135% Insurance Rate Hikes for South Florida?

A little off-topic, but with a fair portion of the industry concentrated in South Florida, I thought I would pass this along. If you listen carefully, you can hear the sound of air leaking from the bubble...

Carl

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October 14, 2005

Palm Beach County homeowners who rely on state-backed Citizens Property Insurance Corp. for hurricane coverage could face major increases in the rates they pay... with premiums more than doubling in coastal communities.

A first-ever analysis of Citizens' rates ordered by the Office of Insurance Regulation showed that the wind portion of premiums in Palm Beach County would have to increase from 76.5 percent to 106.5 percent in order for the company to charge actuarially sound rates -- in other words, a rate that is sufficient to cover the risk in a certain area.

That means if you pay $1,500 toward the wind portion of your policy, and you live in an area where rates are recommended to rise by 106.5 percent, you could pay an additional $1,597.50 -- a total of $3,097.50 a year -- toward hurricane coverage.

The proposed increase is as high as 129.5 percent in Broward County and as high as 135.5 percent in Miami-Dade County. These latest suggested increases apply only to the hurricane portion of the premium, typically the largest part of a homeowner policy in Florida.

Separately, Citizens has another proposed increase of up to 32.5 percent in Palm Beach County for the fire and theft portions of homeowner policies.

This proposed increase applies only to policyholders whose hurricane coverage comes from Citizens, the insurer of last resort in Florida and the largest insurer in South Florida.

The company covers the wind portion of insurance policies for all homeowners and renters who live east of Interstate 95, and also provides insurance to homeowners who can't get a policy from a private company.

Citizens released the analysis Thursday. The company's Board of Governors will review the report at a meeting next month and will decide whether to submit a request for higher premiums based on the findings, said Citizens spokesman Justin Glover.

"We're going to let the board have that discussion," Glover said. "I don't know what the board will determine."

Citizens is required by state law to charge the highest premiums inFlorida. But Glover said regulators asked Citizens to do an actuarial analysis of its rates, rather than base them on private insurers' premiums, because "Citizens' risk is not necessarily the same as private companies" that won't cover coastal homes.

The board will receive additional information, such as the dollar amount that policyholders would see their premiums increase, "to let them look at the whole impact" should Citizens seek approval for higher rates from the Office of Insurance Regulation, Glover said.

Citizens also will be subject to a required public hearing on its rate increase.

These latest proposed increases come on top of a 6.8-percent one-time assessment that all insurance policyholders are paying to bail out a $516 million deficit in Citizens' high-risk, or wind-only, account to make up for losses from last year's four hurricanes that hit Florida.

Every Floridian with a home insurance policy pays that assessment, regardless of whether Citizens insures them.

Someone with a $2,000 annual premium will pay an additional $136 to compensate Citizens for losses it incurred after the 2004 hurricane season.

The assessments and the possibility of higher rates comes at a tough time for Citizens, under fire for alleged bribery and possible conflicts of interest by former executives.

The company's former chief operating officer resigned amid allegations he took a motorcycle and money in exchange for claims adjusting contracts, while two other executives resigned after it was discovered they planned to create an insurance company to take policies out of Citizens.

While Citizens has a responsibility to ensure they can pay claims from future catastrophes, "We are sensitive to the concerns of our policyholders who are struggling to afford the rising cost of insurance," Citizens executive director Bob Ricker said in a written statement.

"We look forward to working with the Legislature and state policymakers as Citizens determines our appropriate rates."

Copyright (c) 2005, South Florida Sun-Sentinel

A sign of the times?

I’ve been watching the Florida real estate market VERY carefully for the past two years. I’m fortunate to have a couple of good friends in the real estate business who have shared some insight. I’d like to pass it along…

I won’t use any names here, but one of them builds several hundred homes a year in Florida, ranging from tear-downs on the water that become mansions to Planned Unit Developments of 100 houses or so. If you live in Florida, you know this name. He also owns a lot of prime Florida property. A few months ago, he began renting his teardowns, as opposed to rebuilding them because the market for 1.5 million to 2.5 million dollar homes dropped-off dramatically. According to him, we’ve reached a point of saturation, where those that could afford homes in this price range have already purchased them. He has stopped acquiring land for development at this point.

