Windstorm Insurance Rates Create Crisis in Monroe County

Prepared by the Grassroots Organization F.I.R.M. Fair Insurance Rates in Monroe April 3, 2006

April 27, 2017 2

Background - Monroe l  Monroe County is the southernmost county in the

state of Florida. Key statistics: l  2004 Estimated Population: 78,284 (a 1.6% decline since

the 2000 Census) l  51,563 Housing Units, 35,086 Households l  79.8 Persons per Square Mile (vs. 296.4 state-wide) l  Median Household Income: $42,238 (1999) l  2.23 Persons per Household l  Per Capita Money Income: $26,102 (1999) l  62.4% Homeowners (vs. 70.1% state-wide) l  75% of Monroe County is water. The County includes all of

the Florida Keys.

SOURCE: Monroe County Official Website, Census Data

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Background - Citizens

l  Citizens Property Insurance became the windstorm insurer of last resort in Monroe County by state statute in 2002.

l  Senate Bill 1486, Section (627.351(6)(d)4, F.S.) required the Office of Insurance Regulation to determine whether or not Monroe County is a competitive insurance market to evaluate issues of “availability and affordability of insurance.”

l  OIR determined, in a report completed March 1, 2006, that Monroe County is not a competitive market, and thus “the rates for personal lines residential coverage shall be actuarially sound and not excessive, inadequate or unfairly discriminatory.”

l  FIRM believes the rates established by Citizens are excessive, unfairly discriminatory and not affordable.

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2005 Windstorm Premiums

In 2005 (as in previous years), Monroe County residents paid the highest windstorm premiums for

coverage from Citizens in Florida. $5,279.04

$2,364.28$1,611.65

$0.00$1,000.00$2,000.00$3,000.00$4,000.00$5,000.00$6,000.00

Average Premium per Policy in Force as of 2/28/06 - High Risk Accounts,Wind Only

Monroe County (1) SE Florida (Dade, Broward, Palm Beach & Monroe) (2) Rest of State (2)

CALCULATION DATA:

(1)  Rate (from Citizens rate table as of 7/01/04) x Policies in Force (from HRA Wind Pool Counties table provided by Citizens to Representative Ken Sorensen on 3/30/06)

(2)  Total Premium Paid / Policies in Force (from Citizens website Combined Exposure & Premium Report Summary Report, February 28, 2006)

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2006 Windstorm Insurance Rates in Selected Coastal Counties

County Sample Cities Rate per $1,000 of coverage

Premium for $350,000 of coverage

Duval Jacksonville $2.60 $910

Escambia Pensacola $5.18 to $9.76 $1,813 to $3,416

Sarasota Sarasota, Bradenton $6.06 to $6.43 $2,121 to $2,250

Santa Rosa Navarre $6.77 $2,369

Broward Ft. Lauderdale $9.58 to $15.20 $3,353 to $5,320

Charlotte Port Charlotte, Punta Gorda $7.17 $2,510

Franklin Apalachicola $9.59 $3,357

Palm Beach West Palm Beach. Boca Raton $10.18 to $12.42 $3,563 to $4,344

Dade Miami, Homestead $11.37 to $19.15 $3,980 to $6,703

Collier Naples $11.46 $4,011

Monroe Key West. Layton, Marathon $20.91 $7,318

from Citizens Property Insurance rate filing effective March 1, 2006

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Real Cost of Windstorm Insurance in Monroe County (1)

l  The 2006 rates mean that the average residential property owner in the Florida Keys will pay $610 PER MONTH in windstorm premiums alone (excluding other related fees and surcharges).

l  2006 windstorm premiums represent 17% of median household income on average.

l  Citizens is proposing an additional rate increase of up to 44% later this year.

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Real Cost of Windstorm Insurance in Monroe County (2)

l  Example 1: l  Historic 1,900 square foot house in Key West l  Owned by working 20-year residents of Keys l  Actual Citizens premiums:

l  2004: $4,200 l  2005: $8,200 (a 95% increase from prior year) l  2006: $11,690 (a 43% increase from prior year)

l  Example 2: l  A 1928, 1,900 square foot house with Class A shutters in Key West l  Owned by a retired Coast Guard captain and his working wife l  Actual Citizens premiums:

l  2004: $3,000 l  2005: $10,300 (a 243% increase from prior year) l  2006: $15,900 (a 53% increase from prior year)

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l  Escalating windstorm premiums are exacerbating Monroe County’s affordable housing crisis. l  Entry-level home ownership is out of reach for

most young families. l  Rents are rising dramatically (as much as $500/

month) as landlords pass on premium increases to tenants.

