Posted on 06/20/2006 8:11:00 AM PDT by doc30
The same shockwaves that have homeowners reeling are striking business owners who must now confront premiums that have increased since last year by as much as 400 percent -- when they can get insurance.
Florida homeowners have railed for months about the skyrocketing cost of residential property insurance and the suffering it is causing. They're about to have a lot of company.
Business owners looking for commercial property insurance are increasingly finding themselves in the same rickety boat as homeowners.
And should the crisis get out of hand, the effects could reach throughout Florida's economy.
"The commercial insurance market is in chaos,'' said Craig Sher, president of the Sembler Co., which developed BayWalk in St. Petersburg and acts as landlord for about 1,000 small businesses.
Insurance companies that write commercial policies for everything from strip malls to restaurants are raising premiums as much as 400 percent, dropping policies as they come up for renewal, or both.
One insurer simply decided to cancel policies. North Pointe Holdings of Southfield, Mich., said recently that it plans to cancel nearly half of its 28,000 commercial policies in Florida.
Experts say the net effect of huge premium increases coupled with a shrinking insurance market can range from higher costs passed on to consumers to a slowdown of economic growth.
"Businesses have become shocked upon receiving their new insurance bill,'' John T. Long, president and CEO of the St. Petersburg Chamber of Commerce, said last week. "That's the buzz going on all over the place.
"What's also interesting,'' he added, "is that I also hear this from people considering relocating to this community, which has a tendency to add to the many challenges of a successful business.''
Or the reverse can happen. An insurance crisis can cause established businesses to leave.
Mastry Engine Center, a marine engine and parts distributor near Tyrone Square Mall in St. Petersburg, has 66 employees and has been in business since 1962. Last year, the company paid $50,000 for $13.3-million worth of insurance through Westchester Surplus Lines Insurance.
"They wouldn't even talk to us when it was time to renew this year,'' president Tino Mastry said. "We had to get the same coverage from three different companies.''
At a far steeper price. The total: $226,000, a 350 percent increase.
Mastry took the policy because, like many other businesses, banks would be reluctant to loan him money for other projects if his company was uninsured.
"So now we're going to have to generate an additional $8-million in sales to cover the cost,'' he said. "It's not possible for us to do that. We're either going to have to pass the cost on, or move.''
That is no idle threat. Mastry, 60, found he could buy a 40,000-square-foot warehouse in Valdosta, Ga., move his company there, and save $75,000 a year.
"We would do everything not to move,'' he said. "But it's the same insurance situation until you get out of Florida, which is really a shame.
"Hopefully, it might be better next year. But we are actively pursuing property in Georgia.''
The business community was bracing for some increases in property insurance this year, Long and others said, because of the past two hurricane seasons.
"But these increases are extreme,'' Long said. "Not much different from what homeowners are seeing. And it's especially difficult for small businesses.''
In one respect, business owners are at a disadvantage when it comes to finding a company to insure them. Unlike home and condo owners, most businesses don't have Citizens Property Insurance Corp., the state-run insurer of last resort, to fall back on.
Citizens insures about 1.2-million property owners in Florida, but only about 15,000 of them are commercial accounts, and most of those are in South Florida.
That's because Citizens only writes commercial business in its high-risk account, which includes coastal sections of Pinellas, Pasco, Citrus and Hernando counties, but no part of Hillsborough.
And unlike the vast migration of new residential policies to Citizens, new commercial policies come to Citizens at a trickle. That, said Citizens spokesman Justin Glover, "is because we've already got most of the commercial policies in the high-risk area.''
If a business is outside the relatively small high-risk area and can't find insurance in the private market, it must pay rates many times the average. Or go without coverage.
Even in the future, Citizens may not be able to help. Citizens' windpool boundaries, which effectively form its high-risk account, were frozen in 2002 by the Florida Legislature.
"If businesses are not in the windpool area, there's nothing we can do,'' Glover said. "It's not in Citizens' authority to modify the boundaries.''
Citizens has gone on record in opposition to expansion of the high-risk account because it was damage in that area that accounted for what Glover called "a vast portion'' of Citizens' 2004 and 2005 deficits.
What also hurts the issue of a crisis in commercial insurance is that residential insurance issues are usually considered more politically sensitive. A story about retirees having to sell their home because of soaring insurance costs grabs a lot of attention.
But insurance experts say the spotlight may soon shift as the commercial climate deteriorates.
Ken Jacobs, senior vice president of commercial lines for insurance broker Acorida, can point to examples of rates that have risen from 100 to 300 percent or more in the Tampa Bay area, based mostly on the age and construction of the building.
"What's happening is that all at once there is this problem with capacity,'' Jacobs said. "When the state needs more commercial insurance than ever, the state has less than ever. And what is there has skyrocketed in price.''
At some point, Jacobs said, higher insurance premiums, along with higher property taxes and other expenses, are passed down.
