Roundtable: South Florida Homeowners, Economy, Both Feeling the Pain

Dulce Suarez-Resnick: Some colleagues in my office are leaving, some of my customers and even some family and friends.

In 2006, friends, who were also my customers, went from $8,000 on their windstorm policy to $17,000. They have every mitigation credit available for an older home. They are selling their home and moving to Central Florida because they can afford to live there on their fixed income.

State Sen. Steven Geller: They're moving to North Carolina, they're moving to Georgia. They're getting out of Dodge . . . .

I think the single most important issue facing the state is windstorm [insurance]. People today are not being taxed out of their homes, they're not being forced out of their homes by mortgage rates. They are being forced out of their homes by ever spiraling insurance rates. It has reached a point where people can't live here.

Heather Carruthers: Usually in Key West, there are about 400 homes on the market. There are 1,400 homes on the market right now. Every time you pick up the paper, the prices have been slashed.

People can't even get out now with the equity. Nobody's buying. A gentleman gave his son a house in Key West. The guy's a cop. He can't afford to stay there because his windstorm is so high.

Suarez-Resnick: You have this situation . . . The affluent will probably not take out a windstorm policy; some people will take enormous windstorm deductibles. What happens when you have a Category 5 come through? Who's going to rebuild? You won't have insurance money here to help rebuild. It took Homestead 10 years.

Pablo M. Conde: We have to get capacity (more insurers willing to write windstorm policies) in the first place. We need to address the immediate situation. What's going to happen if in a month from now we get hit by another hurricane?

Bruce Douglas: This is not a political issue. This is an economic issue for the state of Florida, for everybody. So we ought to work together as much as we can.

Not all insurance rates are equal. Take the Florida Keys. Carruthers produced data from Citizens showing that the cost per $1,000 of annual premium was significantly higher in Monroe County than in other hurricane-prone areas of the state: $30.55 to $37.50 for structure and contents for a condo or apartment building in the Keys versus $14.55 in Miami-Dade, Broward or Palm Beach counties. In Sarasota County: $7.98 to $14.55.

Residential rates are equally disparate: As of March, Citizens' average rate in Monroe for a single-family home was $20.91 per $1,000 of insured value compared with $2.39 to $2.55 in Volusia County.

Carruthers: One of our frustrations in Monroe County has been that we see a huge discrepancy in the rates. When you look at the actual payouts per claim for storms of similar wind strengths in Monroe versus other counties, ours are 20 percent of what they are in St. Lucie. You have rates in Escambia County, an area [in the Panhandle] that has not had to adhere to the [stricter] Florida building codes, that are a quarter of what rates are in Monroe.

Our frustration is that we look at how much we pay in premiums in Monroe over just the past four years and how much [Citizens] paid us and we see $248 million in the black for Citizens.

Key West is the oldest historic district in the nation. I personally own a building that has survived storms since 1889. We have strong building codes. We do mitigation.

All the coastal areas of Florida are subject to storms. All of them should be required to be built to the same construction standards. We need to spread the risk rather than segregate it into small pools.

Douglas: We have a meeting Aug. 1 in Monroe County. We used four models to base our actuarial assumptions on. If there is, in fact, a dislocation, we will correct it. . . . But everything we've seen as a result of 2004 and 2005 is we have run a $2.3 billion deficit statewide.

State Sen. Rudy Garcia: The basic premise of what I believe is that the zones that are paying more are surpluses for Citizens versus the parts of the state that are not paying efficiently.

Why can't we have the capability of looking at those numbers? . . . Any small business would know the answer to that question, and I would certainly hope that the people's insurance company is going to be able to provide the people with that response.

Douglas: I don't know the answer to that, but we will make them transparent. . . . There's got to be some level [of transparency]. It's not going to be an exact science, but it's pretty close.

It is the most frustrating part of my job -- to get the systems up to speed to handle the growth. We've taken over, and you know this, 320,000 [Poe] policies. Before that we were taking 35 to 40,000 a month. Now that takes people, systems, with all the changes, rate changes, deductibles, all of that, have to be feed into the systems.

