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Mild hurricane season won't save homeowners from higher insurance rates

Hurricane season has spared Florida homeowners so far this year, but they'll have trouble dodging a more imminent threat: hefty increases in insurance rates.

A half-dozen property insurers have recently filed or been approved for rate increases from 7 to 19 percent. Including a pending rate hike by Citizens Property Insurance and discarded discounts by State Farm, Floridians insured by four of the five biggest property insurers could face steeper premiums.

And more insurers are expected to follow suit.

"Everybody is planning for rate increases," said Peter Prygelski of 21st Century Holding Co., the parent of Federated National Insurance. Federated received approval this week to raise homeowners' rates an average of 19 percent.

Florida Insurance Commissioner Kevin McCarty said Thursday that each insurer's circumstances are different and that each filing will be considered on its own merits. Speaking in general terms, the commissioner said the insurance industry can make a compelling case to justify raising rates.

"They're not generating enough revenue. They're not making adequate profits," McCarty said in a meeting with the Times' editorial board.

McCarty acknowledged that property owners will struggle with how insurers can justify raising rates after three mild hurricane seasons. Driving rates higher, he said, are several factors far removed from the amount of claims insurers are paying out.

For one, the cost of reinsurance — an extra layer of insurance that property insurers buy to shield themselves from catastrophic losses — is up about 15 percent industrywide.

Catastrophes outside Florida played a role in higher reinsurance, but so did financial turmoil in the stock market, McCarty said. By law, insurers aren't allowed to try to recoup investment losses through higher premiums. The same restriction, however, doesn't apply to reinsurers eager to rebuild any dent in their reserves caused by soured investments.

Insurers are also seeking higher premiums to offset loss in revenue caused by giving state-mandated discounts to those who have taken steps to harden their homes against storm damage.

Prygelski, the chief financial officer for 21st Century Holding, a South Florida insurer with fewer than 1,000 policies in the bay area, estimates doling out mitigation credits has cost the company about $20 million in lost premiums over the past 18 months, or about 26 percent of its total premiums.

Many homeowners have welcomed the mitigation discount program as a price break for taking steps to limit wind damage to their properties. But critics have charged that the program is too broad and too unstructured. One concern is that the responsibility to send in mitigation documents rests with homeowners, not inspectors, which some fear increases the risk of fraud.

Among insurers who have pending rate requests are United Property & Casualty, Liberty Mutual, Universal Property & Casualty, St. Johns Insurance, American Integrity and two sister companies, Southern Fidelity and Capitol Preferred.

Homeowners covered by the state's two largest insurers are already facing either rising rates or lost coverage.

The largest insurer in Florida, state-run Citizens Property Insurance, is ending its three-year rate freeze. Effective Jan. 1, Citizens' rates are rising 10 percent for most of its 1 million policyholders, the first step in what the company sees as a multiyear effort to build reserves through higher rates.

The second-largest insurer, State Farm, is negotiating a withdrawal from Florida's property insurance market. Amid the negotiations, however, the company recently was allowed to eliminate some long-standing discounts for customers.

The lost discounts translated to premium increases for homeowners of as much as 28.4 percent. State Farm said the move, which would bring it an additional $278 million in premiums, was necessary to stay solvent as it slowly pulls out.

State Farm and McCarty's office have been at odds for months over terms of the company's withdrawal. An administrative hearing to air the dispute has been moved back twice and is now scheduled for mid December.

McCarty on Thursday would not explicitly address any progress made in talks with State Farm, citing confidentiality rules. However, he acknowledged his office hopes to persuade the insurance giant to maintain some presence in Florida, albeit less than the 700,000 homeowners policies it currently carries.

On Tuesday, McCarty is slated to discuss property insurance issues at a meeting of the Senate banking and insurance committee. Also scheduled to appear are representatives of Citizens and the Florida Hurricane Catastrophe Fund.

Jeff Harrington can be reached at jharrington@sptimes.com or (727) 893-8242.

Rising costs

Numerous Florida property insurers have recently filed with the Florida Office of Insurance Regulation seeking rate increases. Among them:

Company Requested increase*
Federated National Insurance 19%**
St. John's Insurance 14.9%
Liberty Mutual 14.7%
United Property & Casualty 12.3%
Universal Property & Casualty 9.8%
American Integrity 8.5%
Southern Fidelity 7.2%

* Average statewide increase sought for homeowners' policies ** Approved by regulators

Source: Company filings and media reports

Mild hurricane season won't save homeowners from higher insurance rates 10/01/09 [Last modified: Friday, October 2, 2009 10:15am]
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