As we await the Florida Legislature’s rulings on Property Taxes, and acknowledge the arrival of the 2007 hurricane season, it seems appropriate to review the result of the State’s last major effort to help property owners - reducing insurance premiums. In the beginning that effort envisioned 24 percent rollbacks for homeowners with private insurance and a restructuring of Citizens Property Insurance Corp. (Citizens) to make it actuarially sound. However, the “reductions” now being received from private insurers have been much smaller and most of the rate increases required to make Citizens self-sufficient have been rescinded

Created in 2002 by legislators from affluent coastal areas of southeastern Florida, Citizens originally provided coverage for property sufficiently at risk that the owner could not obtain private insurance. Under the new regulations Citizens can now offer coverage to those whose private insurance rates are significantly higher than Citizens. This includes businesses and homes built in areas prone to damage, especially expensive oceanfront properties, and those not meeting current construction codes. In short, responsible residents and businesses subsidize those investing in riskier and often much more expensive properties through a “tax” levied on all private insurance policies in the State.

This "tax" is hidden in your annual homeowners' policy in the “declarations" or "endorsements" section under titles such as "Florida Hurricane Premium Recoupment" “Florida Hurricane Catastrophe Fund Emergency Assessment”, “Property Insurance Surcharge”, "Florida Hurricane Catastrophe Fund” or simply "FHCF Recoupment." From the hurricanes of 2004-05 Citizen’s losses accelerated from $500 million in 2004 to an audited $1.49 billion at the end of 2005. By late 2006 Citizens losses were reported to be as high as $4 billion and multiple recoupments were being added to all private policies.

The new laws that took effect on June 1, 2007 revised the rules, although the assessments on private policies continue. According to the Insurance Information Institute: “The legislation passed in early 2007 resulted in rate reductions (on private policies) far less than the average … promised because state officials failed to consider all the factors involved” and, rather than increases, “Citizens has …”filed for rate reductions averaging 14.5 percent.”

According to the Wall Street Journal: “Large numbers of Florida homeowners are now turning to Citizens, which itself is only able to offer lower premiums because of its implicit taxpayer guarantee, and because its actuarial assumptions reside in la-la land. Citizens likes to say it will have $8 billion with which to pay claims, but it rarely notes that much of this is a line of credit. Between such credit and its bonding authority, what Citizens really has is the potential to rack up huge liabilities that will have to be paid by someone ….Most likely, that someone will be all Florida homeowners, who, in the event of a Citizens collapse, will be on the hook for large assessments. This tax is likely to be levied on every homeowner, including those who don't live in areas at high risk for storm damage. Another option would be for the state to provide a bailout, putting all taxpayers on the hook. The risk of a taxpayer bailout is also high for the state's hurricane fund: The new law doubled its risk-bearing capacity to $32 billion in business, thus allowing insurers to purchase reinsurance at cheaper rates than on the open market. However, the fund has only $1 billion in cash on hand, and thus no way to cover its new business if disaster strikes—short of dunning taxpayers.”

Our analysis indicates major private insurers have exacerbated the problem by withdrawing or limiting coverage in the Florida market due to what they consider to be unwarranted risk mandated by the legislature. This retrenchment and Citizens revised/reduced premiums make their policies even more attractive. The combined result is a substantial increase in the number of Citizens policies, not the decline originally intended by the legislation. The bottom line: any savings being received is from State guarantees that rely on the equity in all of our homes! Taxpayers should be outraged, but few understand the liabilities that have been placed on them. Hopefully the Legislature’s actions on Property Taxes will be more thoughtful than evidenced by the result of their insurance deliberations.