We have invested an incredible amount of money on systems to be able to push a button and say, ''Here's the answer for Monroe County.'' We're not there yet, but believe me, the foot is to the pedal and we're going to be there.

Sen. Garcia: We [in South Florida] disproportionately pay our share in taxes. We disproportionately pay our share of insurance as well. Let's take it back to the territory area. Let's see what a territory really costs. Let's make a comparison between one company and the other so the consumer truly has a choice of real numbers.

Much of that rate discrepancy came down to building codes. Nowadays many insurers only want to cover homes that are less than 10 years old because these were built to the stronger building codes put in place after Hurricane Andrew destroyed many homes in South Miami-Dade. Also, panelists wanted to know why parts of the Panhandle are exempted from the tougher building codes.

Suarez-Resnick: Every insurance carrier I speak to I ask: What would be the best thing that could possibly happen to make insurance more affordable in Florida? Every one of them tells me [stronger] building codes.

Beatrice E. Garcia: The Florida Building Commission was just down here meeting and again decided that [areas of] the Panhandle would not have to adhere to the stricter building code.

Douglas: I was overwhelmed by that vote, 15-3, to keep it the way it is. It doesn't make any sense.

Geller: On the Panhandle exemption -- candidly, only the Legislature can change that. The reason it hasn't, I attribute to one very senior senator from the Panhandle who is being term-limited out this year. Hopefully, next year we'll be able to change it.

Hurricane models are used by insurers to calculate the amount of losses they would have to cover if a major storm hits a section of the state. A model is based on a complex equation of factors including strength of storms, as well as age, size, type and number of structures in a given region.

Florida has built its own computer model, and now insurers must use the state's public model in their rate projections if they won't disclose the components in their private models. Yet there is still much debate about whether all models reflect reality.

David Foy: We have to talk about rates. The whole premise of insurance is about spreading risk. . . . Rates are not retrospective, they're prospective. Everything is based on models now. Models became apparent in 1996 after the Florida Legislature created a private hurricane methodology commission . . . to determine what models met certain criteria. Different states have different processes.

Beatrice Garcia: Can those models be adjusted? For instance in this case where the payouts in the Keys and other parts of the state have been much lower than the amount of money paid in premiums.

Foy: Yes, absolutely. The private hurricane models have to go back to the methodology commission by Feb. 1 of each year and bring in any new losses, any new demand surge, any new increase in construction costs.

Sen. Garcia: What I have never been able to understand: No. 1 one is the model process. And No. 2 is the policy for [setting up] territories and the zones [for establishing rates.]

Geller: There are five models, all of which are owned by either insurance or reinsurance companies. Up until this year, they haven't had to reveal how they came up with their numbers. I can understand a 10 percent, a 20 percent, a 30 percent difference. But when you're talking a 2,000-percent difference between the models and they haven't had to reveal it, that's ridiculous.

Foy: The public hurricane model is transparent. We're putting on the website (www.floir.com) the summary of that data.

For Hurricane Wilma, [its prediction of losses] was 2 percent off. It was so close and that was a model that was only built on homeowners and mobile homeowners.

The Legislature provided some money this year to add apartments and condo data to the model because, of course, those were affected in these storms. We think once that phase is built, we're going to have a very well-crafted public hurricane model for all consumers.

In the past two years, the state Legislature has passed massive insurance bills. But crafting a solution is complicated because lawmakers in Central and North Florida view the exposure to hurricanes and high insurance rates as a South Florida problem. To local legislators and residents, it seems the burden of paying for hurricane risk is disproportionately placed on South Florida. Local legislators see it as ``a civil war.''

Geller: In fairness to Sen. Garcia, he did his level best to help the people of South Florida. But we ended up with an absolutely terrible bill, and I think one of the reasons is because of the civil war. They're convinced in Orlando, despite the fact that [the region] got hit by four hurricanes in 2004, that it's never going to be hit by another one. And, by the way, the insurance industry seems to believe the same thing.

Sen. Garcia: The choices that I had were coming home with no bill at all, which would have been a worse situation than we're in today, or trying to come up with something to bring home.

