Five Years After Wilma: Are We Covered?

McClatchy-Tribune Information Services
October 25, 2010

Oct. 24--This is an anniversary no one is celebrating.

Five years after Hurricane Wilma whipped through South Florida, ripping holes in roofs and insurance companies, the insurance industry is still picking up the pieces and dealing with new problems unrelated to the storm, and property owners remain frustrated by a lack of choices and ever-increasing rates.

--Claims for Wilma continue to trickle in this year, for damage homeowners say they have just discovered from a five-years-ago storm.

Already, the storm is closing in on the tab for Hurricane Andrew, a far more powerful storm. When it last reviewed the cost of claims from Hurricane Wilma, a Category 2, in 2007, the Insurance Services Office, an industry trade group, estimated the insured losses in Florida were $10.3 billion from more than a million claims.

--Several insurance companies have collapsed and those left standing are raising rates. And because an insurance bill passed by the legislature in the spring was vetoed by the governor, now insurers can raise rates first and then ask regulators for approval.

--The state's largest private insurer tried to abandon Florida and only remains here in exchange for dropping 125,000 policyholders and increasing premium prices.

--As companies bail or fail, state-run insurer Citizens Property Insurance -- a predecessor of which was formed after Andrew with the intent of eventually disappearing -- is growing larger.

--Sinkholes, labeled by some as a scourge nearly as big as mold, are being blamed as the source of more claims than ever, including well outside the state's "sinkhole alley" in Central Florida.

--One of the rallying cries of the industry and a concern of regulators is that public adjusters -- who work for consumers who may be having trouble getting help from their insurers -- are driving up costs and filing questionable claims.

"We should be in a heck of a lot stronger position with five years without a hurricane," said Sam Miller , vice president of the Florida Insurance Council. "Every company is petitioning the Office of Insurance Regulation for rate increases and getting those approved. They are not able to build surplus and make a profit in years without a hurricane. That's bad."


When Gov. Charlie Crist's veto pen swirled across a carefully crafted property insurance bill in June, to some it felt like the sharp winds of a hurricane shredding the state all over again.

In some eyes, the bill would have been the largest step forward in a while toward stabilizing a shaky insurance market that hasn't found solid ground -- although the state hasn't been hit by a single major storm since Wilma.

"That [bill] was a tremendous beginning to try and straighten things out," Miller said. Next session, "that will be the starting point."

The bill would have limited the amount of time policyholders could file claims after a storm to three years. Neighboring states limit claims to two years, Miller said. Florida allows claims, storm or otherwise, to be made for up to five years after an incident.

"Does it really make sense that thousands of homeowners are unable to discover damage from a hurricane until three, four and five years after landfall?"

Crist vetoed the bill because it included a provision for companies to increase rates based on increases in the cost of reinsurance and inflation. The increases would have been subject to regulators' approval, but Crist said he could not condone any action that could raise policyholders' premiums.

Among other attempts to curb insurance company expenses, the bill would have further regulated public adjusters, adjusted the way discounts on measures homeowners take to strengthen their homes are handled and withheld payment for claims until homeowners had a signed contract for repairs.

"There's bad in every industry," said Michael McManigal of Florida Loss Public Adjusters, based in Pembroke Pines. "I can also say if the insurance companies were to pay what they should pay there wouldn't be any need for us. They want to cut corners."


Some consumer advocates agreed with different segments of the bill.

"There were some other things in the bill that would have helped insurance companies; we don't mind doing things that help them become successful," said Terry Butler , the state's insurance consumer advocate. "We recognize the need to have more insurance companies and stronger insurance companies in the state because that is good for consumers."

But he said one provision of the bill could have been especially helpful to consumers in the long run. It would have given the Office of Insurance Regulation the ability to inspect management agreements between insurers and parent companies -- many of which are out of state.

Newspaper investigations have found that much of the premium insurers collect from Floridians is sent to these parent companies, but the state has no ability to review the agreements or track the money -- a power many other states give their insurance regulators.

Another provision of the bill was attractive to Heather Carruthers , president of Fair Insurance Rates for Monroe, where the only choice for windstorm insurance is Citizens, except for some high-value properties.

The models that predict the kind of damage her county would experience in a storm aren't quite right. When the Keys are hit by a hurricane, the problem is water, not wind, just like when Wilma hit in 2005, she said.

Last session's insurance bill would have required an annual review of the models on which insurance companies base their risk. Although she wasn't a fan of the provision that allowed insurers to raise rates, she thought reviewing the models could be invaluable.

