Florida Senate Bill Overhauling Citizens Property Insurance Corp. may have Far-Reaching Effects

“Members, this bill does not raise rates,” said Sen. David Simmons, R-Altamonte Springs, trying to garner support on the Senate floor, where controversial insurance proposals often die in tight votes.

The home insurance industry in Florida is staring at some major upheavals. According to the Tampa Bay Times, the Senate has passed a bill that will majorly impact home insurance policy activities of the state-run Citizens Property Insurance Corp. and may have far-reaching effects across diverse groups in the economy.

By the Numbers

According to the bill, the Citizens coverage limit is likely to be slashed by 50 percent from $2 million to $1 million. The bill proposes that this limit be eventually slashed to $500,000 within the next five years. If this proposal is okayed by the House where the bill has been pushed to, prospective homeowners may find prices of home insurance policies skyrocketing. This will be especially true of the wealthier neighborhoods of regions like Miami in South Florida where there are hardly any home below this cap.

The bill will make it mandatory that all new home insurance policies issued by Citizens be “actuarially sound” to help protect homeowners by placing a 10 percent cap on annual premium rises. This measure will most likely see many policies taken out in regions of the state like the coastal areas of South Florida and Tampa Bay costing more than existing policies by almost 70 percent. In these areas, homes usually have “wind-only” coverage and homeowners will be required to shell out more to make their properties “actuarially sound.”

However, homeowners in non-coastal areas of Florida will not be breathing easy either with the new insurance bill. The cost of a new policy in these areas too will rise much more than the 10 percent cap.

Private Insurance Companies are too Benefit

These proposed changes if implemented are expected to see private insurers laughing their way to the bank. Industry watchers feel that if the new home insurance policies by Citizens Property become dearer, new homeowners will be compelled to go to private insurance companies.

The new bill will not only affect new policyholders and private insurers in multiple ways but will also make real estate developers sit up, take notice, and wonder if they need to tweak their building plans. According to the bill, Citizens Property Insurance will not cover properties in coastal areas if these structures do not adhere to the “code-plus” construction guidelines laid down by the Florida Building Commission. This mandate is likely to come into effect from July 2014 and will affect most relevant buildings situated to the east of Interstate 95.

Construction Costs will Increase

The above-mentioned proposal will raise construction costs considerably. But it will be up to real estate developers to choose if they want to fork out these additional costs or hope that the buyers get expensive insurance policies from private insurers.

The proposed changes in the Senate Bill clearly intend to shrink the state-run and heavily-subsidized Citizens Property Insurance Corp. by gently steering new homeowners towards the private insurance market. The bill has also been touted as being a step towards making home insurance prices competitive throughout Florida. However, the greatest benefit of the bill seems its all-out effort to reduce the instances of taxpayers’ risk after storms and hurricanes and against irresponsible coastal real estate development schemes.