"The tenant or customer,'' Jacobs said, "is ultimately going to pay for this.''
The risk is that a business owner raises prices or rents so high that his tenants or customers go elsewhere.
"But the increases are so dramatic,'' Jacobs said, "that owners have had to take on a lot of the costs themselves. They can't pass it on.''
That, Jacobs said, is leading to real estate deals not closing and businesses that aren't able to expand or update equipment.
"The commercial insurers understand,'' Jacobs said, "and within the government, they're starting to hear it.
"But if we have another bad wind season, I can't see any options other than something like the national flood program for wind.''
Commercial property insurers are cutting back or sending rates soaring for the same reasons as residential insurers. The 2004-2005 hurricane seasons prompted insurers to look for ways to cut future losses.
In addition, the cost of reinsurance, which is insurance the insurance companies buy to limit their risk, has risen nearly 50 percent and is increasingly hard to find.
Just as Citizens provides a backstop for the residential market, business owners have a few alternatives.
The most common way for a business to protect itself against being dropped by an insurance company is to layer its coverage - string together three or four smaller policies from different insurers, often from surplus lines carriers such as Lloyd's of London, to create a complete package.
Another tactic is insurance pools, where large groups of businesses pool their money and spread the risk over a wide geographical area.
But in both cases, the insurance that is available often comes at a hefty price.
The problem in the commercial market has caught the attention of state Insurance Commissioner Kevin McCarty. A spokesman for McCarty's office said the department has been "made aware by agents, consumers and small-business owners that there are availability problems in the commercial market.
"Concerns have also been expressed that there is a lack of availability of reinsurance for certain commercial insurance products in the state.''
While state officials assess the extent of the problem, others wonder how to cope.
"If you add a dollar or two a foot to operating costs because of insurance, that's significant,'' said Sembler Co.'s Sher. "We're very concerned about tenants' ability to conduct business.
"Nobody cries,'' Sher added, "over commercial property owners. We haven't come to that.''
But that may change.
In Oldsmar, Mary Bailey and husband David own Creative Body Works Inc., an auto body shop with 12 employees, 25 service bays and, come July 1, no property insurance.
Three weeks ago, Bailey got a notice from Universal Underwriters.
"They said they were no longer insuring any buildings within 10 miles of a body of water,'' she said. Her business is about half a mile from Tampa Bay. "I didn't know what to think. I'm not in a flood zone.''
The notice sent her scrambling for other carriers.
"But the problem is that so many other people are looking, too'' she said. "The insurance companies are bombarded by all these businesses looking for policies.
"This hasn't been talked about. You'd be surprised how many business owners think Citizens will help. I even thought that. Now you find out there is no place to go.''
Agents have told her that sometime soon the surplus lines companies that are writing policies will reach a saturation point and stop.
"I can understand their position,'' Bailey said. "They're looking at the risk and what happened the last two years.
"I just need to find insurance somewhere.''
In the meantime, the Baileys will likely put off building an addition and buying equipment.
And like Tino Mastry, they're going to tighten their belts, ride out the year and see what happens.
"Maybe then,'' she said, "things will improve.''
Tom Zucco can be reached at zucco@sptimes.com or (727) 893-8247.
On a side note, a good friend, who owns his home, decided he wanted property insurance, but only liability. He didn't want storm coverage. Can't get in in FL. You either take the whole package or you go without. It would help the market if people could chose what coverage they wanted.
We are having a dickens of a time placing coverage in Fl. A customer of oursis buying a Large building in Tampa Bay- Premium in excess $100,000 and a $300,000 wind storm deductible!
The impact of this is greater than realized. In my area (central Pasco) I am seeing a lot of single family "starter" homes coming on the market due to the increase in people's mortgage payment. This is because of the insurance price surge, and ARM's (3 and 5 year) expiring. The increase are pricing out lower-middle income families who stretched to get into their houses in the first place. Housing prices are beginning to drop from their highs as people are getting desperate to get out of their financial trap or to lock in their equity gains...
>>>On a side note, a good friend, who owns his home, decided he wanted property insurance, but only liability. He didn't want storm coverage. Can't get in in FL. You either take the whole package or you go without. It would help the market if people could chose what coverage they wanted.>>>
Your friend could start a faux business (does he have ANYTHING he can come up with to have a home office) and then take out a commercial general liability policy for his premises liability. Just be sure have the commercial policy written on an 'individual' basis with his name as the named insured. The policy shouldn't be more than a few hundred dollars a year. Have him verify with the local agent that 'premises' liability is included.
Homeowners though... the form is not written for just liability. That is the way ISO writes it. Insurance companies cannot just 'come up with' something, there are federal guidelines they have to follow and then if they vary or stray from that, the state insurance commissioner has to approve it.
But that above should have his liability under control for less than a homeowners (with the property included) policy would cost.
