Insurance study gets state OK

By Steve Estes

Citizens Insurance has agreed to fund a proposed $480,000 study for Fair Insurance Rates of Monroe County that is designed to determine actual wind risk for the county.

And that is the first step in what FIRM hopes will be a process to prove that the windstorm insurance rates charged Monroe County property owners are excessive.

FIRM has been fighting increasing windstorm insurance rates here for many years, beating back several increases that would have resulted in doubled premiums for local homeowners.

The contention from FIRM all along has been that Citizens isn’t using actuarially sound numbers to justify rates here, instead just using the perception of Monroe County as a high-risk area and assigning rates based on that assumption.

The study approved for funding by Citizens intends to tackle the rising windstorm rates issue in Monroe County by developing an accurate wind risk profile for the county, according to a FIRM press release.

Part of that profile will be to distinguish the potential risk from wind versus the potential risk from flooding. It will also seek to establish valid data regarding the quality of construction, generally conceded to be the highest in the state, found here versus that in other coastal communities in the state.

Local officials know that flooding, not wind, is the real producer of damage in the Keys during a storm event, says County Mayor Pro-Tem Heather Carruthers, also a founding member of FIRM and still active in the organization.

And Citizens does not cover flood damages, that is the responsibility of various private insurers under the umbrella of the National Flood Insurance Program. Where private insurers write flood policies with the backing of the NFIP, there are no private insurance companies that will take on the risk associated with Monroe County, mostly because the Citizens windstorm risk model does not take into account where the damage actually originates nor the strictest building codes in the state.

“The resulting risk profile may enable the Keys to depopulate from Citizens in a market-driven, scientifically supported manner,” stated the release.

Citizens has been under Gubernatorial mandate to divest itself of windstorm policies to reduce the taxpayer exposure should a large storm crash into the state. Citizens began as a state-backed insurer of last resort for areas where no private insurance was available, such as the Keys, one of the company’s first customers. But as more and more private insurers left the state after one small storm after another lashed Florida shores Citizens took on more and more policies.

To divest itself, Citizens has embarked on a program of tossing policies out the door by a series of administrative changes. The company has lowered its coverage limits to exclude homes worth $1 million or more, and will be dropping that limit in coming years to as low as $500,000, eliminating more than 30 percent of Keys’ homes. The insurer has ceased offering builder’s risk, severely hampering building here, and has ceased insuring short-term rentals.

The company has also been on a re-inspection program for the last year or so, sending inspectors out to make sure that credits issued to homeowners are actually in place. Under that program, the company has added millions in premiums to homeowners around the state as they routinely deny existing credits for shutters and roof fasteners because those items may no longer meet current building code, though they did when installed.

Some of those moves are what prompted FIRM and local governments to take a serious look at ways to leave the Citizens umbrella, or barring that, get the state-run insurer to make the rates here more actuarially sound.

FIRM sees the study results as a win-win situation for Citizens. If the current rates structure is found to be excessive, private companies, with fears of a debilitating loss from Keys’ homes following a major storm, may be more willing to return to the county and remove Keys’ policies from Citizens, helping the company achieve its depopulation goals.

Finding sound rates may also be the first step in a process to lure a private company to start a Keys-only risk pool, or give county leadership enough ammunition to push through a self-insurance pool of just Keys homes and structures. What makes that attractive is that Citizens has been the recipient of more than $500 million in profits from Keys’ policies over the last 10 years, including the harsh storm seasons of 2004 and 2005. That profit could instead go toward establishing a catastrophic fund for local property owners, and could mean little rise in rates.

Of course, the opposite could also be true, admits FIRM. The study could validate Citizens’ current rates on Keys’ properties and that would leave “at least one territory of customers who thoroughly understand their risk.”

“After seven years and hundreds of thousands of dollars spent addressing the wind insurance risks in the Keys, I’m very encouraged,” said Carruthers. “This is the first step towards a long term, sustainable property insurance solution. Many thanks go to the FIRM board, contributors and members and all who’ve helped FIRM get here.”

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