to Florida government, which covers a lot more territory than just the Florida Legislature,” says Trey Goldman, legislative counsel for the association. Goldman says he appreciates “Greg, Bob and the other Realtors who brought this issue to our attention. We try to be responsive to our members and believe this will be a big benefit to the Tampa Bay-area market.”
In related news, state Sen. Wilton Simpson (R-Trilby), filed a bill this week (SB 416) that would create a new Citizens Property Insurance Corp. sinkhole-repair program. Among other things, the program would require that Citizens-approved contractors make repairs at a fixed price. The bill also states that policyholders may not be required to advance payments for repairs.
Source: Florida Realtors®
Federal flood insurance rates are on the rise, and the sharp increases from New England to Hawaii are hurting property values, residents and legislators say.
The law, known as the Biggert-Waters Flood Insurance Reform Act, is rolling out in stages. A part of the law that went into effect Oct. 1 removed flood-insurance subsidies for more than a million home owners nationwide. The subsidies applied to properties that existed before the drawing of flood insurance rate maps, The New York Times reports.
The rising insurance rates have sparked rallies and petitions across the country. Mississippi has sued the federal government to try to stop the discontinuing of subsidies.
“Some property owners, including business owners and those who bought property after July 6, 2012, are shocked to be facing potential tenfold premium increases or, in some cases, significant losses to the value of their homes,” the Times reports.
Flooding disasters in recent years — including Hurricane Sandy — have left the National Flood Insurance Program with a $25 billion deficit. The program must make up for the losses, but home owners are concerned about how they will cover their insurance increases and how the law will effect resale of their homes.
An estimated 600,000 home owners across the country will see their rates increase if they buy a new policy or let their current policy lapse, according to the Times. Some home owners are growing concerned that the higher premiums will deter home buyers from purchasing their homes. Depending on the home’s cost and its flood risk, the premiums could range from $3,000 to $33,000 more, the Times reports.
Source: “Cost of Flood Insurance Rises, Along With Worries,” The New York Times (Oct. 12, 2013)
The number of sinkholes is growing, putting more homes at risk. The problem is most evident in Florida, where some experts say it even has the potential to threaten the housing recovery.
Sinkhole activity first began being recorded in 1960, and one-third of the sinkhole activity recorded since that time has occurred in the last 13 years. What’s more, half of that sinkhole activity happened in the last three years alone.
What’s behind the rise? Some geological experts are blaming the increase on developers who pump more water out of the ground for new projects or for agricultural use, CNBC reports. Heavy rains on the top soil can compound the problem.
"As builders are forced to go farther and farther out of cities in search of developable land, compromises such as building on less than ideal sites have to be made to deliver competitively priced properties," Peter Zalewski, an expert in Florida real estate development, told CNBC. "We think this factor is only going to contribute to the sinkhole problem in the future on the Florida peninsula. At the end of the day, technology can only serve as a stopgap against Mother Nature."
Currently, sinkhole disasters are impossible to predict. Some areas in Florida are being as identified as more at risk than others. For example, the Tampa Bay area has been nicknamed “Sinkhole Alley.”
Insurance claims for sinkhole damage have grown significantly in the past few years. Claims in Florida have risen from 2,360 in 2006 to 3,135 in 2010, according to the Office of Insurance Regulation. Sinkhole insurance can cost around $200 to $2,000, depending on the home’s location.
Source: “Overdevelopment widens Florida sinkhole problem,” CNBC (Aug. 15, 2013)
Home owners who live near areas where disasters have struck, but have not been directly impacted by them are still seeing dramatic increases in their insurance premiums.
For example, in the wake of Hurricane Sandy, unaffected residents living near the disaster zone still saw big spikes in flood insurance premiums. FEMA has reclassified the area as a high-risk flood zone. As such, some residents in the Valley Stream, Long Island area of New York are seeing their flood insurance rates soar from $400 per year to $3,400.
Home owners living out West are also reporting rising insurance premiums due to recent threats of wildfires. The rise has prompted some home owners to go without coverage.
For example, a 63-year-old Las Vegas man is refusing to evacuate his property near growing wildfires. He’s remaining in his cabin, spraying water to keep the fires from his home, which have come within about 300 feet of the property. The man says he cannot afford homeowner’s insurance because the last wildfire ended up doubling his payments.
