Shift in S. Fla. ‘Line of Demarcation’ Could Reduce Homeowners Rates

South Florida homeowners with properties located in a strip of land east of I-95 could have their policies reduced if a proposal is implemented to shift the line of demarcation as far east as U.S. Highway 1, or even A1A, which often runs within a few hundred feed of the Atlantic Ocean.

After Hurricane Andrew in 1995, I-95 was established as the dividing line in South Florida, to the east of which homeowners paid higher premiums and often had to resort Citizens Property Insurance Corp. to buy a homeowner’s policy.

The change has been suggested to help Florida’s insurer of last resort meet a state mandate to reduce its policy base by 25 percent by the end of 2006. At present, most homeowners with property east of I-95 have wind insurance policies written by Citizens.

If a new dividing line was considered, Citizens Board of Governors would have to approve the change.

Insurance Commissioner Kevin McCarty told the South Florida Sun-Sentinel he expects insurance companies to fight for a delay in moving the line to cut Citizens’ exposure.

“I would bet the farm [moving the high-risk line] won’t happen,” McCarty said. “The industry is uniform in its opposition.”

Insurers were quite willing to cover South Florida properties before Andrew slammed southwest Miami-Dade County in 1992 but the fierce Category 5 storm changed that.

“There was, in effect, no property insurance in a number of places,” Alex Soto, president of Miami insurance agency InSource Inc. and one of the agents who worked to get Miami-Dade and Broward counties into the so-called “wind pool” after Andrew told the Sun-Sentinel.

The “wind pool,” shorthand for the Florida Windstorm Underwriting Association, was created in the 1970s to cover wind risk for Monroe County properties. After Andrew, different groups petitioned to be included.

As homeowners watched their insurance companies leave the state, it became critical to quickly find a line between the areas where insurers were willing and not willing to do business, Soto said. The interstate was chosen to make it easy to distinguish between the areas. The thinking was that someday, state officials would consider moving the line east.

That hasn’t happened. “You talk about something being etched in stone,” Soto said.

Although the line was arbitrary, the logic was sound, McCarty said. The state had considered high-risk properties to be within 2,000 feet of the coast, and at that distance “you were actually dividing up houses.”

I-95 was an easy, recognizable line of demarcation, and stretching the line to the interstate helped people who otherwise wouldn’t be able to get insurance, McCarty said.

There also were economic considerations to factor in, Sen. Steve Geller, D-Hallandale Beach, a member of the House of Representatives when Andrew hit told the Sun-Sentinel. “The broader the pool is, the less the exposure per capita for the people remaining.”

Move the line?

A decade later, that I-95 line has meant even more exposure for Citizens, and much higher rates for people who aren’t necessarily able to afford it.

Consider Citizens’ most recent rate increase request. People who live east of I-95 and have their windstorm coverage through Citizens could see increases as high as 67 percent in Broward County and 52 percent in Palm Beach County.

Citizens also has suffered major hurricane losses in 2004 and 2005, forcing assessments on all of Florida’s homeowner insurance policyholders.

And the company continues to grow.

Susanne Murphy, Citizens’ corporate counsel, told the Sun-Sentinel, it’s very unlikely the company will shrink by 2007. Beyond continuing to offer policies to smaller companies, “I don’t see anything that we can significantly do on our own to reduce our exposure.”

That’s where shifting the high-risk defining line would come in, and private insurers won’t like it because they would lose a profit-maker, Murphy said. The companies “don’t want to have to make a decision about either losing the underlying coverage or writing the wind,” she said.

The insurance industry would like to eliminate the requirement to shrink the high-risk area, Sam Miller, executive vice president for the Florida Insurance Council said. Being able to cover fire and theft risk for coastal properties while not having to assume the wind risk gives insurers more money to issue policies elsewhere in the state.

Miller said changing the boundaries for the high-risk area won’t force private companies to assume the wind risk, but could force them to drop fire and theft policies rather than also assume the wind risk. “I think people thought that maybe the private market would come back in South Florida,” Miller said. “Well, that was eight hurricanes ago.”

Should state leaders require that Citizens’ high-risk area be reduced, it’s unlikely to be in 2007, despite what the statute requires. McCarty said a committee he’s leading to make recommendations for long-term fixes to Florida’s insurance market would likely delay that change, largely to avoid further disrupting the fragile homeowner insurance market.

What McCarty said hasn’t been presented to him is other options for reducing Citizens’ riskiest exposure, which needs to be addressed, he said.

“It’s counter to the principles of insurance, taking out the high risk and putting it into one area.”

Topics Florida Carriers Pricing Trends Homeowners Market