Property
Insurance Meltdown
Florida is on the verge of a prop
erty insurance meltdown. Hurricane and sinkhole losses have seriously
strained the resources of both the voluntary market and the public-sector
mechanisms of Citizens Property Insurance Company (Citizens) and
the Florida Hurricane Catastrophe Fund. Additionally, a very busy
hurricane season forecast for 2006 creates an urgent need for
property insurance to be addressed by this legislative session.
State-owned Citizens, which in four years has become Florida’s
second largest property insurance company, has a $1.4 billion
deficit in cash needed to pay hurricane losses. Citizens’
cash deficit will be funded through premium surcharges, projected
to result in a minimum 15-percent premium increase for each residential
policyholder. Hurricane losses have also totally depleted the
cash resources of Florida’s Hurricane Catastrophe Fund.
Florida insurance companies have replaced approximately $1 billion
of capital depleted as a result of 2004 hurricanes. Additional
replacement capital will be necessary as a result of 2005 hurricane
losses. A number of insurance companies are re-evaluating their
hurricane exposure and reducing market share in some cases. The
Office of Insurance Regulation estimates that approximately 250,000
policies will be non-renewed this year. These non-renewals have
not been offset by new companies entering the market.
In addition, sinkhole claims continue to be a problem in the
Tampa Bay area. Florida law mandates property-insurance coverage
of sinkhole losses. Aggressive solicitation by plaintiffs’
attorneys and unscrupulous contractors has resulted in a litigation
barrage over whether that crack in the foundation is a result
of normal settling, poor construction, or a sinkhole.
Sinkhole litigation has significantly reduced availability of
private property insurance in the Tampa Bay area. Citizens’
is now the primary property insurer in some areas of Tampa Bay,
such Hernando, Hillsborough, Pasco and Pinellas counties, where
the number of Citizens’ policies increased from 1,012 policies
to over 140,000 in just three years.
Another key insurance issue involves Florida’s personal
injury protection (PIP) automobile insurance law, which is set
to expire this year unless the Legislature reenacts it.
Florida’s PIP law was adopted in 1971 to provide quick
and efficient compensation to accident victims regardless of fault.
The rationale was that lawsuits over minor injuries were unnecessarily
expensive and unpredictable. Reducing the volume of lawsuits would
lead to an overall drop in motor vehicle insurance costs.
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