Source: “New Flood Insurance Rates Leave Homeowners With Sticker Shock,” AOL Real Estate (July 10, 2013) and “Man Refuses to Evacuate Home on Mount Charleston,” ABC 13 News (Las Vegas) (July 10, 2013)
The cost of homeowners insurance rose 36 percent from 2003 to 2010 -- nearly double the rate of inflation, according to the National Association of Insurance Commissioners. Coastal regions are seeing the largest increases: Fourteen out of the top 15 states seeing the largest percentage rate increases border the Gulf of Mexico or Atlantic Ocean. Those states have seen rates rise at least 44 percent.
In states like Florida, some areas have seen rates soar 91 percent from 2003 to 2010 -- the highest in the nation. Rates in Rhode Island have risen 62 percent.
About 16 million households fall in coastal counties along the Gulf and Atlantic.
One explanation for the rise in insurance premiums: Claims from severe weather have been on the rise. From 2004 to 2011, hurricanes and other weather catastrophes led to 39 percent of nationwide homeowners insurance claims payments, compared to 25 percent from 1997 to 2003, according to the Insurance Research Council.
Insurers also may have sold policies too cheaply over the years in trying to lure customers to their more profitable auto and life insurance policies. Regulators may have been holding prices down in some states too, says Robert Hartwig, president of the Insurance Information Institute in New York.
Critics say that insurers are inflating the insured value of homes by saying that it would cost more to rebuild.
"We’ve had insurers applying a 10 percent to 12 percent inflation factor every year to dwelling value," says Willo Kelly, who lobbies for real estate agents and homebuilders on North Carolina’s Outer Banks. "Every increase that company applies to dwelling value is an increase in the premium, an increase in the deductible, and an increase in the agent’s commission."
Source: “Coastal Homeowners Stagger Under Insurance Costs,” Associated Press (June 3, 2013)
Gov. Rick Scott signed a large property insurance bill passed earlier this year by the Florida Legislature. It brings a number of changes to the market, including one considered a priority by Florida Realtors: The creation of a clearinghouse to help guide homeowners to private carriers and away from the state-owned Citizens Property Insurance Corp.
“Florida homeowners need access to affordable insurance, but Citizens also needs to remain financially viable so we’re prepared for stomrms,” says Rosemary Mahoney, chair of Florida Realtors’ Public Policy Insurance Subcommittee. “In the end, we focused our efforts this year on creating a clearinghouse for policies – a way to give homeowners the ability to compare rates between private carriers and Citizens before committing to a policy.”
Major changes under SB 1770 include:
• Clearinghouse: If homeowners receive a private insurance quote that is within 15 percent of the price quote from Citizens, they’re ineligible for coverage by the state-owned insurer. However, it has always been difficult to enforce that rule. While rules for the clearinghouse have not yet been established, it will allow homeowners to compare rates side-by-side before choosing a policy.
• Currently, homes with a replacement cost of up to $1 million are eligible for Citizens coverage. Beginning in 2015, the maximum replacement cost will drop $100,000 a year for three years, and, by 2017, homes with a replacement cost greater than $700,000 will not be eligible for Citizens coverage. However, if the Florida Office of Insurance Regulation determines that an area has no “reasonable degree of competition,” such as the Florida Keys, the cap does not apply.
• Homes built or substantially improved seaward of the Coastal Construction Control Line won’t be eligible for Citizens coverage after July 1, 2014.
• The Citizens Board of Governors will expand and include a consumer advocate appointed by the governor.
The law becomes effective July 1, 2013, unless otherwise provided.
Source: Florida Realtors®
It’s been nearly eight years since Hurricane Wilma raked the southern end of Florida and caused billions in damages, the last of eight hurricanes to hit the state in 2004 and 2005.
Yet even as the state has been spared from additional hurricanes since that time, Florida’s fragile property insurance market has resulted in nearly year after year of steadily rising insurance rates for homeowners.
“We have no choice to continue to pay it,” said Henry Kempf, a customer with state-created Citizens Property Insurance Corp. who owns a home in New Port Richey. “We will have to afford it in order to have the peace of mind.”
Annual reports prepared by Florida’s Office of Insurance Regulation show that the department has been approving more than 100 rate hike requests a year since 2009 - including requests to hike rates by double-digits.