Effect of Skyrocketing Windstorm Premiums on Monroe County (1)

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l  The Florida Keys are losing the very individuals that make them a viable community. l  Recruitment and retention in key public service arenas

(health care, police, etc.) is increasingly difficult. l  One in six Monroe County teachers will have to be replaced

this year. l  Hourly workers in the tourism industry – the economic engine

that drives the Monroe County economy – can no longer afford to live here.

l  Retirees and long-term residents on fixed incomes cannot pay these exorbitant insurance premiums.

Effect of Skyrocketing Windstorm Premiums on Monroe County (2)

“The very fabric of the Keys is unraveling – and these outrageous windstorm rates are a big cause of it.” – Key West Mayor Morgan McPherson

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l Escalating insurance premiums are devastating our economy. l  The last Citizens increase (from $16.92/

thousand to $20.91/thousand) represents $35 million dollars of lost disposable income of Keys residents.

l  The proposed 44% increase represents $79 million dollars out of our pockets.

Effect of Skyrocketing Windstorm Premiums on Monroe County (3)

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l  Escalating rates are effecting the real estate market for primary home buyers. l  The cost of windstorm insurance is becoming a “deal-

breaker” in real estate transactions. l  Windstorm insurance is required by mortgage lenders.

l  Second home buyers (many of whom live elsewhere in Florida) are increasingly turning to destinations like Costa Rica for vacation and retirement homes. l  Second home owners (“snowbirds”) bring considerable

capital and disposable income to the Keys – as they do throughout the state – and are an important part of our economy.

Effect of Skyrocketing Windstorm Premiums on Monroe County (4)

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l  More and more of the very wealthy – who may not have a mortgage on their homes – are choosing to become self-insured, further reducing the risk pool.

l  Those long-term residents in family homes with no mortgage may choose to go un-insured for windstorm. l  What happens when their homes are severely damaged? Is

this a recipe for a government bail-out? l  Such folks may not be able to procure any other type of

homeowner’s insurance, as companies increasingly require windstorm coverage before they’ll offer protection from fire, theft, liability, etc.

Effect of Skyrocketing Windstorm Premiums on Monroe County (5)

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Premium/Coverage Ratios in South Florida

Broward

0.60%

99.40%

Monroe

1.08%

98.92%

Dade

0.71%

99.29%

Premiums In Force Coverage A

Among the three southeasterly Florida counties, Monroe County has the highest premium to coverage ratio for Coverage A (structural) alone, suggesting that, compared to Broward and Dade counties, Monroe County is over-insured.

Calculated from HRA Wind Pool County Spreadsheet provided by Citizens Insurance to Representative Ken Sorensen on March 30, 2006.

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Storm Frequency

l  Many areas outside of Monroe County have experienced hurricanes as frequently as or more frequently than Monroe County.

City years between hurricanes Hollywood 2.60

Deerfield Beach 2.60

Boca Raton 2.60

Ft. Pierce 2.65

Florida City 2.65

Key West 2.70 Miami 2.70

Ft. Lauderdale 2.70

Stuart 2.75

Lake Worth 2.75

Spring Hill 2.75

Jupiter 2.87

Pensacola 2.93

Jacksonville 3.00

Marathon 3.14 SOURCE: www.hurricanecity.com

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Windstorm Insurance Claims in Selected Coastal Counties

County 2005 Insurance Claims, All Lines of Business for Hurricanes Dennis, Katrina, Rita and Wilma (from OIR)

2004 Windstorm Claims, All Lines of Business (from OIR)

Rate per $1,000 of coverage

Duval $2,194,095 $71,777,847 $2.60

Escambia $50,057,791 $1,673,248,713 $5.18 to $9.76

Sarasota $5,470,727 $61,290,070 $6.06 to $6.43

Santa Rosa $113,149,864 $664,688,446 $6.77

Broward $3,116,110,751 $1,439,765 $9.58 to $15.20

Charlotte $10,185,497 $2,475,295,083 $7.17

Franklin $3,175,471 $512,329 $9.59

Palm Beach $1,828,369,962 $1,524,180,997 $10.18 to $12.42

Dade $2,337,790,608 $74,938,647 $11.37 to $19.15

Collier $382,785,644 $31,669,459 $11.46

Monroe $226,602,315 $2,099,889 $20.91

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Storm-worthiness l  Monroe County is especially well equipped to deal with

hurricanes. l  Monroe County has the strictest building codes in the state

of Florida. l  Key West has the largest wood-frame historic district in the

nation, with thousands of homes that have withstood storms for over a century and a history of construction to endure the sometimes harsh environment.

l  The low population density of the Keys translates into fewer housing units and lower potential storm exposure.

l  State-wide, politically motivated “carve out” areas with less stringent building codes are susceptible to greater storm damage, the costs of which must be subsidized by other policy holders.

