Lake Worth, FL (PRWEB) April 5, 2010
The price of home insurance in Florida is increasing and the large national companies have mostly left the state leaving Floridians to choose between under-capitalized start-ups and the state run Citizens. MyFloridaInsurance.info is working to create awareness to the home insurance nightmare and what can be done to correct it.
With homes prices still decreasing in Florida, consumers have to wonder why home insurance premiums keep increasing. There hasn't been a major hurricane to cause significant damage since 2005, yet insurance companies continue to raise rates when the rest of the economy is struggling. Ever wonder what the Florida Catastrophe Fund (CAT Fund) is and why it isn't working? What about what Citizens Property Insurance of Florida was supposed to accomplish and what role it plays today. Why home insurance companies in Florida continue to lose money, and what the Consumer Choice bill aims to correct.
The state of the Florida Hurricane Catastrophe Fund (FHCF) also known as the CAT Fund is in financial crisis. The state requires all Florida home insurance companies to purchase reinsurance. Reinsurance is insurance for insurance companies, which companies buy from the FHCF at a "discounted" rate instead of seeking coverage from the global private market. The idea was to keep hundreds of millions of dollars from leaving Florida. The problem is that the global market spreads the risk whereas the FHCF or Florida CAT Fund is assuming nearly all of the risk and subsequently over-exposed. The FHCF has around $26 billion in exposure and only $4.5 billion in claims paying ability. Obviously those numbers are much too distant. Consumers may be unaware that they pay into the Cat Fund through emergency assessments from 5 years ago. It is a percentage of our premium and if we own multiple policies they will pay multiple times. Even today there are at least another 5 years left in paying off this emergency assessment. With this shortfall of $21.5 billion should a major hurricane devastate Florida, every policyholder can expect more of these taxes on their insurance policies for another 10 years or more. As much trouble as the FHCF is in, it is nothing compared to Citizens!
Citizens Property Insurance Company has gone from being the state-owned insurance company of last resort to the largest home insurance company in Florida. Citizens insures over 1 million homes, condos, rentals, mobile homes and businesses in Florida. And Florida Citizens keeps growing at over 5,000 policies a month. The total policies in force in South Florida (Dade, Broward, Palm Beach & Monroe counties) alone total 444,842 as of March 2010. This means nearly 45% of all Citizens of Florida policies are in South Florida. Citizens Florida insurance has an exposure of $413 billion. The amount of claims paying ability they have in the bank is $4 billion. The dire financial distress of Florida's largest property insurer could bankrupt the entire state of Florida and send our elected officials running to the Federal government seeking a bailout (remember that the feds have already turned down a previous request for a bailout last year).
In the past year 4 home insurance companies in Florida have gone out of business while 102 out of 210 Florida property insurers have reported underwriting losses without a single hurricane. Recently, Magnolia, which was the 12th largest Florida home insurance company with $24 billion in exposure was taken over by regulators. The serious problem in Florida comes from the Florida Office of Insurance Regulation and Governor Charlie Crist's artificially low rates that can't sustain the exposure for which they insure. Companies need to make money to operate and pay claims. If these Florida home insurance companies are losing money every month, it won't take long to run out of money. If we owned a business that was costing us $5 million a month to operate and we were only earning $2 million, how long would we last?
There is an answer though. It may not be glamorous but it's effective. The free market system allows competition and the amount of risk to determine the prices for property protection in Florida. There is a bill designed to do just that nicknamed the Consumer Choice bill. This bill allows rates to return to actuarially sound levels, meaning the premium collected is justified by the amount of risk a home carries. Just recently former Florida Governor Jeb Bush showed his support of the Consumer Choice bill and expressed a strong desire to see it pass. The Consumer Choice bill passed both the House and Senate last year with roughly 80% in favor of it, only to have Gov. Crist crush it with a veto. Government cannot tell a company how much to charge if it means forcing that company and the state into bankruptcy and placing additional taxes on policyholders. The benefit of this bill to Floridians is that consumers will have a choice between an unregulated rate from a Florida-based or large National company, and those of the rate and state controlled Citizens Property Insurance Company. It is also believed that all home insurance companies operating in Florida should buy its reinsurance from the global private market. The poor FHCF is in no condition to carry the entire risk of Florida on its' shoulders. Please visit http://www.MyFloridaInsurance.info for more information and updated news on home insurance in Florida.