Lillian Severson is both frustrated and financially burdened by an about $900 annual increase in her homeowners insurance.
"For me to take this kind of hit is huge," said the 64-year-old Cape Coral resident.
The mortgage company recently informed Severson that she had a $1,492 deficit for the money it holds aside to pay property taxes and insurance. If she paid the deficit by April 1, her monthly mortgage payment would increase from $648.15 a month to $719.11 a month. Otherwise, she will pay $843.48 a month – nearly $200 more each month from her "fixed-rate" mortgage payments.
Severson is one of many Florida homeowners seeing an increase in their insurance. Despite not having a major hurricane since 2005, Florida homeowners insurance rates have continued to rise.
Experts said insurance rates can be impacted by other, noncatastrophic factors. They said recent hikes in insurance are likely caused by increases in everyday insurance losses, the rising cost of rebuilding houses and impacts from the reinsurance marketplace, which provides insurance for insurance companies.
"In reality, tying the number of storms, or the storm activity, to insurance rates is really a false premise because that's not what drives the rate," said Tim Shaw, president of Tim Shaw Insurance – Acentria based in Fort Myers. "It's the reinsurance cost and the replacement cost. Those are the two drivers to rate."
There is also a political atmosphere that many argue has kept rates artificially low.
Nationally, the average premium for HO-3 homeowners insurance (the most common kind) increased 53 percent from $593 in 2002 to $909 in 2010, according to data from the National Association of Insurance Commissioners.
The average HO-3 homeowner's premium for Florida in 2010 was $1,544, excluding Florida's policies written by Citizens Property Insurance Corp. It ranked third among states with the most expensive homeowners insurance in 2010. Texas was ranked as the most expensive, followed by Louisiana.
Bill Newton, executive director of the Florida Consumer Action Network, said today's insurance rates should be lower because there haven't been any hurricanes recently and reinsurance companies have enough capital to invest in Florida's risk of hurricanes.
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"It's too high. Insurance rates should be lower," he said.
Still, Severson will have to pay the increases. She already works two jobs to make ends meet, and she is thinking about dipping into a 401(k) from a previous job to pay the upfront costs. She might drop her cable bill to help with the monthly increases.
"There's nothing more for me to cut," she said.
Losses add up
Noncatastrophic insurance losses for Florida homeowners have about doubled in the past five years, according to a graphic from the Insurance Research Council and the Insurance Information Institute. Loss includes the cost to settle a claim, payments to the individual and the cost of handling the claim.
"If losses do not level out or go down, than neither can rates," said Lynne McChristian, Florida representative for the Insurance Information Institute.
She couldn't say why there has been such a drastic increase in insurance losses, but she did say it might reflect issues with fraud in the system.
According to a Citizens Claims Committee meeting in November, water damages accounted for 48 percent of Citizens' losses relative to its total claims volume in 2012.
"It is easy to see why water damage is so common when you consider that common water-related damages include, but are not limited to, damage caused by pipes bursting or freezing, appliances or air conditioning systems overflowing or leaking, and toilets or bathtubs backing up or overflowing," wrote Christine Ashburn, director of legislative and external affairs for Citizens, in an email. "In addition, water losses can be particularly costly because they often are not localized in one area – for instance, a pipe bursting upstairs can flood both floors of a home."
Policyholders are actually paying less for every $1,000 worth of insurance coverage than in 2005, McChristian said based on data from the Florida Office of Insurance Regulation, but their rates are still going up because of the increases in everyday claims and rebuilding costs.
Builders blamed
Homeowners insurance is largely based on the cost to rebuild a house – not on its real estate value, McChristian said. So as the cost to build a new house increases, so does the cost of insurance.
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"Home insurance is all about rebuilding cost," she said.
For example, Shaw said he bought a North Fort Myers house in 1974. At the time, he paid about $50,000 to buy the house and about $250 to insure it. Today, Shaw said the house would cost about $308,000 to rebuild and about $3,000 to insure. He no longer owns the house, but it is assessed at $128,308.
"The real culprit for rising insurance rates is rising construction cost," he said.
The cost of common lumber material increased 17 percent from February 2012 to February 2013. The cost of common drywall materials increased 16 percent, according to Xactware Solutions, an Orem, Utah-based company that provides computer software solutions for professionals involved in estimating all phases of building and repair.
Tim Rose, president of the Fort Myers-based independent franchise of Arthur Rutenberg Homes, said his gut feeling is that building costs have increased 12 to 15 percent in Southwest Florida since 2009, which was the most recent low point in construction costs.