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Insurance Claims Per Policy in Selected Counties – Wilma & Katrina

County Citizens Policies in Force (HRA)

Citizens Windstorm

Claims

Calculated Claims per Policy

Rate per $1,000 of coverage

Broward 66,425 $518,800,000 $7,810 $9.58 to $15.20

Palm Beach 58,352 $259,040,000 $4,439 $10.18 to $12.42

Dade 85,270 $1,537,460,000 $18.030 $11.37 to $19.15

Collier 9,388 $103,140,000 $10,986 $11.46

St. Lucie 1,652 $9,380,000 $5,678 $16.42

Monroe 24,632 $45,470,000 $1,846 $20.91

Property damage per insured property from the same storms is lower in Monroe than elsewhere in Florida.

Wilma and Katrina are prime examples.

SOURCE: Citizens Property Insurance

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Conclusions

l  Citizens Property Insurance Co. has been determined to be “non-competitive” in Monroe County. Therefore its rates must be actuarially based. Actuarial data has not been presented for review. l  IEEF and ARP adjustments are inappropriate in a

non-competitive market. l  Proposed rates are neither experience-

based nor justifiable. They are excessive, unfairly discriminatory and unaffordable.

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Solutions

l  An immediate freeze on windstorm rate increases and a rollback to June 2005 rates.

l  The use of a portion of the $3.2 billion in 2005 unplanned sales tax revenue attributable to hurricane reconstruction efforts to mitigate these rates.

l  A long-term solution that either spreads the risk or equalizes windstorm rates state-wide, recognizing our shared potential exposure.

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Homesteading

l  FIRM does not believe the solution lies in distinguishing between homesteaded and non-homesteaded properties for insurance purposes. l  Residential rental properties – not homesteaded – provide

affordable housing options. Property owners will pass on premium increases to tenants, exacerbating our affordable housing crisis.

l  Owners of second homes (many of them Floridians) contribute significantly to our local economy. Higher insurance rates for non-homesteaded properties may cause them to move their vacation and retirement homes elsewhere.

l  A hurricane does not distinguish between homesteaded and non-homesteaded properties.

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Justification (1) l  A solution tailored to address Monroe County’s

concerns can be easily justified. l  Monroe County is a non-competitive market serviced

by a state-created entity. l  The State, through creation of the Pilot Program,

has provided a vehicle through which the unique insurance issues of Monroe County can be addressed.

l  The State has historically recognized Monroe County as an unique case through designation as an Area of Critical Concern.

l  The State has required Monroe County to build to stricter construction standards than any other county in the State.

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Justification (2)

l  Because of Monroe’s relatively small size, changes in Monroe County need not trigger significant state-wide overhaul.

l  Monroe County represents only 0.68% of the housing units in the state. SOURCE: 2000 Census Data

l  Citizens windstorm coverage in Monroe County represents only 0.99% of the structural exposure (wind) in the state. SOURCE: Calculated from OIR Monroe County “Reasonable Degree of Competition” Pilot Project Report to the Florida Legislature, March 1, 2006

l  The extent to which Citizens windstorm rates have skyrocketed – combined with ever-growing required coverage levels – and resulting premiums have simply become unaffordable is far greater in Monroe County than anywhere else in the State.

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Summary

l  Monroe County is in a crisis of affordability, terribly exacerbated by windstorm insurance rates that are excessive and unfairly discriminatory.

l  This crisis must be addressed immediately or the economic and cultural infrastructure of the Florida Keys – America’s 4th most favorite vacation destination, steward of the only living coral reef in North America, historically rich and culturally diverse – will disintegrate.

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About F.I.R.M

l  Fair Insurance Rates in Monroe is a grassroots organization established in late February, 2006, by a group of Key West neighbors concerned about their ability to continue to live in the Keys in the face of windstorm bills they’d received with outrageous premium increases.

l  FIRM is non-partisan. l  FIRM has over a thousand members throughout the

Keys to date. l  FIRM members are unpaid volunteers who love their

communities and want to remain in them. l  For more information, visit

www.fairinsuranceratesinmonroe.com. Prepared by Heather Carruthers with assistance from Cindy DeRocher, Kim Mack and Al Sachs, FIRM members