Get ready to dig deeper for home insurance

By Jennifer Liberto, Times Staff Writer
In print: Thursday, May 15, 2008

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TALLAHASSEE — Floridians' bill for the 2004 and 2005 hurricanes is about to grow another $600-million.

The state catastrophe fund, which sells cheap reinsurance to insurers, needs to collect roughly 45 percent more than the $1.35-billion originally estimated to pay claims.

Floridians are already paying 1 percent of their auto, boat, motorcycle and homeowners insurance premiums for bonds sold to cover the original estimate. That started in 2006 and was supposed to be done by 2011.

But it's not enough. State leaders are expected later this month to seek another $600-million in bonds to pay claims and to levy additional assessments to pay them off.

The sobering news highlights what critics of Florida insurance policy have long said: that the state's reliance on government-backed entities like the CAT fund and Citizens Property Insurance Corp. to keep property insurance prices lower leaves Floridians with too much risk when storms hit.

In fact, Floridians face significantly more post-storm risk today than they did when the 2004 and 2005 storms hit because of changes to Florida's insurance code since then.

The news comes as Floridians are already coping with higher gas prices and a record number of homes in foreclosure thanks to a sluggish economy.

"It's certainly not a good time to be telling homeowners they've got a $600-million tax increase in addition to what they were already paying," said Chief Financial Officer Alex Sink.

Sink, a Democrat, has unsuccessfully pushed to cut risk in the catastrophe fund, only to fail because lawmakers feared the move would increase rates. When insurers buy reinsurance at a higher price in the private market they can pass the cost onto policyholders.

"It proves the point: We're three years later, and we're still assessing taxes related to losses from three years ago," Sink said.

Republican Gov. Charlie Crist, one of the major proponents of increasing the state's reliance on government-backed insurance entities, could not be reached for comment Wednesday.

If the exact same storm season were to hit again, taxpayers would be on the hook for roughly $11-billion, instead of the $1.35-billion currently bonded, because legislative changes have increased the availability of state-backed reinsurance, CAT fund senior officer Jack Nicholson said during a catastrophe fund advisory council meeting Wednesday.

Later this month, Sink, Crist and Attorney General Bill McCollum, acting as the fund's board, will vote on whether to allow the catastrophe fund to bond about $600-million more.

And they're expected to extend the period of the 1 percent annual assessment rather than increase the assessment to avoid public outcry, according to Cabinet and SBA staff. So the assessments would stretch over seven or eight years, instead of six.

But for insurance policyholders, it comes on top of an already significant burden from the 2004 and 2005 storms:

• Every Florida policyholder of liability insurance, including auto, has been assessed a 2 percent fee on their premiums three times in the past two years to cover unpaid claims from Poe Financial Group, the Tampa insurer that went belly-up.

• Starting last year, home insurance policyholders have been assessed an annual 1.4 percent fee to cover losses for Citizens. The assessment will last 10 years.

It's not clear, exactly, why the original estimates for the CAT fund's losses were so off. It's called "adverse development." Part of the problem is that insurers' initial estimates of their losses were underestimated.

However, many are blaming a new cottage industry that has popped up, especially in South Florida, where old hurricane claims get reopened, sometimes fraudulently.

Advisory Council member Robert Peduto of the reinsurance giant Swiss Re said he was "hard pressed to believe" that a significant amount is coming from reopened claims.

Yet, Citizens and State Farm, the two biggest purchasers of the state's reinsurance, both report seeing an uptick in reopened claims.

The 2008 Legislature briefly considered cracking down on public adjusters who have a financial incentive to reopen or inflate claims, but did little. Adjusters get paid a percentage of the claim.

Citizens has 550 claims still "pending," many of which are from 2005's Hurricane Wilma, said spokesman John Kuczwanski. It's unclear how many of those claims have been reopened by public adjusters, he said.

State Farm Florida also has a large number of claims that have been reopened, said Mark Delegal, a Tallahassee lobbyist for State Farm. Delegal blames "trial lawyers, public adjusters and politicians who are capitalizing on an anti-insurance sentiment."

The move to increase assessments for such old storms makes consumer activists nervous about what lies ahead should hurricanes hit this summer.

"It's another indicator to me that we need private reinsurance," said Bill Newton of the Florida Consumer Action Network. "I know it's more expensive, but it would be worth it."