"I think that our costs are still low," he said. Right now, builders are willing to build homes at lower profit margins, but they can't do that forever. He predicts costs will go up further.
He said these higher construction costs are caused by an increase in building material costs, the higher price of gas, more stringent building codes and increases in the cost of labor.
And Shaw said homeowners insurance becomes even more expensive for people who have older houses. Houses are now designed with specific features, like roof-to-wall connections and opening protections, to better protect them from wind damage.
"Those are the guys that are getting hit the hardest – the guys that weren't built after 2002," Shaw said.
Insurance credits and discounts are available for people who have redone their homes to meet these stricter standards.
Yet Newton from the consumer action network said there isn't enough emphasis being placed on the hardening of homes or on giving insurance discounts for mitigation efforts. Building codes aren't strict enough, he said.
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"The insurance companies don't care about mitigation because they can raise the rates rather than invest in mitigation," Newton said.
So is government
In 2007, Gov. Charlie Crist supported legislation that passed sweeping property insurance reforms and decreased insurance rates.
According to the website of the Florida office of Insurance Information Institute, "Property insurance rates actually dropped between 2007 and 2009, due to state-mandated discounts. The average homeowner insurance premium as of Dec. 31, 2009, was down by 14 percent ($274) since March 3, 2007. ... Rates are trending back up as the Office of Insurance Regulation is reviewing insurers' financial data and recognizing that rising claims costs is having a negative impact on insurer solvency."
McChristian said these policies – which reduced insurance rates while increasing mitigation discounts for hardening a home against hurricanes – meant that insurance companies received less in premiums. Many had to limit the amount of homeowner policies they could write.
"The changes made in 2007 under Charlie Crist hurt the marketplace," she said.
Robin Smith Westcott, the state's insurance consumer advocate, also said freezing Citizens' insurance rates forced private companies to lower their rates to stay competitive. As a result, she said many of these private companies reduced the number of policies they could write, which caused the number of Citizens' policyholders to grow.
"While it was a short-term positive effect for the consumers' pocketbook, it was a short-sighted market strategy," she said.
Westcott said the state is now working back toward a healthy marketplace. She said Citizens should be at or near rate adequacy in 2015, which means the rates it receives could adequately cover both everyday and storm losses.
Ashburn wrote in an e-mail that Citizens is focusing on depopulating its policies because policyholders can have more comprehensive coverage and a lower assessment risk in the private marketplace. Depopulating Citizens decreases the risk of assessment to both Citizens' policyholders and all Floridians. Having less exposure will decrease Citizens' overall probable maximum losses after a storm.
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She also wrote that actuarially sound rates are driving the company's rate increases.
"By law, Citizens is required to charge actuarially sound rates. In 2007, Citizens' rates were frozen for three years. When rates were unfrozen, the law required that Citizens begin moving toward actuarially sound rates by following a glide path whereby rates could increase by no more than 10 percent per year," she wrote.
She said Citizens' rates must increase each year until it attains what the Office of Insurance Regulation deems to be sound rates and then will increase as necessary to maintain those sound rates.
Don Brown, who was a Republican in the Florida House of Representatives from 2000 to 2008, was one of two representatives who voted against HB 1A in 2007.
A major reason he voted against Crist's insurance changes was because the bill allowed Citizens to expand its assessments, which is like an extra tax to help pay Citizens' claims after a catastrophic event. Before this legislation, the company could only assess Florida homeowners. It can now place assessments on virtually all property and casualty insurance policies.
"It was a scheme to pay for Citizens' losses out of the pockets out of a much larger group of people," he said.
However, Newton at the consumer network supported the reforms in 2007. He organized grass-roots groups across the state and rallied people to go to Tallahassee.
"It has worked to keep rates down ever since," Newton said.
As for increasing rates to help create competition, Newton said he doesn't think that is smart – especially now as the economy is starting to recover.
"I don't think that's going to work," he said. "I think if you raise rates you're going to get higher rates."
Shaw said rates are going up year after year because insurance companies are trying to meet increases in rebuilding and reinsurance costs that they couldn't keep up with when Crist was in office. He predicted that rate hikes will level off in the next two years, once insurance rates are more in line with rebuilding and reinsurance costs.
Gov. Rick Scott "realizes that (if you) let rates get up, competition, the free enterprise system and greed will allow rates to settle into a competitive level," Shaw said. "In other words, insurance companies aren't going to raise the rates to where they're making a killing because another company will come along and undercut those rates. Instead of being a hog they'll just be a pig and take a little bit."
But Severson is still frustrated.
"They can just raise it an enormous amount, and we're forced to find a way to come up with this money," she said.
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