NU Online News Service, May 14, 4:04 p.m. EDT
Officials of a Florida independent agent's trade group hit state legislators today for what they said were actions on insurance putting homeowners at financial risk in the event of a big hurricane.
The state's pursuit of "artificially low rates" has created a situation that leaves the state's homeowners and property owners at risk "and only one huge storm away from very difficult circumstances," said Jeff Grady, president and chief executive officer of The Florida Association of Insurance Agents (FALA).
Mr. Grady who spoke at a press conference also put out a statement saying Florida "is one storm away from disaster."
During the conference, he said there are growing warning signs that the state's quest for short term savings at the expense of a stable insurance market makes Florida "an unsupported insurance island that might collapse under its own weight."
With the beginning of the hurricane season only a few weeks away, he said there is a state Hurricane Catastrophe Fund shortfall estimated as high as $12 billion.
In view of the unwillingness of the federal government to support a bailout, the state-created insurer of last resort, Citizens Property Insurance Corp., could see a true test of its viability if a large hurricane hits this year, according to Mr. Grady.
The current situation could lead to a downgrade in insurers rating, a default on homeowners mortgage requirements and the inability of insurers to pay claims if no remedy is found, he warned.
Of more concern, during a three year period when the state has not suffered a major hurricane, 40 percent of the state's residential insurers lost money last year, said Mr. Grady.
The major problem with Florida's insurance industry is that Citizens, instead of working as the insurer of last resort by charging rates higher than standard line insures, is competitive with them, noted Scott Johnson, vice president of FAIA.
Mr. Johnson commended legislators for passing a bill that would allow for properly reserved insurers to charge what the market will bear, but noted the bill only affects the state's largest carriers. To adequately fund the insurance market, all rates should be deregulated, he said, and the competitive pricing by Citizens should end.
He said the current situation is simply "unsustainable."
Walter Dartland, executive director for the Consumer Federation of the Southeast, said it would be better for the state's homeowners to pay now than suffer the consequence of insurers who are not in a position to pay claims.
To reduce the cost of insurance, he urged homeowners to fortify their homes against hurricanes, study information enclosed in their policies aimed at reducing homeowner's cost of insurance, and to talk with their independent agents about how to reduce costs.
He said the major problem with lawmakers making the tough decisions to ensure a stable insurance market is their fear that they won't be re-elected if rates are allowed to rise.
Florida is an expensive place to live, he said, and for people who live on the water, they have to pay a premium to live there.
"We have to be reality based," he said.
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