Insurance – up, up and away
Here’s the definition of insurance, “The equitable transfer of the risk of a loss from one entity to another in exchange for payment." Sounds fair. You pay a third party to insure your property in the event that you have a loss. The only problem is that nothing is ever that simple.
At the end of June, Citizens, the state owned insurance of last resort, voted at its board meeting to increase rates by about 7.5 percent for next year. When approved by the state Office of Insurance Regulations, which will invariably happen, the standard “multi-peril” homeowner’s policy will increase on average $110 statewide and $150 in Sarasota and Manatee Counties.
This will be the fifth straight year Citizens has increased its rates. Since 2009, rates have increased 43 percent for the 1.26 million policies it carries including 80,000 in Sarasota and Manatee. This is in spite of a current $6.3 billion surplus in its coffers, which it claims still puts it in an underfunded position. The primary reason the rate freeze was suspended in 2009 was a response to private insurers that the freeze made Citizens too attractive for customers keeping them out of the private market.
By now, there is no secret that Citizens is actively attempting to remove policyholders from its roster. Citizens’ policyholders are being transferred to private insurance companies without their approval or prior knowledge. If you do not want your policy to go to one of the new companies, you have to affirm to Citizens that you want to stay with it. Basically these homeowners are being forced to opt in if they want to keep Citizens Insurance. Otherwise, they will automatically go to a new insurer.
In addition, Citizens will not be insuring homes valued at more than $1 million starting next year with that figure being lowered by $100,000 annually to a maximum value of $700,000 by 2017. Homeowner’s whose properties exceed this limit will be forced to purchase additional private insurance for the uninsured portion of their Citizens policy.
Anna Maria Island residents also are starting to feel the impact of the Biggert-Waters Flood Insurance Reform Act of 2012. The goal of this law is to phase out many of the nation’s subsidized flood insurance policies. Vacation homes and business will bear the brunt of the increase in premiums with a possible 25 percent annual increase continuing until the rates are high enough to be at an actuarially sound level.
Also beginning Oct. 1, 2013, owners of properties that have experienced severe or repeated flooding will be subject to a 25 percent rate increase annually until rates reflect the true risk. Since the flood maps are being redrawn by FEMA, each property’s risk could be different and a conversation with your insurance broker should help explain the impact on you individually.
There are more than 2 million flood insurance policies in force in the state of Florida, where homeowners really understand the need for flood insurance. Never-the-less there are homeowners who will drop their coverage because of the increase in premiums. However, if you have a federally backed mortgage, Fannie Mae or Freddie Mac, the mortgage lender will require that you purchase flood insurance if you live in a special flood hazard area. This is exactly the same as your mortgage lender requiring that you carry homeowner’s insurance to cover the property in the event of a fire or other unusual event.
Putting what for most people is their largest investment in the hands of a third party who keeps changing the rules can be at the least a little intimidating. Unfortunately, that’s the world we live in in southwest Florida and most of us wouldn’t change a thing.