State lawmakers propose solution to flood insurance crisis

BY STEPHEN NOHLGREN AND JEFF HARRINGTON

TAMPA BAY TIMES

 

Florida Senate bill filed Tuesday seeks to alleviate skyrocketing federal flood insurance premiums by setting up a competing — and hopefully cheaper — state-run market.

The bill, sponsored by Sen. Jeff Brandes, R-St. Petersburg, would invite private insurers to enter the market by creating a new regulatory system just for flood insurance. It would evaluate rates, risks and a company’s financial strength.

Over the last 35 years, Florida homeowners paid four times more in National Flood Insurance Program premiums than they collected in claims. Despite that, many of the older homes in low-lying areas now face sharply higher rates under new Congressional mandates. In some cases, rates are jumping from a few thousand dollars to $15,000 or more.

“I have to believe the private market could make a profit at those prices,’’ Brandes said Tuesday at a news conference.

He and other state legislators jumped into the fray because the Florida Congressional delegation has not been able to secure a rate hike delay in Washington.

State Rep. Larry Ahern, R-Seminole, plans to file a companion bill in the House, and other legislators around the state have signaled their support, Brandes said.

“We hope to have this bill to the governor’s desk early in the session,’’ he said. “It is designed to go into effect immediately,’’ he said, unlike most new laws, which take effect in July.

Many mortgages written in Florida require homeowners to carry flood insurance, almost all provided by the national program. A Congressional overhaul last year zeroed in on hiking rates for older properties that have enjoyed lower rates for decades.

In some cases, rates in flood zone areas will rise about 20 percent annually until they reflect what the federal government deems the proper market risk.

But under certain conditions — such as when a home is sold — the new owner must pay the full market rate immediately, possibly tripling or quadrupling the premium.

“It has killed the real estate market,’’ said Treasure Island Realtor Shirley Madden, who attended the news conference.

One Tampa-based insurer, Homeowners Choice Property & Casualty Insurance, has already jumped into the market by taking care of existing customers.

Beginning Jan. 1, Homeowners Choice will start adding flood endorsements to its homeowners policies. The company has about 140,000 policyholders statewide, but is starting out slowly with this new line of business.

“We’ll probably do the first 3,000 flood policies and see how it goes. Then do the next 3,000,” CEO Paresh Patel said. “It’s a very measured approach. We’re not going to write everybody.”

Patel said 3,000 policies represents about $1 billion in exposure. “Once we get comfortable about the first billion, we can talk about the next billion,” he said.

He estimated the maximum rate of coverage for a property with $250,000 in building coverage and $100,000 in content coverage would be just over $3,000 in an “A” flood zone and about $6,800 in a “V” flood zone.

Homeowners Choice won special approval for its product, said Ron Lehmann, spokesman for the R Street Institute, a think tank that monitors the insurance industry.

The Brandes bill would set up a complete regulatory framework for all flood carriers. Among other things, it would add an engineer who specializes in flood plains to a state board that oversees rate setting, as well as a meteorologist with expertise in floods.

Private insurers could not compete with the federal program when it was subsidized, Lehmann said.

“But if the government is offering real actuarial rates,’’ he said, “that is something our companies can match.’’

The Florida legislation also would add flexibility to the marketplace, Lehmann said. Insurers would not have to offer content coverage, for example, or temporary living expenses if a home was destroyed. Coverage could be pegged to the mortgage amount, not the total replacement cost.

That would be welcome relief for Verla and Richard Waldo, a Seminole couple facing much higher flood rates next fall.

The Waldos, who moved into their 864-square-foot, two-bedroom home in 1997, have whittled their mortgage balance from $75,000 to nearly $40,000.

Verla Waldo, 73, said she had a letter from her bank saying it would be satisfied with $41,600 in flood coverage — enough to cover the remaining mortgage — but her insurance agent insisted that the national program now requires full replacement value, or $111,000 in coverage.

“They’re saying that I can’t say how much coverage I want,” she said. “I’d like to know when my rights were taken away from me.”

Homeowners’ Claims: Water Back-Up, Overflow, or Discharge?

BY CHRISTINE G. BARLOW, CPCU

December 12, 2013 •

 

Water back-up is one of the more confusing coverages in homeowners’ policy. It involves more than back-up, as overflow is mentioned in some of the coverages. But what is a back-up, and how is it different from an overflow or a discharge? All these things come in to play when there is a water loss, and what causes the back-up or overflow may make a difference in whether or not there is coverage.

First let’s look at definitions. A back-up is an accumulation caused by a stoppage in the flow; something prevents the water from continuing down its path, so it is forced to reverse direction and go back the other way. A collapsed drain pipe can cause a back-up; water can no longer proceed down its normal course and is forced to change direction. A blockage can cause a back-up; the blockage prevents the water from going forward, and the water has to reverse itself.

