Home Insurance
Home insurance is fast becoming a dirty word for anyone who has property in Florida, in most coastal regions in fact. With insurance companies trying to stem losses and hedge against the worst, many householders are finding their homeowners insurance being cancelled for no reason.
Home insurance is designed to cover homeowners from losses to their property. Be that from weather, accident, fire or whatever. Like with most insurances you can adapt your cover to suit your specific needs.
The problem is that since Katrina, the insurance industry has been reeling from massive losses, estimated to be in excess of $40 billion.
The problem has developed as insurers have been cancelling homeowner’s policies in areas that might be at risk. The companies are worried about the potential for large losses from hurricanes and other severe storms and concerned that regulators will not allow them to raise rates enough to cover these potential losses. Nobody can predict how many storms there will be, or how much damage they might cause. Insurers know that states from Texas, along the Gulf of Mexico and up the Atlantic coast to Massachusetts could be subject to crippling financial losses if a major storm such as Katrina were to strike. Katrina payments by insurers have totaled more than $40 billion to 1.7 million U.S. policyholders in 6 states.
Many insurers are pulling out of these coastal areas to prevent any future risk. Fortunately the state stepped in and created Citizens Property Insurance Corp, and other insurers of last resort in high risk areas..
Florida operates one of the largest of these coastal “insurers of last resort.” Its problems illustrate the problems faced by such companies.
The Citizens Property Insurance Corporation was inaugurated in 2002 with the idea that it would cover only those who could not find coverage elsewhere. It was only supposed to be a temporary solution and would shrink disappear as the need for it declined. As market realities and nature intervened to require higher premiums private companies dropped policies or moved out of state. State politicians have reacted by allowing Floridians to opt for coverage by the Citizens scheme if private coverage would be significantly higher than what Citizens would charge and offering guarantees of rate stability for several years.
The problem is that Citizens is now the largest homeowner’s insurer in Florida. A major hurricane or storm could cost other Florida policy holders and ultimately Florida taxpayers huge sums of money. Floridians are already paying surcharges on their property insurance premiums to pay off deficits from 2004 ($516 million) and 2005 ($1.7 billion). If Citizens charges rates that are insufficient to cover future claims because of political considerations or misjudgments of future losses, there could be large deficits to cover.
Basically, by keeping rates low, Citizens isn’t making enough money to cover themselves and their policyholders if something major like Katrina happened again. The taxpayer would then have to assist in covering the losses.