10 things you should know about Insurance!

[Aquawind]

Navigating the insurance minefield: 10 things you should know

Things you (and your lawmaker) should know about homeowner's insurance in Florida.

By MATT REED, GANNETT NEWS SERVICE
Published by news-press.com on March 20, 2005

There's a world of difference

Yearly premiums on middle-class houses in the same town can cost anywhere from $800 to $2,900 per year.

Big vs. small vs. government: Proportionately, consumers lodged the highest number of complaints against small insurance companies whose organizations were overwhelmed by the sheer number of claims. But for many, a small private insurer was better than coping with state-run Citizens Insurance Co.

Mutual vs. publicly held: Mutual insurance companies such as State Farm and USAA are owned by their policyholders. Records show they charge higher rates — in some cases almost double — but offer good security and pay dividends to policyholders. Publicly traded companies such as Allstate and St. Paul Travelers charge lower average rates, but face pressure to control costs.

Politicians can mandate fairness but probably won't save you money

State lawmakers already did away in December with the scariest potential problem for homeowners: the rule that let insurers charge a separate hurricane deductible for each named storm in a season. Now, it's one per season.

Their latest proposals would help, but aren't big money-savers for consumers:

Require insurers to print the dollar-value of hurricane deductibles on the covers of policies. Some companies don't do that, and the big deductibles caught consumers buy surprise.

Urge the U.S. Congress to allow creation of tax-free savings accounts for policyholders to set aside cash for deductibles.

Grant insurers easier access to the state's catastrophe fund in another multistorm fiasco. That would save insurers money in a catastrophe and encourage them to charge competitive rates.

A lower hurricane deductible will cost you

Three out of four Florida homeowners must absorb a deductible equal to 2 percent of their home's value after a windstorm. About one out of every 20 homeowners must absorb a 5 percent deductible. Lawmakers have considered making insurers offer 1 percent deductibles as an option residents could buy through higher premiums, as they do with car insurance.

How much higher?

That's still unclear. But hypothetically: If every homeowner with a 2 percent deductible switched to a 1 percent deductible, the average annual hurricane losses for insurers would increase by 12 percent, state records show. The companies would look to make up that money somewhere.

It's illegal for insurers to make up past losses

Florida forbids insurance companies from raising rates in coming years to recoup their losses from past hurricanes. They may raise rates only to prepare for the future.

So far, 31 companies have applied for permission to raise rates. Based on computer models and experience, the insurers argue they don't charge enough now to adequately cover the properties they insure. Long term, rates will rise along with home values in Florida.

Why the 150 percent average increase in Floridians' homeowners rates since Hurricane Andrew? That was supposed to prepare insurers for the next monster storm season — and, to a large degree, it worked.

Never accept your adjuster's first offer

Insurance companies control their costs by "adjusting" claims amounts down to the lowest figure they can defend. At the same time, repair costs soar after a storm because of scarce supplies and contractors.

Dozens of residents told Florida Today their adjusters' first offers fell far short of what they needed for repairs after the 2004 hurricanes. Those who kept good records of their homes and repair estimates wrote back, showing why their insurers should reconsider. Many received higher settlement offers — sometimes multiples of the initial offers.

The 2004 hurricanes didn't cripple major insurers

Catastrophe losses in 2004 —including a tsunami and Japanese typhoons — amounted to about 4 percent of premiums collected by big insurers, earnings reports show. Losses from Hurricanes Andrew and Iniki in 1992 amounted to barely 3 percent of the industry's premium collections that year.

One key to survival: backup policies, or "reinsurance," that companies buy to help cover their losses in a catastrophe. In 2004, only Allstate went without it, records show.

Warren Buffett, chairman of Florida's then-No. 2 insurer, Berkshire Hathaway Inc., described Andrew's effect in a 1992 annual report: Andrew destroyed a few small insurers. Beyond that, it awakened some larger companies to the fact that their reinsurance protection was far from adequate. (It's only when the tide goes out that you learn who's been swimming naked.)

Rates for Citizens Property Insurance Corp. are based on an illogical policy

Florida law says Citizens, the state-run insurer of last resort, must constantly raise its rates to stay higher than those for private companies. And that's unfair, says the state's Office of the Insurance Consumer Advocate.

