How the Florida Legislature Gets You to Pay the Home Insurance Bills of Others

After Hurricane Andrew and continuing to this day, Florida home insurance companies have continued to pull out of the state or seek significant rate increases. Why? Because both Florida homeowners insurance companies and state regulators can't seem to agree on the right amount that consumers should pay for the hurricane portion of their Florida home insurance bill.

So starting in the 1990's, the State of Florida started to charge special assessments on each Florida home insurance policy written and formed an insurance company of last resort which today is called Citizens Property Insurance Corporation to make sure that everyone in Florida has at least one insurance company willing to cover their home or business.

The state also created an entity called The Florida Hurricane Catastrophe Fund that requires all licensed Florida home insurance companies to purchase reinsurance once the cost of a major hurricane exceeds a certain level. This fund is insurance for Florida insurance companies and helps to make sure that they don't have to absorb all of the costs of a major hurricane event.

Finally, Florida created a legal entity called the Florida Insurance Guaranty Association (FIGA) that will pay your insurance claim if your Florida homeowners insurance company is declared insolvent.

Those special assessment line items on your Florida home insurance bill can cause you to pay line item charges for many years into the future. You can be asked to make up the difference when Citizens Property Insurance Corporation and the Florida Hurricane Catastrophe Fund don't have the money to meet their obligations. Or you could be assessed for the difference if FIGA doesn't have the cash to pay off the claims filed against a Florida homeowners insurance company that became insolvent.

So far, at high level, each of these various entities and the protections that they offer make sense. And when they work properly they do help further diversify Florida's hurricane risk and help make it attractive for Florida home insurance companies to continue to do business in the state.

However, the Florida Property Insurance Legislation of 2007 and 2008 have changed and politicized the mission of each of these organizations to a point where they no longer work as they were intended. Why? Because Florida legislators aren't willing to tell voters the truth - that these entities are now seriously underfunded and not positioned to do what they are supposed to do. Even worse, many Florida consumers don't realize that they are paying for someone else's Florida home insurance.

At the present time, both the Florida Hurricane Catastrophe Fund and Citizens Property Insurance Corporation are underfunded and heavily dependent on an unfriendly bond market to meet their obligations. Both have to try to borrow in advance of Florida hurricanes with mixed success to raise the cash that they need and are coming up short as the country works through the financial crisis.

Citizens Property Insurance Corporation is the one organization that causes each of us to subsidize the Florida insurance costs of someone else. Every one of us will be required to pay annual special assessments for many years into the future to cover the cash shortfalls that Citizens Property Insurance had as a result of the 2004/2005 storms. Cash shortfalls are just another way of saying that those who were insured with Citizens for the 2004/2005 storms, were simply not charged enough premium for that coverage. Many of those homes are older homes located near the Florida coast directly in hurricane alley. After the 2004/2005 Florida hurricanes, Florida lawmakers froze the rates being charged by Citizens - a politically popular move that also had the effect of making everyone in Florida no matter where they live, subsidize the Florida home insurance rates of those who live in the most hurricane prone areas of Florida.

Last but not least, because the rates of Citizens have been frozen for the past few years, even when consumers can find Florida home insurance in the private market, they are still given the choice of being insured by Citizens and being undercharged for their insurance.

This subsidized insurance that many Citizen policyholders receive, comes at a price. It is paid for primarily through special assessments that we all pay as part of our Florida home insurance bills each year. These assessments have become so burdensome, that Florida home insurance policies are not enough to pay the total cost. That's why you'll see many of them on your Florida auto and business insurance bills as well.

If you are fed up with paying the Florida homeowners insurance premiums of someone else, now is the time to have your voice heard during the current session of the Florida Legislature. Tell the lawmakers that you've voted for and sent to Tallahassee that you want the Florida home insurance rates of Citizens Property Insurance Corporation raised to reflect the true cost of the homes they are covering.