In my position, I am often asked many questions about the insurance industry in Florida. One topic that continues to be a hot button is homeowner’s insurance.

  • What is the latest in legislation?
  • How will proposed laws affect my policy rates?
  • Why don’t more insurance companies offer homeowner’s policies in Florida?

For a consumer, keeping up on this fast changing industry can be very confusing. To understand the state of the industry, we must first understand the current legislation and proposed bills that will directly affect it.

For example, at present some government officials are fighting to add wind coverage to the National Flood Insurance Program. Proponents argue that adding wind coverage would benefit consumers by eliminating gaps in coverage. However, those opposing the bill believe that adequate wind coverage exists in the private market and that the program will go into additional debt leaving taxpayers to pay the costs in the long run.

If the wind coverage debate seems complicated, consider that it is just one issue on the table. Here is a brief overview of each of the bills:

H.R. 5114: Known as the Flood Insurance Priorities Act of 2010. The bill is sponsored by Rep. Maxine Waters and is the main bill.

Among the amendments, H.R. 5114 proposes to:

  • Increase the maximum aggregate amount of insurance coverage
  • amends NIFA to set forth a five-year phase-in of flood insurance rates for newly mapped areas
  • set minimum deductibles for claims for flood damage to pre-FIRM properties
  • and requires FEMA Administrator to report to Congress on the plan to repay certain flood insurance debt within 10 years as well as report on the impacts of the Act on the financial soundness of the national flood insurance program. (Source: OpenCongress)

H.R. 1264: Sponsored by Rep. Gene Taylor, this bill specifically seeks to add wind coverage to the National Flood Insurance Program. In other words, the bill would enforce multi-peril coverage including windstorms and floods. In July 2010 the bill passed the House. (Source: GovTrack Insider)

S.B. 2044: Although this bill was vetoed by Gov. Charlie Crist earlier this year, it is important to note because it was the major bill at play.

It is credited as a bill that focused on “consumer protections” with regulations such as

  • increasing surplus and capital requirements for insurance companies
  • and requiring companies to receive permission form the Office of Insurance Regulation to raise rates. (Source: Grady, SunSentinel)

At first glance it would seem that the aforementioned bills would in fact protect consumers. After all, property damage from wind and floods is a serious concern in Florida. Fortunately, the last few hurricanes seasons have been relatively mild. But what happens when our luck runs out?

When natural disasters occur, one of the first places people go to for help are their homeowners insurance companies and yet the reality of our current economic market is that companies are opening and closing doors every day.

When a company goes out of business, policyholders must then scramble to attain new property insurance. It’s no wonder that consumers are frustrated. I agree that something needs to change, which is why I encourage people to look at the big picture.

It is no mistake that major insurance providers have pulled out of the homeowner’s insurance market in Florida. How did we end up in this predicament?

While many factors are to blame, consider Florida’s current laws. As it stands, consumers can make a claim on property damage for up to five years after a storm.

That means that the insurance companies are still paying claims from 2005’s Hurricane Wilma and according to recent statistics, the total for those claims is closing in on the total payouts made from Hurricane Andrew. When you consider that Wilma was significantly weaker than Andrew and that other states limit claim period to two years, you can begin to see why insurance companies have fled Florida. (Source: Shah, Miami Herald.)

Furthermore, because we’ve been lucky enough to have not been hit with a major storm in several years, companies are still able to pay for small claims. What is concerning to the insurance industry, is that in the event that a major disaster strikes Florida or worse, two major disasters, the funds may not be available due to low-cost policies.

What’s the answer? It would make sense to give insurance companies a chance to compete in Florida. By paying higher homeowners insurance policy rates, consumers would open the door to increased competition among major insurance companies, which will ultimately benefit us, the consumers.

The greatest benefit is that policy holders will know that should a major natural disaster strike in their city, the insurance companies will have the funds to pay their claims. Bigger companies generally have more experience and are well structured.

The bottom line is that in today’s economy everyone is doing their best to try to figure out how to turn it all around. While I am not sure that any one person has the right answer, I know that I would rather pay a little more for my policy and know that the coverage is there when I need it, vs. pay low policy rates and find out that the funds are not there after a major natural disaster strikes.

Ellsworth Buck is the vice president of GreatFlorida Insurance.

 

References:

OpenCongress for the 11t1th United States Congress. (2010). H.R.5114 – Flood Insurance Reform Priorities Act of 2010. Retrieved from http://www.opencongress.org/bill/111-h5114/show

GovTrack Insider. (2010). H.R. 1264: Multiple Peril Insurance Act of 2009. Retrieved from http://www.govtrack.us/congress/bill.xpd?bill=h111-1264

Jeffrey Grady. (2010, June 21). Gov. Crist’s veto of SB 2044 hurts Florida. SunSentinel. Retrieved from http://articles.sun-sentinel.com/2010-06-21/news/fl-forum-home-insurance-20100621_1_state-s-largest-private-insurer-office-of-insurance-regulation-insurance-commissioner-kevin-mccarty

Nirvi Shah. (2010, October 24). Five years after Wilma, South Florida asks: Are we covered? Miami Herald. Retrieved from http://www.miamiherald.com/2010/10/24/1887240/five-years-after-wilma-s-florida.html