Florida Lawmakers Give Property Owners a Break

Property owners in Florida may have averted a worse crisis with property insurance. Florida lawmakers at least seem to have given them a break.

At least that seems to be the intent of lawmakers. Private insurance companies are raising rates and leaving the state at an alarming rate.

Citizens Insurance Corp., the insurer of last resort, was granted $715-million by lawmakers from the state’s budget surplus. Citizens is $1.7 billion in the red after the last two years hurricane seasons.

The insurance reforms taken on the last night of the lawmakers legislative session is short on substance toward solving the huge problem.

Should hurricanes damage property in Florida this hurricane season, the method of reducing Citizens debt will be different than it is now. Under the present system all Florida policyholders pay the tab. Effective July 1, 2008 homes valued at $1 million or higher cannot be insured by Citizens unless the property has been rejected for coverage by at least one authorized insurer and at least three surplus line insurers.

Both Democrat and Republican leaders were stalemated just one day before passing the final version of the bill to help bailout Citizens.

The law passed by both houses will also allow insurance companies to raise rates by 5% quicker than before. "There will be a rate increase under high-risk accounts," warned Rep. Dennis Ross, R-Lakeland, a chief negotiator of the compromise.

Florida’s insurance crisis didn’t start with the past two year's hurricane seasons. Hurricane Andrew hit Southern Florida in 1992 causing an insurance crisis of massive proportions and the problem has never been fully resolved since then.

The series of hurricanes shrank the property-insurance market. Many companies have stopped writing policies in Florida. Citizens is teetering on fiscal collapse as the next hurricane season approaches in need of an additional $1.7 billion to cover risks it has assumed.

State lawmakers expect the state to step in and save Citizens with a bail-out if further pay outs are warranted.

Lawmakers were stymied by Florida's diversity and the complexity of the insurance market, according to the state’s Chief Financial Officer Tom Gallagher, who is running for governor. Lawmakers were forced to decide whether to hit homeowners with another round of hefty rate increases or risk disaster by risking another hurricane season without shoring up the state-run pool. The lawmakers chose to allow a little of both, providing just $715-million for Citizens.

Gallagher blamed both the insurance industry and the weather for the mess. Residential real estate insurance policies have long been regarded as under-priced.