An overflow is when the water exceeds its boundaries; the space is filled to capacity and water then spreads beyond its limits. A tub left running creates an overflow. The tub can no longer hold the water running into it, so the water overflows onto the floor and surrounding area.

A discharge is a flowing or issuing out; water coming from a pipe. A leaking pipe discharges water from the hole in the pipe; it is not a back-up or an overflow, it is simply water issuing from a pipe at the wrong spot.

Discharge or Overflow?

The ISO HO 00 03 provides coverage for water damage that is the result of a discharge or overflow of a plumbing, heating, air conditioning, or household appliance if it is on the residence premises. This covers pipes that leak behind walls, floors, or ceilings; washing machines and dishwashers that overflow, toilets that overflow, or storm drains off premises that overflow due to high rains or floods. It is important to note that a sump, sump pump or related equipment, or a roof drain, gutter or downspout or similar equipment is not considered a plumbing system or household appliance. A discharge or overflow caused by a storm drain, water, steam, or sewer pipe  is covered as well if it is off the premises.

The coverage is for repair of the damaged property—the walls, floors, tiling, and carpet, areas that got saturated and need to be repaired or replaced. Even the tear out of a wall, for example, to get to a leaking pipe is covered. What is not covered is the leaking pipe itself; a pipe leak is often caused by simple wear and tear or age of the system, and that is a maintenance item. However, even if the insured is hanging a picture and pokes a hole in a brand new home and new pipes, the damage to the pipe is not covered. The exclusion for damage to the item causing the loss is all encompassing, and has no exceptions.

The policy specifically excludes water that overflows from sumps, sump pumps, or related equipment or water that backs-up through sewers or drains. However this is where a lot of losses occur; sump pumps may fail or be unable to handle the flow of water during a severe storm or flood, and sewers or drains may back-up due to a stoppage in the flow. Overflows are excluded for sumps because that is a common cause of loss; the sump cannot handle the volume of water it receives. For example, if the drain backs up and overflows because of heavy rainstorms, that is not covered under the policy.

To provide coverage for this occurrence there is the Water Back-up and Sump Discharge or Overflow endorsement, HO 04 95. This provides $5,000 of coverage for back up through a sewer or drain or overflow or discharge of a sump, sump pump or related equipment, even if the equipment suffers a mechanical breakdown. For example, the sump pump motor burns out and the basement floods; there is $5,000 of coverage for that damage. The coverage is for water or waterborne material, so coverage is provided for damage caused by items floating in the water. This coverage does not, however, increase the limits of liability for coverages A, B, C, or D in the homeowners’ policy. This takes the problem of defining back-up or overflow out of the equation of certain losses, since the endorsement provides the coverage that is excluded in the main policy itself.

Water, whether it be from pipes, sewers, sumps, or floods, is one of the bigger issues in homeowners policies. There is a lot of confusion surrounding what is and is not covered. Once you consider the definition of the terms, you are on your way to understanding the coverage. As always, policy language rules the day.

Six insurers eyeing 151,000 Citizens policies

By Paul Owers, Sun Sentinel

7:45 pm, December 4, 2013

State regulators have approved six property insurers to remove up to 151,000 policies from state-run Citizens Property Insurance Corp. in February.

The so-called takeouts are part of a continuing plan to reduce Citizens’ future catastrophe-related risk, such as hurricanes.

“We’re trying to return Citizens to its original role of being the insurer of last resort,” spokesman Michael Peltier said Wednesday.

Florida’s Office of Insurance Regulation last month approved First Community Insurance Co. to take out as many as 51,249 Citizens policies, while Safepoint Insurance Co. may remove up to 40,000 policies.

Elements Property Insurance Co. and Heritage Property Casualty Insurance Co. each have been approved for up to 20,000 policies. Southern Fidelity Insurance Co. and Southern Fidelity Property & Casualty can remove 10,000 each.

Private insurers have taken out more than 312,000 Citizens policies this year. As of last week, Citizens had just more than 1 million policies statewide and expects to fall below 1 million early next year.

President Barry Gilway has said the goal is to trim Citizens down to about 800,000 policies.

Currently, Broward County is home to 104,379 Citizens policies. Palm Beach County has 62,614.

Calm hurricane season over, but rocky waters ahead for Florida insurance scene

Gray Rohrer, 11/27/2013 – 02:04 PM

Saturday marks the last day of one of the mildest hurricane seasons on record, both in terms of named storms and legislative action on property insurance issues. The calm seas, though, belie an undercurrent of turbulence for homeowners.

Many homes in coastal areas face skyrocketing flood insurance premiums starting next year, and some are having trouble selling their homes because of federal legislation tagging next year’sNational Flood Insurance Program rate increases to home sales and other title transfers.