Lawmakers said when they created Citizens in the 1990s, they meant to make its rates painful for consumers. That would stimulate them to get out, find private insurance and prevent big government, they said. They don't want Citizens to compete with private insurers.

But "the overwhelming number of Citizens' population did not shop their way into Citizens' coverage," says an advocate's report to the Legislature. "Rather, they had no other option ..." They argue that they should not be forced to pay a rate designed to keep them out, when they were forced in by the market.

Your policy may be full of costly surprises

You've probably learned that homeowners' policies contain a special hurricane deductible, typically 2 percent or 5 percent of your home's value. That's more than many people have in the bank. But keep digging through that policy. You might find: You're not covered for wind-blown water. Rain blown through roof vents, windows and cracks doesn't count as windstorm damage to some insurers who consider it flooding. The same goes for storm surge. The only way to know is to ask your carrier.

Your insurers will "hold-back" depreciation. Whatever you lose, adjusters will knock down its value as depreciation, based on its age and condition. After you make repairs, most insurers will send you money for the difference in value between, say, an old roof and a new roof. But you won't have that cash up-front to pay a contractor — and it can be thousands of dollars.

Your hurricane deductible trumps deductibles for extra coverage. If you normally have a separate $500 deductible for "building extensions" like fences or sheds, you still may have to absorb a windstorm deductible — 2 to 5 percent of your home's value — on those items, too.

Now, a few months before the next storm season, it's worth talking to an agent to clarify your coverage.

Shop around

Insurers are about to compete harder for your business. Insurance company CEOs said they don't fear hurricanes this year as much as they dread a "soft" insurance market nationwide. When that happens, insurers compete harder for clients, and they do that by cutting rates. If you can't save on homeowners, you could still lower your overall costs by switching your auto or business insurance.

Here's how it works:

Property insurers have made almost all of their profits, or surpluses, from investment income — your premium dollars invested in stocks and bonds while they wait to be paid out in claims.

When stocks and bonds are strong, insurers can cut rates and compete for market share. They maintain profits by investing the bigger cash flow. Insurers call that a "soft" market. When stocks and bonds dip, insurers tighten up. They raise rates, get stingy with policies and defend their bottom lines. That's a "hard" market.

The securities markets have improved. Time to go shopping.

Insurance companies won't leave Florida

"All the majors are here to stay, they're here to play," said Bill Bailey, special counsel in Florida for the Insurance Information Institute.

True, private insurers will pay about $9 billion in Florida hurricane claims. And a leading mobile-home insurer cancelled its policies and left last year.

But Florida is America's fourth biggest state, with a huge population and tons of money. All those people must buy insurance to drive, own homes or run businesses, and they buy lots of insurers' other products such as mutual funds and car loans.

"Homeowners insurance ... has traditionally been used as a method for insurers to retain profitable personal auto, business and umbrella coverage, which often caused it to be a loss leader," says Moody's Investors Service. In other words, insurers were willing to lose money or break even on homeowners policies because it helped draw other business — just like supermarkets discount 12-packs of Pepsi to lure customers for other purchases.

— SOURCES: Policyholders; U.S. securities filings for 2004 and 1992; corporate earnings reports and conference calls; interviews with State Farm Florida, Allstate Floridian, First Floridian and USAA; interviews with state lawmakers; position papers from corporations and state agencies; research by the National Association for Business Economists; presentations by the Insurance Information Institute.

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Paul

[MSRobi911]

Insurance companies won't leave Florida

Insurance companies can and will leave what ever area they want to. They may not leave the entire state but they will pick and choose what areas that want to insure. In my neighborhood alone, there are only two companies that will write home owner policies the rest of the companies said, sorry, we can't write policies in that area. So, there is no shopping around...you get what you can and pay what you have to pay to make sure you are covered.

Look at the Malpractice insurance companies in just Mississippi. Our state had to makes its own Malpractice insurance company just so some of the doctors could be insured, if they can afford the rates. I can't tell you how many OB-GYN's have quit delivering babies because they can not afford the insurance. And I know this is different, but shows what insurance companies can do. We need Tort Reform in the worst way!

Mary