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As insurers win more rights to raise rates, real loser may be Florida's struggling housing market

Here's a rite of passage Florida homeowners know well. My insurer is dumping me.

It now recommends a policy from another provider priced so much higher that it will cost more per year than my mortgage payments. I'm not the first Florida homeowner to run into the financial perversion of mandatory insurance threatening to become the biggest expense of home ownership. Nor will I be the last.

When word spreads of how much it will cost to insure homes with mortgages, as required by lenders, more people are going to rethink the money logic of owning a home in this state.

Less than two weeks before the official start of hurricane season, the lobbying stars are aligning for the insurance industry. Our Tallahassee leaders approved legislation that the industry claims is long overdue and will help stabilize the property insurance market. Maybe the growth of buildings and people in Florida is so great that a Category 5 hurricane smacking a major metro area now demands far more money to cover costs than we've ever imagined.

If that's true, many Floridians already cash-strapped by unemployment, a dearth of raises and a slow-recovering economy distinguished by jobs with lower-than-ever wages are in for a rude awakening.

In practical terms, the new state law empowers insurance companies to raise premiums by up to 15 percent a year for reinsurance costs without the normal oversight required for rate hikes. Odds are good we'll see those rate hikes soon.

Also, the new law means policyholders must file claims faster — within two years for sinkhole claims and three years for hurricane claims, down from the current five years. And (hold on to your checkbook) insurers now can withhold full payment for home damage claims until the work is performed and expenses incurred, unless a home has been destroyed.

Now it's not as if the insurance industry is sitting back declaring victory and counting its billions. Well, not entirely. Other pressures are at work here.

Earthquakes in Japan and New Zealand, flooding in Australia and the extreme tornadoes in this country's southeastern states are expected to cost the reinsurance industry — where insurance companies buy added insurance for extra protection — in excess of $44 billion. That's expected to spur higher reinsurance renewal rates charged to Florida insurers this summer.

Eventually, it all gets passed on to the customer.

The "big three" companies that do hurricane modeling for insurance companies — AIR Worldwide, Risk Management Solutions and EQECAT — can vary widely on the probability and impact of catastrophes. RMS recently revised its model to emphasize the threat of higher wind risks farther inland, and reassess construction and roof types, heightened building vulnerability and increased losses due to storm surge.

Likely effect? More reasons for insurers to raise rates.

Here's a final insult. While insurance premiums are set for renewed liftoff, Florida home prices continue to decline and in many markets still have not hit bottom.

State leaders may be stabilizing Florida's insurance market by further destabilizing Florida's struggling housing market. Some tradeoff.

Contact Robert Trigaux at trigaux@sptimes.com.

As insurers win more rights to raise rates, real loser may be Florida's struggling housing market 05/18/11 [Last modified: Thursday, May 19, 2011 5:51am]

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