State lawmakers have pledged to find a state-based alternative to the NFIP if private companies don’t step in to offer cheaper flood coverage. There are signs private companies are looking into the market, and the Office of Insurance Regulation has set out guidelines for writing the new business and promised to fast-track review of new filings. The process, though, is likely to take longer than affected homeowners would need to avoid rate shock next year.

In addition to the new flood issue, lawmakers are likely to contend with state entities designed to stabilize the market: Citizens Property Insurance Corp. and the Florida Hurricane Catastrophe Fund, or Cat Fund.

Citizens marked the eighth straight year without major hurricane damage in the state, and with $6.8 billion in surplus the 11-year-old company is in its best-ever financial shape. But the company has moved to that position by pushing customers into the private market, drawing the ire of critics who say the new companies aren’t as financially stable.

Citizens’ total policies have dropped by 312,550 this year, down to 1,062,191. The company remains the largest property insurer in the state, however, covering $330.8 billion worth of property.

“Mother Nature has been kind and again spared Florida from a major storm. Here at Citizens, we have been busy taking advantage of that good fortune by continuing to reduce our exposure and policy count,” Citizens president and CEO Barry Gilway said.

Legislative action related to Citizens may hinge on the progress of the clearinghouse, designed to come online Jan. 2 and designed to shop new and renewal Citizens customers in the private market.

But lawmakers who have been pushing for Citizens rates to rise faster — they have a 10 percent cap on annual rate hikes, except for noncatastrophic sinkhole coverage — will continue to push for changes to the Cat Fund as well, despite the state reinsurance fund’s healthier financial outlook after the string of weak storm seasons.

After two straight years when its reserves and borrowing capacity wouldn’t have been enough to cover its liabilities, the new estimates show the Cat Fund has $12 billion in reserve and could borrow at least $6 billion — about $1 billion more than its maximum $17 billion coverage limit.

Still, free market advocates want more state reinsurance to be pushed into the private market. Lawmakers have resisted such changes in recent years, fearing the more expensive private reinsurance would push insurance rates higher.

“Now that the Cat Fund is at its healthiest, the time is right to shift some of that risk to the private market, so the Cat Fund is never again in a position where it is selling fake coverage,” Christian Camara, director of R Street Florida, a free market think tank, said last month when the latest Cat Fund estimate was released.

Atlantic Hurricane Season Quietest in 45 Years, Experts Say

The 2013 Atlantic hurricane season looks set to go down as a big washout, marking the first time in 45 years that the strongest storm to form was just a minor Category 1 hurricane.

There could still be a late surprise in the June 1-Nov. 30 season, since the cyclone that mushroomed into Superstorm Sandy was just revving up at this time last year.

But so far, at least, it has been one of the weakest seasons since modern record-keeping began about half a century ago, U.S. weather experts say. Apart from Tropical Storm Andrea, which soaked Florida after moving ashore in the Panhandle in June, none of this year’s cyclones has made a U.S. landfall.

That meant relief for tens of millions of people in U.S. hurricane danger zones. But 2013 has been a bust for long-range forecasters who had predicted a stronger-than-usual burst of activity in the tropical Atlantic.

It has been “a very strange sort of year” in the unpredictable world of cyclones, said Jeff Masters, a hurricane expert and director of meteorology at Weather Underground.

“We’ve been in this multi-decadal pattern of activity but it just didn’t happen this year,” Masters said, referring to the prolonged period of increased hurricane activity that began in 1995.

That period is still playing out, fed primarily by warm ocean temperatures in the tropical Atlantic that fuel hurricanes. But instead of increased activity, 2013 almost seems like a year when an enormous tranquilizer dart was fired into the heart of the main breeding ground for hurricanes.

A confluence of factors, including abundant sinking air and dry air, and possibly dust flowing out of North Africa’s Sahara desert, kept a lid on hurricane formation in 2013, according to many cyclone experts.

That wreaked havoc with most leading seasonal forecasts like the one issued by Colorado State University on Aug. 2. The errant forecast said 2013 would see above-average activity, with eight hurricanes and three that would develop into major hurricanes of Category 3 or higher on the five-step Saffir-Simpson intensity scale.

An average season has six hurricanes and three major hurricanes. But an Aug. 8 outlook from the National Oceanic and Atmospheric Administration called for six to nine hurricanes, three to five of which would become major hurricanes.

There were two short-lived Category 1 hurricanes this year, making it the first Atlantic season since 1968 when no storm made it beyond the first level of intensity, according to theNational Hurricane Center.

It has also been a year marked by the fewest number of hurricanes since 1982 and the first since 1994 without the formation of a major hurricane.

In terms of so-called “Accumulated Cyclone Energy” (ACE), a common measure of the total destructive power of a season’s storms, 2013 ranks among the 10 weakest since the dawn of the satellite era in the mid-1960s, said Dennis Feltgen, a spokesman for the Miami-based National Hurricane Center.

“The ACE so far in 2013 is 33 percent of normal,” he said.