A bill (SB 2498) , the Glitch Bill, is awaiting for final Senate approval in the Florida state capital. This would carry out a Governor Crist campaign promise to prohibit private insurance companies from establishing Florida-only subsidiaries. Crist has derided the subsidiaries as a means for insurers to ship their profits out of the state while further charging Floridians excessive rates. The bill must go through two more sessions with the Senate for a final vote.
A Glitch Bill is supposed to mean that small technical problems would be “fixed” in the insurance industry. It is meant for lowering premium rates and regulating how much insurance companies can raise premiums. By fixing these technical problems that would have the insurance companies deliver their savings to the consumer. Insurance companies would be required to resolve claims in 90 days for residential homeowners. However, commercial policies (such as mutli family, condos, town homes, small businesses) would be more complex and would have a difficult time wrapping things up in this short period. Hence, they would not be able to capitalize on the Glitch Bill.
As a consequence of this, a few days ago, I received a letter from my insurance company, United Service Automobile Association (USAA) regarding property insurance. First, let me say USAA has been one of the finest insurance companies around and most admired company. It is offered only to their active and prior military service members. We have been with USAA for nearly 30 years, and no one can compete with them.
In this letter, it stated that the state of Florida has left them no choice but to take the following actions in order to limit potential future losses, and to protect the association and its members. They will now be limiting new coverage to only their active members and only allowing one home to be insured in Florida. In the past, children of members could automatically receive a homeowner policy in Florida with USAA without ever serving in the military. Also, it means that anyone who might have bought more than one home during that big boom in 2004-2005 needs to find a new insurance company for their other homes. What is bad about this, is we are approaching the hurricane season, beginning June 1st, and it is extremely difficult to find insurance in Florida during this period.
Fortunately for me, I did sell a second home last year bringing me down to one home presently. However, even though the letter states, that this will only affect 10% of their membership, it’s still going to force a lot of hardships to innocent people. It could even force some owners into selling those homes more swiftly and adding more homes to our continually growing real estate inventory.
According to USAA, they feel they need to do this to protect the risk to their national membership by limiting coverage in Florida due to the fact they would be limited on raising rates. In essence, that means if Florida had a natural disaster and they can’t increase rates, it would be devastating to the company’s finances. For the past 20 years, I have hardly had my insurance premiums increased until 2006, when I was increased by 40%. Also, in the policy my dwelling amount has gone up which means a higher deduction if a hurricane damages my property. These property prices are reflected from 2005 prices which as we know now have been coming down at least 10% since those highs. I get this feeling they knew this bill was coming and had to get their increases in before the news hit. I didn’t see much of an increase in 2005 which would have reflected the property casualty from 2004.
So the Glitch bill is bad news for multi-ownership but apparently good news if you just have one home. It is said that they are limiting how much they can raise the premiums yearly.
Over the previous year or so when we were hit with multiple hurricanes, many of us saw our insurance premiums jump as much as 40% from insurance companies. And this includes those who are not on the coast or have never experienced wind damages.
So what does this all mean for Florida? Well, there are a lot of insurance companies that have left the state. It is making it hard for new homeowners to insure their homes which could actually cause more pressure on home prices in the future.
We live in the Orlando area and it’s not like this has been a reoccurring incident here. In fact, when those three hurricanes came towards Orlando, it was the first time since 1960 when Hurricane Donna visited us. Is it fair for someone like me to have had their premiums raised when my area was not really affected by any wind damages? No, but at the same token I’m concerned about property prices down the road if there are not that many insurance companies that will insure in Florida. It’s a catch 22. This bill they are trying to pass sounds good for homeowners but what could be the implications? And is it worth the risk of driving all insurance companies out of the state? I haven’t seen anything in this bill that addresses them changing the policy’s deduction clauses or dwelling increases. It’s all relative.
And this is not limited to residential property insurance. Commercial insurance, especially small businesses along the coast are struggling to pay their insurance premiums. Most of them are leasing their space, so they are looking to pass the cost down to their tenants. This is going to be critical for tourism if the small businesses leave the state.
I read that these rate reductions will be less than 24 percent for homeowners. Personally, I don’t know if it is worth the small reductions. And it’s not conclusive we all will see it. Most of all is it worth sacrificing our state’s economy if we have few choices on who will insure us anyways?
