Insurance: New state wind program little help
|Insurance executive John C. Laurie, a technical adviser to the state insurance reform commission, recommends eliminating the state wind pool boundaries that make wind insurance available to some small businesses but deny policies to others. Islander Photo: Molly McCartney
The wind insurance program that the state hastily established this summer has offered only minimal help so far to the dozens of commercial property owners on Anna Maria Island — and in other high-risk areas in Florida — who are struggling to find available and affordable wind coverage.
The Florida Property and Casualty Joint Underwriting Association (PCJUA) opened its doors for business in mid-September with the declared intention of providing wind insurance to small businesses that are unable to find coverage.
But after four weeks of operation, the PCJUA has insured only two Manatee County structures and issued only 42 policies in the entire state, according to an agency spokesperson.
This disclosure comes just as headlines announce record billion-dollar profits for insurance companies across the nation, thanks to strong investment profits and the absence of a major hurricane this year.
With the approach of the Nov. 7 election, insurance has become a hot issue on the campaign trail with candidates debating the problem and proposing various solutions.
The level of activity has also increased in state government as regulators issue tough decisions on behalf of policyholders and state reformers go forward with meetings and recommendations aimed at bringing relief to policyholders.
But the pain of sky-high premiums and hard-to-find wind insurance continues for many property owners.
One explanation for the small number of PCJUA policies issued so far by the state is the high cost of coverage.
"From what I hear about the premiums, I don't think we will be able to afford the coverage," said Dr. Paul Barrese, president of the Holmes Beach condominium office building at 3909 E. Bay Drive where his practice is located.
He said a PCJUA wind policy could cost the condo as much as $39,500.
The PCJUA application process, which requires a 10-day search for coverage from a standard insurer, also appears to have slowed down state efforts to help property owners.
"The agent said he had to fill out a lot of forms," Dr. Barrese said, "so now we are waiting to hear back from him and to get a quote."
PCJUA wind coverage is limited to commercial and non-residential properties valued at $1 million or less.
That disqualifies property like the Roser Memorial Community Church, because its buildings are valued at more than $2 million.
Roser has been without wind coverage since its policy expired in June.
The Island Shopping Center, valued at $2 million, isn't eligible for the PCJUA either. Center manager Hugh Holmes Jr. was able to obtain wind coverage from Lloyd's of London, but the policy cost $125,000 and has a $100,000 deductible.
According to the tenants lease terms, insurance costs are passed on to the small businesses that lease space there and rents there have increased approximately 30 percent since May.
One Island business that would appear to meet the PCJUA rules, based on the value of the property, is the Pine Avenue General Store in Anna Maria.
Owner Sandy Mattick said her agent applied for PCJUA coverage for her frame building as soon as it became available last month. But Mattick said the PCJUA rejected her application because she lives in the back part of the store.
The PCJUA will not insure a building used for both commercial and residential purposes, she said.
Holmes Beach insurance agent Mark Mixon said he has received inquiries from some businesses hoping they might qualify for the PCJUA coverage. But so far, he said, he hasn't sold any policies.
Mixon said he doubts that the average small business is in a position to pay the PCJUA premium rate, which is set at $1.49 per $100 of coverage, although it can be adjusted to reflect the building's age, material and distance from the shoreline.
Because of the adjustments, the rate "is always going to be higher than what the JUA set," Mixon said. In his view, the premium price and the 5 percent deductible built into the PCJUA policy make it unaffordable.
Combine PCJUA, Citizens?
While the PCJUA has issued only a few policies, the bureaucracy behind the program itself is growing as employees are hired, attorneys retained and rules developed.
But questions are now being raised about the need for a second state-created property insurance program.
"My common sense is why? Why are we building two separate entities — the PCJUA and the Citizens?" asks Bradenton insurance executive John C. Laurie, a technical advisor to the state insurance reform commission now working to find solutions to the insurance crisis.
In an interview with The Islander, Laurie said he believes that the PCJUA should be collapsed and folded into Citizens Property Insurance Corporation, the state's insurer of last resort.
Laurie, who has also been working with state Rep. Bill Galvano to develop ideas for insurance reform, is hopeful that his proposal will be adopted by the commission in the final report it issues in mid-November.
"My recommendation is that we are coming into a special legislative session in December, presumably, so you could take care of this there," he said.
The key to making the merger work, Laurie said, would be to reconcile the differences in the rates charged by Citizens and the PCJUA.
Citizens charges for commercial wind insurance are much lower than the rates charged by the PCJUA, he said. One reason for the difference is that Citizens rates have not been raised in more than 10 years and need to be adjusted upward to reflect the market, he said. The PCJUA commercial rates were set more recently and more accurately, he said.
Laurie believes that merging the PCJUA with Citizens and reconciling their commercial rates would have the effect of eliminating the controversial wind pool issue.
He described the state-designated wind-pool boundaries as arbitrary lines that have "everything to do with availability and affordability and whether your business is covered or not, and that is not right."
Laurie said the boundaries were set many years ago and no longer make sense. "What is clear is that this is supposed to be safety-net coverage. And yet not everyone is eligible to access that safety net. And that is a matter of unfairness that needs to be corrected."
A scientific study to set wind-pool boundaries won't solve the basic problem, he said, "because the boundary is going to change the very next day after you establish it, so eliminate it and allow that safety net to be there for everyone."
Laurie, a principal with Wyman, Green & Blalock Inc., said that his proposal would have the effect of letting the market rather than the state dictate the wind pool boundary.
Other steps that he recommends to produce long-term solutions include:
- Increase the state's re-insurance capacity by modifying and expanding the Florida Hurricane Catastrophe Fund.
- Encourage property owners to fortify their homes against wind damage.
- Create a more consistent approach to regulation that would bring more insurance companies to Florida while providing consumers with the benefit of additional competition.
- Transform and restructure Citizens to hold down future growth while eliminating unnecessary bureaucracy.
Citizens takes back policyholders
Florida residents who were "taken out" of Citizens and charged higher rates for insurance may now be able to return to Citizens and its lower rates under an order issued Oct. 11 by the state insurance commissioner.
This action has the potential to reduce insurance bills for some homeowners, although it isn't clear yet how the new arrangement is going to work or how it will help policyholders who have already paid the annual premium to their takeout company.
According to a release from Florida Insurance Commissioner Kevin McCarty's office, thousands of policyholders have had their policies "taken out of Citizens only to see their premiums increase dramatically beyond what they were previously paying."
The Citizens takeout provisions were intended to help reduce Citizens exposure to risks, but because of "unintended consequences these people have been hit with a financial nightmare," the statement said.