I hang my hat on bringing home $250 million [that can be used] to harden homes [against storms.] This program is going to start very shortly. I also hang my hat on putting an additional $750 million for reducing the assessments that you received. And another $250 million to put into the surplus loan program of which, as of today, a total of $220 million has been requested from 10 companies to help [boost] their capitalization. These companies have to come up with an equal amount of capital themselves.

Geller: There were a couple good things in it, but there were reasons I said it was a terrible bill. Let me just give you three of them. First of all, Citizens was charging, it's my understanding, one-in-50-year rates (based on the kind of massive storm that hits Florida once in 50 years). We've now increased that, over a two- or three-year period, to a one-in-100-year rate. That one move will raise the rates in Citizens by 110 percent or more and Chairman Garcia said that was a conservative estimate.

Sen. Garcia: Just for the record I disagreed with having to do that. That was not in the [original] Senate position.

Sen. Geller: Secondly, the insurance industry for years has wanted the ability to increase rates beyond what OIR (Office of Insurance Regulation) has done. This bill, for the first time, says that even after OIR approves a rate, [insurance companies] can increase rates five percent statewide or 10 percent more in any given area. This is under the assumption, which is truly bizarre, that if you let them charge more, then rates will go down.

Third, it's the issue of rate deregulation. Now, this only applies to very expensive homes. For the first time insurers can charge whatever they want. (No OIR approval will be required for these rates.) The theory is that people that own the million-dollar plus homes are sophisticated consumers who can find an insurance broker to negotiate.

But this is the foot in the door -- something that the industry has wanted for years. And if you think they're going to be willing to stop with million-dollar homes, we all know that that's inaccurate.

Sen. Garcia: I wish we had a better bill. Unfortunately it's part of the democracy of the state of Florida and part of the Constitution. But it wasn't only South Florida that was sitting at the table; it was the entire state.

[Lawmakers in Central and Northern Florida] see us as the bad guys when [Citizens] has assessments that they have to pay for. There's some truth to that, but it isn't fair because we pay for everything else that they receive. They pay a lot less taxes than we do. There's a fairness issue here.

Douglas: I've worked with both insurance committees of the [Legislature]. I think it was a good bill, not a great bill. But it was a really good start and a lot of hard work went into it. But it's not the end all, be all obviously. That's why we're in crisis. I invite every recommendation, suggestion, visitation on our part with any legislator to find out what works and what doesn't work.

Carruthers: Do you think that there's any interest in calling a special session of the Legislature?

Sen. Garcia: Frankly, I am available and ready to go up to Tallahassee and spend from now until the end of my term. . . . I know Sen. Geller and many other members of our committee are willing to take up every difficult issue. From our committee standpoint, we're ready to work.

But if we don't have consensus and we don't have a silver bullet, I don't see how the governor will call us back to Tallahassee.

Last week, Gov. Jeb Bush said he would consider calling a special session if there was a definite agenda to discuss.

Citizens has been facing the difficult task of absorbing more than 300,000 policies as the three Poe Financial Group insurers -- Atlantic Preferred, Florida Preferred and Southern Family -- were shut down because they were insolvent.

Joy Marks: As vice president my homeowners association, Coconuts of Bonaventure in Weston, we were with Poe. Our insurance policy expired on April 28 or 29. Up until two days prior to that we had not heard one word from Citizens except that they were inundated, understaffed, under computerized, undertrained. We're a $29 million association and we were piled underneath a stack because we had 45 buildings. Every single building needed to have a roof replaced at a tune of $1.4 million with a deductible of $700,000 that needed to be passed on to each homeowner. We did that assessment with a great deal of difficulty.

Our insurer, Citizens, never did get back to us. Lloyds of London gave us an extension -- it cost our community $128,000 for 45 days. Then Citizens just gave us our policy last week, with the premium going from $297,000 to $750,000.

I'm just not representing my community because you can change the name to a thousand different communities in Florida.

Douglas: We agreed to accept Poe as of June 30. We took it over July 2. From the first week in March, when we first got an inkling that Poe was going to be possibly insolvent, we tried to work with Poe to implement the order from OIR. [Poe] wasn't very agreeable to the order of transition, and [Citizens] got stonewalled. Finally, with two days to go at the end of June, Poe accepted the order of transition from OIR.

