Windstorm Insurance Rates Create Crisis in Monroe County

1
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

2
Background - Monroe

• Monroe County is the southernmost county in the
  state of Florida. Key statistics
• 2004 Estimated Population 78,284 (a 1.6 decline
  since the 2000 Census)
• 51,563 Housing Units, 35,086 Households
• 79.8 Persons per Square Mile (vs. 296.4
  state-wide)
• Median Household Income 42,238 (1999)
• 2.23 Persons per Household
• Per Capita Money Income 26,102 (1999)
• 62.4 Homeowners (vs. 70.1 state-wide)
• 75 of Monroe County is water. The County
  includes all of the Florida Keys.
• SOURCE Monroe County Official Website, Census
  Data

3
Background - Citizens

• Citizens Property Insurance became the windstorm
  insurer of last resort in Monroe County by state
  statute in 2002.
• 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.
• 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.
• FIRM believes the rates established by Citizens
  are excessive, unfairly discriminatory and not
  affordable.

4
2005 Windstorm Premiums

• In 2005 (as in previous years), Monroe County
  residents paid the highest windstorm premiums for
  coverage from Citizens in Florida.

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

5
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
6
Real Cost of Windstorm Insurance in Monroe
County (1)

• 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).
• 2006 windstorm premiums represent 17 of median
  household income on average.
• Citizens is proposing an additional rate increase
  of up to 44 later this year.

7
Real Cost of Windstorm Insurance in Monroe
County (2)

• Example 1
• Historic 1,900 square foot house in Key West
• Owned by working 20-year residents of Keys
• Actual Citizens premiums
• 2004 4,200
• 2005 8,200 (a 95 increase from prior year)
• 2006 11,690 (a 43 increase from
  prior year)
• Example 2
• A 1928, 1,900 square foot house with Class A
  shutters in Key West
• Owned by a retired Coast Guard captain and his
  working wife
• Actual Citizens premiums
• 2004 3,000
• 2005 10,300 (a 243 increase from
  prior year)
• 2006 15,900 (a 53 increase from
  prior year)

8
Effect of Skyrocketing Windstorm Premiums on
Monroe County (1)

• Escalating windstorm premiums are exacerbating
  Monroe Countys affordable housing crisis.
• Entry-level home ownership is out of reach for
  most young families.
• Rents are rising dramatically (as much as
  500/month) as landlords pass on premium
  increases to tenants.

9
Effect of Skyrocketing Windstorm Premiums on
Monroe County (2)

• The Florida Keys are losing the very individuals
  that make them a viable community.
• Recruitment and retention in key public service
  arenas (health care, police, etc.) is
  increasingly difficult.
• One in six Monroe County teachers will have to be
  replaced this year.
• Hourly workers in the tourism industry the
  economic engine that drives the Monroe County
  economy can no longer afford to live here.
• Retirees and long-term residents on fixed incomes
  cannot pay these exorbitant insurance premiums.

The very fabric of the Keys is unraveling and
these outrageous windstorm rates are a big cause
of it. Key West Mayor Morgan McPherson
10
Effect of Skyrocketing Windstorm Premiums on
Monroe County (3)

• Escalating insurance premiums are devastating our
  economy.
• The last Citizens increase (from 16.92/thousand
  to 20.91/thousand) represents 35 million
  dollars of lost disposable income of Keys
  residents.
• The proposed 44 increase represents 79 million
  dollars out of our pockets.

11
Effect of Skyrocketing Windstorm Premiums on
Monroe County (4)

• Escalating rates are effecting the real estate
  market for primary home buyers.
• The cost of windstorm insurance is becoming a
  deal-breaker in real estate transactions.
• Windstorm insurance is required by mortgage
  lenders.
• Second home buyers (many of whom live elsewhere
  in Florida) are increasingly turning to
  destinations like Costa Rica for vacation and
  retirement homes.
• 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.

12
Effect of Skyrocketing Windstorm Premiums on
Monroe County (5)

• 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.
• Those long-term residents in family homes with no
  mortgage may choose to go un-insured for
  windstorm.
• What happens when their homes are severely
  damaged? Is this a recipe for a government
  bail-out?
• Such folks may not be able to procure any other
  type of homeowners insurance, as companies
  increasingly require windstorm coverage before
  theyll offer protection from fire, theft,
  liability, etc.

13
Premium/Coverage Ratios in South Florida
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.
14
Storm Frequency
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

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

SOURCE www.hurricanecity.com
15
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
16
Storm-worthiness

• Monroe County is especially well equipped to deal
  with hurricanes.
• Monroe County has the strictest building codes in
  the state of Florida.
• 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.
• The low population density of the Keys translates
  into fewer housing units and lower potential
  storm exposure.
• 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.

17
Insurance Claims Per Policy in Selected Counties
Wilma Katrina
Property damage per insured property from the
same storms is lower in Monroe than elsewhere in
Florida. Wilma and Katrina are prime examples.
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
SOURCE Citizens Property Insurance
18
Conclusions

• 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.
• IEEF and ARP adjustments are inappropriate in a
  non-competitive market.
• Proposed rates are neither experience-based nor
  justifiable. They are excessive, unfairly
  discriminatory and unaffordable.

19
Solutions

• An immediate freeze on windstorm rate increases
  and a rollback to June 2005 rates.
• 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.
• A long-term solution that either spreads the risk
  or equalizes windstorm rates state-wide,
  recognizing our shared potential exposure.

20
Homesteading

• FIRM does not believe the solution lies in
  distinguishing between homesteaded and
  non-homesteaded properties for insurance
  purposes.
• Residential rental properties not homesteaded
  provide affordable housing options. Property
  owners will pass on premium increases to tenants,
  exacerbating our affordable housing crisis.
• 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.
• A hurricane does not distinguish between
  homesteaded and non-homesteaded properties.

21
Justification (1)

• A solution tailored to address Monroe Countys
  concerns can be easily justified.
• Monroe County is a non-competitive market
  serviced by a state-created entity.
• The State, through creation of the Pilot Program,
  has provided a vehicle through which the unique
  insurance issues of Monroe County can be
  addressed.
• The State has historically recognized Monroe
  County as an unique case through designation as
  an Area of Critical Concern.
• The State has required Monroe County to build to
  stricter construction standards than any other
  county in the State.

22
Justification (2)

• Because of Monroes relatively small size,
  changes in Monroe County need not trigger
  significant state-wide overhaul.
• Monroe County represents only 0.68 of the
  housing units in the state. SOURCE 2000 Census
  Data
• 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
• 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.

23
Summary

• Monroe County is in a crisis of affordability,
  terribly exacerbated by windstorm insurance rates
  that are excessive and unfairly discriminatory.
• This crisis must be addressed immediately or the
  economic and cultural infrastructure of the
  Florida Keys Americas 4th most favorite
  vacation destination, steward of the only living
  coral reef in North America, historically rich
  and culturally diverse will disintegrate.

24
About F.I.R.M

• 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 theyd received with
  outrageous premium increases.
• FIRM is non-partisan.
• FIRM has over a thousand members throughout the
  Keys to date.
• FIRM members are unpaid volunteers who love their
  communities and want to remain in them.
• For more information, visit www.fairinsurancerates
  inmonroe.com.

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