Florida Insurance Customers Must Read.
 

TALLAHASSEE, Fla. -- Florida's hurricane fund, a state-created pool intended to help insurers after disasters, is confronting a potential $3.2 billion shortfall.

Turmoil in the world financial markets - as well as an unsteady and weak economy - mean that right now it is unlikely that the fund could borrow all the money it needs to help after a hurricane.

"The fact is that when you look at the world economy we're in a very uncertain environment," said Jack Nicholson, the chief operating officer of the fund on Tuesday.

The fund was created after Hurricane Andrew devastated South Florida in 1992. Insurers purchase coverage from the fund to help to pay homeowners if a storm results in widespread damages. The fund plays an important role in how much consumers pay for property insurance in Florida because it provides a low-cost backstop to insurers.

But the fund doesn't have enough cash on hand to meet all of its obligations in the event of a big storm, or worse, a series of hurricanes. So the fund must go out and borrow what it needs.

Just how much the fund can borrow, however, has gyrated wildly in the last three years, as the recession and debt crisis fears have made borrowing large sums of money more uncertain.

"We used to think we could bond for $55 billion in multiple hurricane seasons," Nicholson said. "That's fairy land now."

This year the fund is providing $18.4 billion worth of coverage. It should have more than $7 billion of cash on hand by the end of the year, but it would still need to borrow another $11 billion if a storm were to strike.

But new estimates drawn up by financial experts, including some of the nation's most prominent financial firms, suggest the fund could borrow just $8 billion over a 12-month period. An advisory panel on Tuesday formally approved the new estimates.

The new figures, however, do suggest that the fund - formally known as the Florida Hurricane Catastrophe Fund or "the Cat Fund"- could borrow an additional $6 billion during a period one to two years following a major storm.

"The Cat Fund does not need to do all of its bonding at once," said John Forney, managing director of Raymond James and the financial adviser for the fund.

The good news is that the 2011 hurricane season is almost over and so far the state has avoided any major hurricanes.

And Nicholson stressed that there is only roughly a four-percent chance that the fund would need to borrow the full $11 billion.

Still the news about the fund's financial strength could lead to yet another battle in the next few months in the halls of the Florida Capitol.

Nicholson has already told legislators that he thinks the fund is "dangerously overexposed" due to the recent market gyrations and he wants lawmakers during the 2012 session to scale back the size of the fund. Some key Republicans, including Gov. Rick Scott, support that idea.

But any reduction in the state's hurricane fund would likely cause insurance premiums to rise during a crucial election year.

Every insurer currently in Florida is required to purchase coverage from the fund. Nicholson estimated that this low-cost option probably results in insurance premiums being about 25 percent cheaper.

Sen. Mike Fasano, R-New Port Richey, said he would rather side with homeowners since there's only a four-percent chance the fund would run out of money.

"We need to look out for the little guy and gal, they can't take any more economic hits," Fasano said.

Some legislators, however, have fretted about the financial strength of the fund.

That's because if the fund is forced to borrow money it pays off its debts with an assessment or what some call a "hurricane tax," that is placed on nearly every insurance policy in the state, including auto insurance policies. Right now, homeowners and drivers in Florida are paying off charges due primarily to Hurricane Wilma from 2005.

Yup all we have is Citizens (that's the fund)

Hi Marc-

Not necessarily. We have been very successful in placing FL customers with propritary insurance companies at very resonable premiums with MUCH better coverage than Citizens. This includes lower wind deductibles and better valuations.

The real concern is that while customers are pumping premium $$ into Citizens, there is significant doubts that in the event of a major storm, there may not be enough money to pay for all the damage with the FL fund leaving Citizen policy holders without help in a time of need.

If you want to explore options, I am available to you.

Michael

Some more information for your review. If you purchase FL wind insurance, you will want to explore options.
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Nov. 19--Citizens Property Insurance Corp. is confronting a growing dilemma -- it has too many customers. Already the largest property windstorm carrier in Florida, the quasi-public agency finds itself caught between two hard places in Tallahassee.

And depending on how the push-and-pull plays out in the Legislature, Keys property owners could find themselves paying a lot more for windstorm insurance -- if they can even get it down the road.