When we moved in to take over their systems, we ran into this tremendous influx, 1,500 commercial policies by Southern Family. Initially, we said, ''Look you got to have them appraised and you got to do this and you got to do that.'' We found out it was almost impossible to get appraisals done in a reasonable period of time. We extended it to one year. If you get the appraisal in the first year of the policy, we'll accept that. [But every building needs to be appraised.] We're talking about $25 million [buildings such as Marks' complex] and we had to have actuarially sound rates.

The problem in Florida, as I see it, is that for too many years we've suppressed the rates while the real estate values have soared. Now we have a problem where the rates that are actuarially sound are almost unmanageable for many, many people. But I see that's going to change over time, a long time. Three to five years. We're never going back to low-cost homeowner insurance.

So what do we do in the interim? What do we do to reduce the amount of pain that's very real? We would welcome any reasonable alternative. We do not want to charge excessive rates, we do not.

Many on the panel agreed one of the most immediate near-term solutions is to harden our homes to better withstand hurricanes.

Suarez-Resnick: I think that the state as well as the insurance industry has to educate the consumer as to the funds that are available for them to retrofit their homes. I think that . . . one of the best things that came out of the session is the money for consumers to make their homes stronger. If you can't afford to do so, now you have a vehicle to go to and get the money to retrofit your homes.

You need to get a windstorm mitigation report and you need to get a four-point inspection, even if your home is only 25 years old. That way we know the condition of the house up front and which credits are possible for the windstorm mitigation.

Sen. Garcia: Mitigation is the solution. Hardening our homes, preparing ourselves.

Geller: This year we're requiring for the first time a full credit for all of the hardening that you've done to your home, which I think is very helpful.

Florida lawmakers and regulators are beating the drums in Washington to create a national catastrophe fund to cover hurricanes here as well as tornadoes, earthquakes and other natural disasters. Some envision the national fund would provide reinsurance -- that's insurance for insurance companies -- for insurers working in this state.

Geller: Chairman Garcia in the Senate, who is a Republican, and [Insurance] Commissioner [Kevin] McCarty, who's a Republican, and myself, I'm a Democrat, have been working together to try and come up with a national disaster insurance program.

We have a lot of suggestions of things we can do on a state basis. But candidly, the ultimate solution has to be a national one because regardless of what happens if [this state gets hit] by a $100 billion storm, it doesn't matter who's on the hook. There's not enough money in the state to deal with it. The only people that can cover a $100 billion storm are the people that can print money.

Foy: We've been to Washington more times than I can imagine to try to get this national catastrophe plan that Sen. Geller and NAIC (National Association of Insurance Commissioners) are trying to work on together.

The commissioner would say, if he were here today, ''We need the national catastrophe plan, with the backing of the federal government.'' [Insurers also need] tax-deferred reserves. If companies are required to build up surplus, we think they shouldn't be taxed for it.

The Democrats have proposed creating a state windpool that would cover the first $100,000 of losses after a deductible. If homeowners want more insurance, they can buy it from private insurers who might be more willing to sell the coverage if they knew their losses would be limited. Allstate did some research for the legislators and found that the bulk of the claims from a major storm were less than $100,000.

Geller: The Democrats' plan isn't without risk but merits discussion. We have suggested the only way you're going to bring the private sector back is to assure that if there's one Katrina-style hurricane here, it's not going to put State Farm, Allstate, Nationwide out of business across the country.

The state windstorm pool would cover up to the first $100,000 of losses in each claim. This would reduce [insurance companies'] exposure by 75 percent in a major national disaster. [Insurers] say they'll start writing policies if you're reducing their exposure.

The argument against this plan is that the state is assuming more risk. I submit to you the state is already at risk.

Foy: We've done an analysis of this proposal in our office and we have some concerns about how much risk would be put on the state of Florida and on consumers. I think the average claim would probably be between $10,000 and $15,000. What that means is the state of Florida is paying every claim.