My ExMIL is trying to sell their home to get out of the insurance fix ($5,000 a year for a $100,000 home) and they are fixed income retired. They can't sell their house for 25% less than it's worth!!
I'm guessing this will dump on the next gov.
I'm in Pinellas County, in a neighborhood of 800-1000 sq ft, 50 year old homes. When I made the decision to buy, that was all I could afford at the time. Prices ahve gone up about 65% over 3 years. The houses that sold a year or two ago are all back on the market now and I bet it has something to do with the ARMs, the property insurance and the massive property tax increases from homes being re-evaluated under the homestead excemption. Let's face it. If you buy a home in FL and you have a 30 year fixed, your escrow payment will likely be greater than your mortgage payment. I just don't know where the money is coming from for people to move to this state. Jobs don't pay great here.
Sorry to hear that, but the housing bubble has popped.
What county are they in?
As far as people moving here: Some are retirees who are "selling the farm" and coming in with gobs of money. Some are prefessionals being xferred by their companies. Some, with more beer bottles than brains, are just jumping into their cars and driving here with no plans. It's scary for all...
A year ago, our company purchase a competitor. We planned on transferring people down here and several were interested until they saw the housing prices. They all said no at that point. Another company we are in a joint venture with recently needed a new CEO. None interviewed would relocate here because the housing they were accustomed to was simply out of reach. And that's at a CEO's pay! Had to recruit locally and get someone already established in the area.
Ft. Laud. resident here, my ins. will double come Nov.. I wrote an extreme letter to state farm, like it matters.
Fortunately my home will be paid for in a few years.
I left Lakeland in February. The list of reasons is long:
- Polk County has gone nuts in raising tax rates. The county commissioners are all sporting wood at the prospect of the windfall.
- These are tax rate increases, entirely separate from higher taxes due to property value increases. The two act synergistically.
- PC quadrupled the "impact" fee for new homes, thus pushing up the value/cost of existing homes. Resulting in....higher taxes.
- To a large degree, the county sees a lot of this revenue as "mad money". Irresponsible spending run amok.
- The congestion is getting beyond belief. And the notion that the county should spend some of this money coordinating traffic lights is ignored. Red light running and resulting death and injuries have increased at creepy rates.
- The insurance situation, of course, is surreal. Some of it, not all by any means, is manufactured by the insurance companies.
- According to an Orange County Sheriff's deputy I spoke with, the county actually, seriously, considered putting toll booths on Interstate 4 in the middle of Orlando. If you know the area, you know the results would be beyond belief. Government greed knows no boundries.
- In September, it took my wife 45 minutes to drive 4 miles home from work on a Friday (in Lakeland, not I-4). She walked in and said, call a realtor, we're getting out of here.
- We just couldn't stand the 9 month summers any longer. I am never going back to that hell hole.
>>>What county are they in?
Pinellis I think? Tampa Bay area.
Yup. One of my (former) renters was a VP in Clearwater, and had relocated from GA. They ended up leaving the area due to the high cost. I always saw Florida as the last bastion of common sense and control. Looks like I'll be doing the opposite of the Snowbirds when I retire: Sell everything and move North...!
Before I was divorced, I lived in Lakeland. I really liked the people, but it's keeping a small town attitude in the face of big city problems. Letting developements grow like crazy, but not doing anything to support that growth. Widening Griffin Road was, from what I remember, was a big issue. Developers said it was the county's job. THe county said it should be up to the developers to widen roads for growth. School constructions was the same way. Everybody wanted to blame everybody and no one wanted to have a comprehensive growth plan. In the meantime, the city services just got worse and worse because of overloaded demands. And I heard about the county raising the milage like crazy. Are they trying to drive everyone out of the town? But what I do remember was that the whole government was a good ol' boy network. If you weren't a good ol' boy, you were nobody. If you were a northern Yankee carpet bagger, you were less than a nobody.
I know the feeling. My wife can't stand it here. Too crowded, too expensive and just too many rude, selfish people. I'm really getting the feeling the Tampa Bay area is becoming like a big, dehumanizing Northern city.
Still is. Mayor used to be city manager, City manager was mayor, then city councilman, then county commissioner. You know the drill ad nausium.
A few years ago, the county had a referendum on a gas tax hike (for the roads, you know, targeted taxes. total bull). The voters turned it down. So the commissioners passed a 6¢ per gallon increase anyway. Well, every one of them (5 of 6) that voted for the tax was thrown out of office. The entire commission was replaced with "republicans". These "republicans" then passed last year a 27% milage increase. This on top of a 14% increase in tax revenues due to property value increases.
The lady that bought my house will pay property taxes that are triple what I paid the year before!
And the icing on the cake? She moved to my place in Cleveland Heights, from 540A just to cut down the commute time to Florida Southern College! That is how bad traffic is around there now.
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