Solution For Cheaper Insurance, First Make It More Expensive

Warm sunshine. Sandy beaches along an alluring sea. Salt air. The price for all that many love about Florida is going up.

Saying essentially that Floridians have been underpaying for property insurance for years and just didn’t realize it until the last two frenzied hurricane seasons, legislators doled out some tough medicine. They said the remedy to years of not paying enough is obvious _ many must pay more.

That’s surely going to come as a shock to millions of Floridians already whacked by stunning increases in their insurance bills.

And it’s a hard-to-swallow idea: to make things better for Florida insurance customers, things are going to have to get worse.

“There wasn’t any way for anybody’s rates to go down,” said Lt. Gov. Toni Jennings, who spent the last several days representing Gov Jeb Bush in trying to work out with lawmakers a way to get the state’s insurance situation right before it gets hit with another three- or four- storm season.

The bill passed late Friday, just before midnight on the last day of the annual legislative session, is headed to Bush’s desk, leaving even many of the legislators who voted for it worried about the affordability of windstorm coverage. Opponents saying the “fix” will make things worse for the average Floridian.

The measure basically aims to entice private insurance companies to cover more property here. The more companies that do, the more choices consumers would have and, theoretically, the lower premiums should go.

Insurance company officials generally praised the bill, but even they acknowledged that it’s not clear whether the plan will bring insurers racing to Florida to cover the risk of losing a house in the next Katrina.

“It will take some time to see,” said George Grawe, Allstate Insurance’s Florida counsel.

After Hurricane Andrew devastated the Homestead area in 1992, a number of things were done to try to shore up the market. Among the things that have been done to make it more likely companies will sell here were the creation of the Florida Hurricane Catastrophe Fund, essentially a big backup fund underwriting the insurance companies, and the creation of Citizens Property Insurance Corp. Citizens, which is backed by all Florida homeowners who pay insurance, no matter who their carrier is, sells insurance for property the private market won’t touch.

Now, Citizens and the Cat Fund, as the Catastrophe Fund is known, are unable to do what they were intended to do and both are facing deficits.

The law requires that Citizens charge more than private companies, because it’s supposed to be a last resort only for those who can’t get private coverage. But with private companies leaving, Citizens has ballooned to have more than 800,000 Florida policies, making it the state’s second largest insurer.

But despite being the most expensive insurance, after the last two years, policy makers have realized it apparently hasn’t been charging enough in premiums, because it doesn’t have enough to cover all its losses.

That means that for the large number of Citizens customers, insurance is more expensive, and more and more people are facing the prospect of being Citizens customers. Now, pretty much anyone who lives on the coast has only that option.

And it also means higher costs for everyone else, because when Citizens comes up short, all Florida homeowners face assessments on their bill to make up the difference. That was set to be about a hit of about $200 per $1,000 in premium this year.

The bill passed Friday will fix that. It puts $715 million of state tax dollars into Citizens as a short-term shore up that will greatly reduce those assessments. The Legislature also voted to spread out the hit over a decade, meaning the same homeowner would face an assessment of about $10 a year instead of the $200.

Future assessments, if they’re needed, will also be easier to take under the bill. If the company comes up short in the future, seasonal residents and businesses would be asked to pay a 10 percent assessment first. Everyone else would only get hit if the first assessment isn’t enough to cover the deficit.

The assessment provisions will be about the only good news in the short term.

Rates, especially for those people in Citizens, will go up. Lawmakers allowed Citizens to gradually ramp up premiums. In the company’s high-risk pool, the rates will more than double, eventually.

Other companies will be able to get higher premiums in some cases, too, although much less than Citizens. Small companies will also get easier access to the Cat Fund, a provision aimed at enticing more of them to do business here.

Eventually, with things better for the companies, more of them should come, House Speaker Allan Bense said.

“Our bill focuses on availability, bringing more insurance companies into Florida,” said Bense, R-Panama City. “If you’re longing for a short-term, three-month rate drop, it may not happen. But I think long-term we’ve done something good.”

Another major provision is intended to avoid big insurance company losses by helping people avoid major damage and therefore file fewer claims. The bill includes $250 million for a grant program to make houses sturdier.

But in the immediate future, it is likely to cost most people a bit more to live here, and that will be what is on everyone’s mind, fear the politicians.

“I think windstorm is going to be the huge issue this election cycle because it actually affects people on a daily basis,” said Rep. Dan Gelber, D-Miami Beach, who voted against the bill, and who incidentally is a customer of Citizens Property like pretty much everyone on that barrier island.

“They’re going to have to decide on a different car to get, what college to send their kids to, how much to spend on their birthday parties, it affects the pocket books of millions of Floridians,” Gelber said. He argued the measure does too much to help the industry, and didn’t provide enough relief for the people paying the skyrocketing premiums.

“My colleagues had to choose between consumers and insurance companies and they chose insurance companies,” Gelber said.