"If the models were really accurate, the insurance companies would realize we're not such a bad risk," Carruthers said. "They'd come back."


But others maintain that no single bill, regardless of how sweeping, will be enough to clean up Florida's property insurance mess.

"We continue to view the insurance market as either unstable or fragile," said Brian Schneider , senior director for insurance at Fitch Ratings. "Larger insurance companies have not really wanted to stay in the market. Other insurance companies that aren't as strong are less likely to be there after the next storm."

He said that a political change of scenery in the governor's office may have an effect on the industry's outlook. But ultimately, whatever legislation ends up affecting the industry, Florida will remain a difficult market for insurance, he said.

"The ability to have affordable rates and have capacity from insurance companies is a very difficult balance, both from losses that we've seen and potential losses that we see," Schneider said. "If a Category 4 or 5 were to hit Miami directly, a $100 billion bill would not be out of the ordinary. Even spreading $100 billion all over the state is not going to be enough."

Florida Insurance Commissioner Kevin McCarty agrees that the state's insurance market could be more solid.

"It's still a fragile market," he said. He acknowledged that competition in the riskiest parts of the state -- South Florida counties for hurricanes; Pasco and Hernando counties for sinkhole coverage -- is shrinking.

He said the state must continue giving private companies incentives to come to Florida. New homes must be built stronger. Old homes should be fortified.

In addition, McCarty said he will continue to push for a national catastrophe fund to handle what the private market can't.

"That is something I have been preaching for many, many years," McCarty said. "Until we have a catastrophic event that affects other areas of the country . . . everyone looks at it as a beach bailout for South Beach."


While Citizens is in its best financial position ever, it continues to be reliant on assessments if a hurricane strikes Florida, and CFO Sharon Binnun sees the wisdom in such a national system.

But even after the destruction in Louisiana from Hurricane Katrina, the idea of a national catastrophe fund didn't get far.

The insurer has been steadily gaining customers as other insurers fail or dump policies.

"I think everyone probably agrees the most healthy market would be where policies never make their way to Citizens," said Susanne Murphy , Citizens' chief administration officer.

Unlike private insurers, Citizens can assess Florida policyholders to pay for past losses. All property insurance policy holders, regardless of their insurer, are being assessed to pay off losses from Wilma, and will keep paying through 2017, though there is a chance those payments could end sooner. Any future assessments would tap nearly every insurance policy in the state, except workers compensation and medical malpractice policies.

But the insurer has built up enough in reserves that if another Wilma were to arrive, it might not have to levy such an assessment.

"We're the best we've ever been for sure," Binnun said. Citizens has more than $4 billion in reserves and can pay claims of up to $14 billion, although those kinds of expenses could generate an assessment or require tapping into reinsurance.

But including Andrew, Binnun said, "we've never seen a storm like that in Florida."

While policyholders may grumble about Citizens' rates, the insurer still doesn't charge what it needs to compensate for the risk it faces in the event of a major storm, hence the gradual increases in rates -- the so-called glide path -- the insurer was granted by the Legislature. Citizens will raise rates in 2011, its second increase after a three-year rate freeze.

But if multiple Wilma-like storms occurred in the same season, or the storm of the century hits the state, that could throw the insurer off its current track.

State Rep. Bill Proctor , R-St. Augustine, said that is the very scenario that will press him to introduce legislation in the spring that includes some of what was vetoed this year and more.

"To believe we can have a major public insurance company relying on reinsurance and bonding -- to say it's misleading is the kindest word I can use," said Proctor, who was livid over Gov. Crist's veto. He also wants major insurance companies to be granted the ability to charge more, generate bigger surpluses, feel comfortable taking on more risk and in turn, shrink Citizens.

But Citizens may grow bigger before that happens, after State Farm finishes dropping policies by next August, although some private companies have lined up to absorb some of them. State Farm will remain the state's largest private insurer, just a little larger than Universal Property and Casualty.

It was allowed to shed policies and raise rates in exchange for not withdrawing completely. The insurer contended it couldn't afford to do business in Florida anymore, despite several hurricane-free years.

In addition, the economic downturn, as with similar episodes in the past, may be triggering more claims.

While changes for the industry always seem to be in the offing, with new legislation to regulate the industry more or decrease regulation, the constant attempts at reform make Florida further unappealing, Neal said.

"The most important thing to us is consistency, predictability," Neal said.

"Virtually every year in the Legislature, there's some kind of insurance bill. That's been true for the last 20 years. All those things make insurance companies hesitant to invest in Florida and lock up their money in the state."

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