Douglas: As soon as I heard about the proposal, I said let's explore it. Let's see what it would cost and what would the exposure be? . . . I am not in any way indicating that it is not viable. But it has to be worked through.

IN BUSINESS MONDAY: The commercial crisis, including problems with reinsurance and builders risk coverage.

There is the word from the horse's mouth. Some of the people speaking are State Senators. They are not bubble heads. The sad truth is that Florida has turned into a hurricane zone. Rapidly escalating insurance costs have put financial handcuffs on people living near the coasts. They cannot even borrow equity from their homes any longer. Forget about selling. Forget about house flipping as a money making strategy. Inventories of unsold homes are piling up rapidly. People are slashing prices right and left. Buyers are not even showing up to look any more. [Want to learn more?] The housing bubble is over in Florida. The bubble was burst by nasty weather.

In some ways Government interference created a bubble protecting people who lived in disaster zones from paying the full cost for the insurance. Of course government is still the only flood insurer still, right?

Anyway, you live in a disaster zone OF COURSE the insurance rates should be higher.

and government is probably making it worse I wouldn't bet.

The sad truth is that Florida has turned into a hurricane zone. Rapidly escalating insurance costs have put financial handcuffs on people living near the coasts.

Its two things, one was the recent, insane escalation of home values in South Florida. Then you get the increased Hurricanes. So ya put the two together, and you get homes worth more, the insurance costs are much higher. It prices many people right out of the market. Personally, I am thinking of relocating to GA or NC in a year or so..

Yeah, insurance companies get to save money by pricing the policies out of range of any normal person. Guess who get to pay for rebuilding those uninsured houses? You do. Your taxes will rebuild the houses through federal disaster relief. Insurance companies have been really scummy lately. A couple of my friends who can't afford to sue are getting reamed by one right now. Insurance companies have been in bed with govewrnment for years. If taxpayers will have to make up the shortfall, insurance companies should be forced to provide affordable coverage. If they take a loss, they take a loss. Insurance is a gamble. They aren't guaranteed a huge profit every year.

Insurance premiums should be based on the cost of replacing the home, not on its market value.

Cost of rebuilding does NOT go up at the same rate as market price. Much of market value is demand-driven by land prices, especially on the water, rather than cost-driven, related to increasing construction costs.

" The sad truth is that Florida has turned into a hurricane zone. Rapidly escalating insurance costs have put financial handcuffs on people living near the coasts. "

Florida has always been a hurricane zone, for pete's sake. Now the rates for insurance are going up. And there it is. Do the folks there want the rest of the country to pay for their insurance?

No, thanks. I live in Minnesota. My insurance rates are quite reasonable. I like that. I deliberately did not buy in a flood zone. I bought a home with modern electric service. I did whatever I could to keep my insurance rates low.

I would never have considered Florida, because of the hurricane hazard and the cost of insurance there.

I'm very sorry for the folks there. They should probably move to another place if they cannot afford to live in a hurricane zone.

If, however, they believe that the rest of the country should help them pay for their decisions, well...sorry. It ain't happening.

The article obscures some other distinctions. The greatest degree of hurricane risk is quite restricted, primarily to right along the coast and in the most low-lying areas.

Insurance is of course all about spreading the risk, but in Florida they take the most dangerously exposed homes, many of which are giant mansions that have been built in the last few years, and lump them in with the much older, smaller and less at risk housing stock some distance inland.

Thus less-wealthy people wind up subsidizing the wealthy who choose to build multi-million dollar homes in very exposed places. This is artfully obscured in the article by portraying the issue as one of north vs. south FL.

Part of the problem is that the last 25 years or so had been unusually quiet, in terms of hurricanes hitting large inhabited areas. Then came Andrew, wham, but that seemed like a one-shot deal. Now that the hurricane seasons are back to normal, all the new homes and owners here are surprised.

You can build a home to survive just about any hurricane, its easier than surviving a tornado. The problem is that most of the homes, as strong as they are (trust me, the vast majority of homes here are much stronger than most parts of the country), just are no match for a decent storm these days. Newer homes with shutters should do fine. There is not alot of flooding problems here with hurricanes (South Florida) for various reasons, there are defined zones where there are known problems, and you choose to live there, hey, ya takes yer chances.