That includes increases for Citizens, the state’s largest residential property insurer with nearly 1.3 million policyholders. A report released in January by Florida State University concluded that homeowners in the state paid nearly $8 billion in premiums in 2011.
And sometimes the financial impact doesn’t just come from rate increases. The state-created Citizens, for example, has tightened its policies to cut down on discounts it offers or raised deductibles connected to sinkhole coverage. Citizens is supposed to be for property owners who can’t get private policies.
For Kempf the whole situation is frustrating: “No one is watching out for the people of Florida. Everyone has their own agenda.”
Hurricane storm season officially starts Saturday and federal forecasters predict it will likely be more active than an average hurricane season. The prediction issued last week calls for 13 to 20 named Atlantic storms, seven to 11 that strengthen into hurricanes and three to six that become major hurricanes.
This storm season, however, may prove even more crucial than ever for homeowners in the Sunshine State. That’s because some are predicting Florida may be finally reaching the end of a volatile period for insurance rates – if the state can avoid disaster this year.
“There are some early signs we have reached price equilibrium,” Florida Insurance Commissioner Kevin McCarty said last week.
Locke Burt, chairman and president of Security First Insurance, the state’s fourth-largest residential insurer, predicted his company will likely not ask for a rate hike in the coming year.
The reasons for Florida’s steadily increasing rates are varied and have triggered endless argument especially among state lawmakers and others in the last two decades.
The biggest expense remains the cost of “reinsurance” – which is the money an insurer spends with an out-of-state or foreign company to provide the company financial backing in case of major claims.
Other causes that have been cited include millions in other types of losses such as sinkholes. A Pulitzer Prize-winning series in 2010 by the Sarasota Herald-Tribune pointed out how insurers paid out millions in bonuses to company executives or had large overhead costs compared to the rest of the nation.
Plus, McCarty conceded all rate filings are allowed to include some percentage of profit for private insurers.
Sean Shaw, the former insurance consumer advocate for the state, put the blame on the Florida Legislature for siding too often with the insurance industry.
“The senior citizen living on a fixed income simply can’t keep paying increase and increase with no real explanation,” said Shaw, who is now an attorney with a Tampa firm that represents policyholders. “When will the consumer stop taking it on the chin and when will the Legislature say enough is enough?”
Insurance industry officials argue insurers in the past did not charge adequate rates to deal with the real risk of covering homes in hurricane-prone Florida. The fragile nature of the market has been exposed by storms such as Hurricane Andrew in 1992, a Category 5 storm that destroyed much of the South Florida city of Homestead, and the series of storms that battered the state in 2004 and 2005.
Burt, using data collected by McCarty’s office, contends that while the average premium has gone up since 2007 that the actual coverage provided to homeowners has also gone up. Burt said that means the average premium per $1,000 in property value has actually gone down during that time period.
Insurance companies, by law, cannot raise rates in order to recover money paid out during a storm.
But practically speaking, a large hurricane can still trigger rate hikes. Large storms and huge damages can prompt reinsurers based outside the state to raise their rates, which translates into higher costs for the insurers covering homeowners.
“If there are no hurricanes, those guys are happy, happy, happy,” said Burt, whose Ormond Beach-based company has about 180,000 policyholders.
Burt added that insurers need to purchase adequate reinsurance each year to make sure they have the resources in a case a big storm strikes the state.
“We don’t want to be a thinly capitalized Florida company that is going to blow away when the wind blows,” he said.
The reason Burt and McCarty predict rates may stabilize is that reinsurance costs declined this year.
But that may not be enough for the roughly 1 in 5 residential policyholders who belong to Citizens.
Citizens insures older homes as well as homes in hurricane risky coastal areas. Citizens has also pretty much become the only insurer available in sinkhole prone areas such as Hernando and Pasco counties said John Reddin, who runs an insurance agency in Spring Hill.
A big debate this past legislative session centered on whether Citizens is charging enough to cover its risk.
Citizens’ rates – for most types of coverage but not all – cannot go up more than 10 percent a year. Some legislators such as Sen. David Simmons argued that Citizens rates are distorted and that the law needed to be changed to allow rates to go up higher for some customers.
In the end, the sweeping legislation pushed by Simmons was not adopted. But Citizens will likely file for another series of rate hikes later this summer that will take effect in 2014.
Source: The Associated Press, Gary Fineout. All rights reserved.