Citizens' board of governors met in Orlando on Monday and decided to formally embrace a package of rule changes that would mean rate hikes of 20 percent a year and a possible cap on maximum coverage.

Both steps could eventually reduce the number of policies in force, which is high on Gov. Rick Scott's agenda for reducing the state's exposure in the event of a catastrophic hurricane. He's even talked about moving Citizens from government to the private sector.

But Scott and the Cabinet met Tuesday and heard a report from the Florida Hurricane Catastrophe Fund, which reported a $3.2 billion shortfall in meeting the goal of a $17 billion backup fund for claims in the event of a hurricane.

Jack Nicholson, director of the fund, said uncertainty in the global investment market makes it difficult for the state to sell bonds that would close the gap.

The Catastrophe Fund would be tapped to pay off hurricane damage claims that overwhelm reserves held by Citizens Property Insurance and other carriers.

Nicholson recommended the state continue to levy a 5 percent cash buildup provision until 2018. "We're dealing with a house of cards based on the global market," Florida Attorney General Pam Bondi warned at Tuesday's Cabinet meeting.

Michael Peltier, covering that meeting for the News Service of Florida, reports that "one offshoot of the CAT fund's precarious status is to push more policyholders toward the state-backed Citizens Property Insurance Corp., which now has nearly 1.5 million policies."

That runs counter to the message the Citizens governing board heard on Monday and counter to the direction that Scott has been pushing the past year.

"This concept of wanting to sell [off] Citizens, I just don't get it," said Annalise Mannix, executive director of Fair Insurance Rates in Monroe. "His idea of giving it back to the private insurance market -- those are the same people who didn't want it in the first place."

She notes that as private, for-profit insurance companies pare back their policies in Florida, Citizens has found itself the insurer of last resort. And the load is getting bigger, not smaller, she said.

"Citizens is now getting upwards of 9,000 new customers per month," Mannix said. "And these are not people living on the coast. These are people inland where insurance companies are just walking away from them."

The debate about how big Citizens is now and how much that exposes taxpayers has been heating up this past year.

Mannix said the mandate for Citizens is pretty clear: "Citizens has been told it needs to depopulate; the more policies they have, the higher the risk. Now the question is how to ditch a bunch of policies."

Sen. Alan Hays (R-Umatilla) helped author an insurance bill package that failed to make it out of committee early this year. Included in his proposals, which the Citizens board embraced Monday, is a recommendation to ban commercial properties from Citizens windstorm coverage.

That would reduce the number of policies pretty quickly, Mannix said, but it would have an adverse impact in areas like the Keys, where there is virtually no alternative windstorm insurer.

Mannix said lawmakers looking at Citizens' risk projections should be challenging the risk models being used, noting that the Florida Commission on Hurricane Model Methodology has conceded current models "are not accurate."

She said the models assume greater damage from windstorm than flooding, which has not been the case in the Keys, where most of the damage from hurricanes comes from flooding.

And flood insurance, she notes, is covered under a federal program that has no bearing on what Citizens faces in future claims. "None of the models deal with this issue of wind vs. flood in a real way," Mannix said.

Last year, Citizens filed a rate increase that would have triggered hikes of as much as 235 percent for commercial coverage, according to FIRM's website. Those rates are based on faulty assumptions about future losses, she said, adding the Legislature's primary duty this upcoming session should be "fix the models; it's not hard, although it will take two years."

i purchased my house in dec 2006 and had citizens but i believe that a yr later citizens punted me to american integrity insurance and ive just kept that not knowing if its any good or not, as i dont know much about insurance except thati have to have to satisfy my loan requirements

is there anything i should do

Yes, you need to make sure you have the property protection and the proper coverage including:

1) Policy language. Do you know what's covered and what's excluded?
2) Wind deductible? What is it? How does it apply? Is it flat or a percentage? If it's a percentage, is it a % of the wind claim or the home amount?
3) What is the rating of American Integrity? Do they have sufficient assets to coverage all their policy holders in the event of a major hurricance?
4) Are all your valuables covered? Watches, jewelry, etc. require special coverage and are NOT automatically included in your homeowners.

These are just a few things to consider off the top of my head. We are happy to review your current policies and make suggestions.

Please contact me if you have any questions.