Anyways, now folks down here are crying, whaaaa, gubmint, come save me. Hey, if you cant afford the insurace, you best leave..

Thus less-wealthy people wind up subsidizing the wealthy who choose to build multi-million dollar homes in very exposed places.

Ah, great point. As I said, there are parts, mostly coastal, where the risk is great for flooding and water and wind damage. Many of those homes are in the million+ dollar range.

If they would allow oil drilling off their coast like the chinese are doing in waters off cuba (read florida keys), and take the 37.5% royalty that the feds are offering, they could easily set up a huge contigency fund with the resources to protect them in event of hurricane losses. However, you morons in Florida want your (pristine beaches and views) and when a hurricane passes by you whine to the feds to take my tax money to bail you out. No way, the rest of the country should bail out coastal state who will not allow oil drilling off their coasts, it is a tradeoff they should be forced to swallow. Same goes for the west coast states and earthquake bailouts. I am sick and tired of the feds bailing out people who are stupid enough to buy a house on a beach and then whine about the cost of insurance.

I don't care if they allow oil drilling or not. None of my tax dollars to pay for their oceanfront houses when they're damaged by a hurricane. Let them pay for insurance. If they can't afford the insurance, then they should move somewhere where the insurance costs are something they can afford.

It would be no skin off my nose if every last person in Florida moved to another area. Their insurance is simply not my problem.

The bubble was burst by nasty weather.

It was doomed to burst. There was massive over-speculation in new housing, particularly upscale condo units, with too many people in over their heads with risky mortgages, as were many low-income and minority buyers taking advantage of government programs.

Everyone forgot Andrew, with a "it'll never happen here mentality," and even after the horrible 2004 storm season, South Florida still had its head in the sand. It looks like the Keys still do, even though they stand a strong chance of disappearing in a Cat 5 -- and yet they're complaining because they're insurance rates are higher. I suppose they believe luck should be a factor in the probability charts.

I remember listening to the radio right after Wilma, and hearing some idiot radio personality comment that the storm pictures of Florida would attract new residents here. The tune changed when the insurance and tax bills started coming in.

Florida has always been a hurricane zone. Now, if you want to live here, you'll have to face reality.

gawd I'm glad to be out of that sh#t hole...

The reason bills are so high is the amount of fraud, theft and corruption in reconstruction...

from fake "injuries" to artificially inflated repair costs, and on and on and on..

the key to note is that there is a "democratic" solution.... grab your wallet when that happens...

look at the corrupt fund set up for ALL doctors to subsidize OBGYN's insurance in Florida. The infamous "NICA" fund.

If the market was allowed to work, then all the OB Gyns would have left or the lawyers would have to settle for less money...but the rest of the doctors in the state had to fund the "crisis" in med-malpractice insurance, when in fact its a lawyer payroll crisis...

I voted with my feet.... buh-bye. Housing costs are 70%, salary about the same and insurance is 60% .... sold my home at the top about 14 months ago and haven't looked back.

And what law of nature says the government has to pay to rebuild uninsured houses.

If taxpayers will have to make up the shortfall, insurance companies should be forced to provide affordable coverage. If they take a loss, they take a loss. Insurance is a gamble. They aren't guaranteed a huge profit every year.

So what you are saying is that insurance companies should be forced to insure risky houses at prices low enough they can expect to lose money? Essentially, they should be forced to give policies (and, eventually, money) to homeowners who could otherwise not afford insurance?

Were Florida to require that, every insurance company would leave the state. What should happen then?

My Wife and I are building a retirement home on coastal Georgia. The specs call for withstanding 110 MPH winds and gusts of 130MPH. It is a frame home (with 2X6 walls) on a slab. I wanted to build a house of concrete, but the could would have been significantly higher.

Georgia's coast is booming. We have had one major hurricane (Cat 1 or better) in the past 50 years. Our insurance rates are normal and the area is not overbuilt. There is more wildlife than you find on the Fla coast.

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