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House plan: shift insurance burden

Part-time residents and real estate investors along Florida's coastline take heed: Your windstorm insurance bill from Citizens Property Insurance Corp. may double under a sweeping insurance bill unveiled Monday by leaders of the Florida House.

The House overhaul plan - the first to be offered in the Legislature since Hurricane Wilma hit South Florida in October - also would allow private insurers to raise rates an average of 10 percent annually without approval from state regulators. In individual territories, rates could increase as much as 25 percent.

House leaders insist dramatic changes are necessary in a state where more than one in five homeowners has been forced into Citizens because of a retreat by the private market. The state-run insurer provides coverage for any residential property owner who can't find it on the open market. After eight hurricanes in two years, Citizens now insures 810,000 homes, second only to State Farm.

Both this year and next, all Florida property insurance policyholders are expected to pay hefty assessments to cover $1.8-billion in deficits in the Citizens windstorm pool from the 2004 and 2005 hurricane seasons.

"To keep doing the same thing we've always done and expecting it to turn out differently is the definition of insanity," said Rep. Don Brown, R-DeFuniak Springs, an insurance agent who helped craft the plan. "We need to send a signal to the capital markets that will bring them back."

Private insurance companies responded cautiously to the plan, particularly a provision that would have them assume administration of Citizens' troubled claims administration for windstorm customers.

But the private market has pushed for years for greater flexibility to raise rates, saying higher premiums would be the first step to encouraging more investment here.

"I just hope that our Legislature will do things to encourage more insurance companies to come to Florida vs. putting more obstacles in the way," said Chris Neal, public relations manager for State Farm.

"The issue of affordability is over. The concentration now should be on availability."

The cornerstone of the House proposal is radical in a state that has long fashioned itself as a winter getaway for nonresidents: Split Citizens' windstorm pool into two separate pools: homesteaded properties and nonhomesteaded properties.

Florida's Constitution defines homesteaded property as that which is the permanent residence of the owner.

Under the plan, nonhomesteaded properties would pay significantly higher rates based on covering the most significant storm in a 250-year period. Currently, Citizens charges all customers based on a 100-year storm period.

House Insurance Committee chairman Dennis Ross, R-Lakeland, predicted the change could double what Citizens charges for windstorm insurance on nonhomesteaded properties.

If the nonhomesteaded pool ran out of money from hurricane claims, only those policyholders could be assessed for the deficit. Such "self-assessing policies," lawmakers think, might encourage some policyholders to buy regular insurance from surplus insurance lines that aren't regulated by the state, thereby reducing Citizens' overall risk.

House leaders, however, want to lower the pressure on premium increases for homesteaded property owners in Citizens by basing rates on a 50-year storm period. If those rates aren't enough to cover future damage, all property insurance policyholders would be assessed to cover any deficit in the homesteaded pool.

How much the split-windstorm pool would reduce Citizens' exposure is unclear since Citizens doesn't designate which of its properties are "homesteaded" under Florida law, lawmakers acknowledged. It also isn't clear what kind of cooling effect the change might have on Florida's vibrant second-home market.

But Ross said the splitting of the pool is appropriate when all Florida policyholders have to cover Citizens' deficits. Only homesteaded properties should qualify for such a subsidy, he said.

Among other changes, the House plan would prohibit Citizens from providing windstorm coverage for homes worth more than $1-million. Currently, homes worth more than $1-million account for 14 percent of Citizens' exposure but only 10 percent of its premiums.

It also would remove an exemption to the state's building code for Florida's western Panhandle, a proposal that has faced staunch opposition by the construction industry in the past.

Whether the Senate will go along with the House is far from clear. The upper chamber hasn't released its insurance plan or signaled when it will. Among the proposals not in the plan: Chief Financial Officer Tom Gallagher's recommendation that the state use some of its surplus cash in 2006-07 to reduce Citizens' deficit, thereby lowering the cost for all the state's policyholders.

Tiems staff writer Tom Zucco contributed to this report. Joni James can be reached at (850) 224-7263 or


+ Split the windstorm pool of Citizens Property Insurance Corp. into two groups: homesteaded properties and nonhomesteaded ones. Nonhomesteaded policyholders would face significantly higher rates and would be self-assessed whenever there was a deficit in the nonhomesteaded pool.

+ Prohibit Citizens from insuring any properties where dwellings are worth $1-million or more.

+ Shift all administration of Citizens windstorm policies to private insurers that write the homeowner's primary insurance policy.

+ Allow private insurers to raise rates an average of 10 percent statewide, or 25 percent in a specific territory, without approval from insurance regulators.

+ Encourage homeowners in high-risk areas to make their homes hurricane-resistant by providing no-interest loans through a new, $100-million endowment. Any improvements, such as hurricane shutters, would be exempted from increasing the home's taxable value.

+ Require public hearings whenever an insurer requests a 25 percent rate hike, up from 15 percent in current law.

Source: Florida House Insurance Committee