Another close friend is a very active Realtor and has shared information with me that most of us consumers CAN’T get our hands on. Realtors have their own multiple listing service. It’s not open to the public. In Palm Beach County, this system is called RMLSFL. This program gives you stats and details on homes you could only dream about. It covers all of Palm Beach, Martin & St. Lucie Counties, with a little bit of Broward too. It gives real, relevant numbers with some amazing statistics. BELIEVE ME… Realtors don’t want you to see these stats!!! The health of this market is NOT what they are representing.

Last year, RMLSFL had 18,000 active in August. As of this month, RMLSFL is at 43,000 active. The number of homes for sale, in just these 3 counties, has more than doubled and has been rising sharply each week over the past 4 months. Matter of fact, there were only 32,000 active 4 months ago. 20% of these "actives" are price changes. A few dreamers are actually going up, but the majority of them are going down. Time on the market has gone from just a few days last year - to several months this year. The majority of listings over 500k expire in 90 to 180 days without being sold.

Adding to this, there are some 15,000 rentals listed in RMLSFL. On any given day, over 14,990 of them are still available. Believe it or not, these figures are relatively ACCURATE. This does NOT include private rentals, usually found in the newspaper or managed apt complexes. To give you another example… I was looking at a townhouse that was DIRECTLY on the intracoastal. It was a large, very new 2/2 with a garage and a dock for only $1600 a month. It sat vacant for 6 months! You can hardly rent a decent apt 10 miles inland, with a view of a bush for $1200-$1400 in South Florida. Many investors are having to carry the mortgage payments on these properties because they can't rent them.

Homes under $350k still move along briskly, as many first time home buyers rush to beat rising interest rates and are afraid the market will go higher. BTW… if it’s under 300k, it’s so bad you wouldn’t wish it on your ex-wife. Often, these people can’t even afford $300k homes and are taking interest only or adjustable rate loans. Pretty dangerous when you can’t afford a conventional 30 year, fixed rate mortgage that only costs a few more dollars a month! On this subject… did you know that 30% of all new homes mortgages throughout the US are interest only? In California, over 70% of new homes loans are interest only! These stats were shown on a CNBC town forum with the president of the National Board of Realtors, the Pres. of Lending Tree.com and an economic professor at an Ivy League university.

If you’re thinking about South Florida real estate, caveat emptor… a good number of properties in Florida are held on speculation. I don't remember the exact number, but it was very high. For condos, it's downright shocking. They are often investor owned, or owner occupied by “flippers”. Apparently, a lot of these people had been vested in the stock market, but pulled out when the market went south and started… the great Florida land rush. Would you like to know where a lot of this money is going when they sell their properties in Florida? Take a look at lake front properties in Georgia, Tennessee, and the Carolinas. The run-up in prices over the past few months has been rapid!!! A good site for monitoring this is www.LakeHouse.com.

For many investors who own property in Florida, they are trying to make 100k-500k and even 1,000,000 on properties they have bought in Florida. There are 1000’s of people who have bought waterfront property over the past 1-2 years. For the most part, an average home on a canal was around $500k just 12-18 months ago. Now… these people are trying to realize 1 million to 1.5 million for these same homes. (and condos!!!)

Here’s some info…

1. The two largest Private Mortgage Insurance companies in the nation pulled out a few months ago due to the number of loans in default. The reason is because the default rate for homes with less than 20% down is exponentially higher than homes purchased with larger down payments. This means, if you put down less than 20%, PMI is getting hard to find and it’s expensive.

2. Referencing the post above, Citizens is Florida’s largest insurer. For most homeowners on (or near) the water… they are the ONLY insurance company, because the big names have pulled out. If you are purchasing a home on the water, or even near the water…good luck finding an insurance company that will cover you.

Here’s a link to a story on this…

http://64.233.187.104/search?q=cach...izens+insurance+company+trouble+florida&hl=en

A related link to Citizens in trouble…

http://www.sptimes.com/2005/10/03/Opinion/More_trouble_for_Citi.shtml

And here’s a sign of the times…

Several Realtors have snubbed me in the past because I wasn’t looking for a 1 million dollar home. Now, they are calling me… and they all want to be my best friend.

Caveat Emptor.