Agents warn potential Citizens change could boost condo rates dramatically

UPDATE: Board postpones decision. Click here to see story.

Insurance agents are warning that rates could increase dramatically — more than quadrupling in some cases — for condominium owners near the beach if Florida’s state-run insurer approves a proposal today to limit hurricane coverage for buildings with many short-term rentals.

Under pressure from Gov. Rick Scott and many lawmakers to dump policies and reduce the state’s liability, the Citizens Property Insurance Corp. board is considering capping coverage at $1 million for buildings where more than 25 percent of units are rentals.

That would force residents of condominiums such as the Excelsior on Siesta Key — where 42 percent of the units are rentals and the seven buildings are worth $30 million — to get most of their insurance coverage on the unregulated surplus lines market.

Surplus market rates are significantly higher than the $600 residents currently pay for wind-only coverage.

“It’s a pretty major deal,” said Excelsior resident Walter Olson, who has been fighting the proposal as vice president of the Siesta Key Condo Council. “The cost is just going to be prohibitive for a lot of people.”

Citizens board member Carol Everhart, vice president of insurance services at BB&T bank in Tampa, estimated premiums could rise 450 percent. Such an increase could be damaging in a fragile economy and struggling real estate market.

“I don’t think our beaches can bear that right now,” Everhart told a subcommittee of the Citizens board late last month.

Everhart asked the board members on Citizens’ Actuarial & Underwriting Committee to delay the proposal but committee members voted to bring it to the insurer’s full board today.

Some insurance agents with experience in the condominium insurance business are fighting the proposal.

Michael Clarkson, president of All Lines Insurance in Clearwater, has been meeting with the 800 condo associations he represents, including 14 on Siesta Key, to encourage them to speak out.

Condo complexes with a large number of rentals “will get absolutely murdered” if this proposal passes, Clarkson said.

But John Rollins, a member of Citizens’ Actuarial committee called beach condos the “riskiest risks” and approved sending the recommendation for a full board discussion, noting that “these rates are among the most inadequate rates that Citizens has anywhere.”

Condo complexes should not “enjoy a massive subsidy in rate level by sitting on the beach in the most risky areas of Florida and sitting in the assessment account, ultimately, of every Floridian,” Rollins said.

The state created Citizens as an insurer of last resort amid increasing turmoil in the market, but it has become Florida’s largest insurer, with nearly 1.5 million policies. Scott has made no secret of his desire to greatly reduce that number, and the potential that the state would have to bail Citizens out after a massive storm.

Proposals to substantially shed policies failed in the Legislature earlier this year. Some insurance agents and condo owners see the 25 percent rule on rentals as a way to quietly dump policies by tweaking Citizens’ internal guidelines and avoiding legislative approval.

Rollins was outspoken about his intentions last month.

“I consider this an integral part of the package of changes that we can make on a non-statutory basis to limit Citizens’ probable maximum loss,” he said during the Actuarial committee meeting.

Citizens’ staff portrayed the changes as a simple “clarification.” They say the 25 percent rule has been informal policy for some time.

“We’re currently doing it and we have been doing it for awhile now so we’re not talking about a change in practice,” Citizens vice president of underwriting Debbie Murphy said during the committee meeting.

But Everhart, Clarkson and other insurance agents have noted that the manual for wind-only insurance policies never mentions the 25 percent rental rule and it was not enforced until the last few months.

“I don’t agree with what we’re doing in business practice right now,” Everhart told the committee, adding she was upset with “the way underwriting has been conducting itself for the last year.”

Citizens should “continue the way the manual reads and not the way we’ve been interpreting the changes over the past year,” Everhart said.

The change in approach has been confusing for insurance agents.

“The actions of Citizens underwriters over the last six months have been contrary to their actions over the last 20-year period,” said John Dauenheimer, a long-time agent with Insurance Service of Sarasota, which represents at least 75 condo buildings along Sarasota County’s barrier islands. “They changed their rules without changing the printed rules for the benefit of premium increases. Now they’re going to try to change the printed rules.”

Clarkson contends Scott is pressuring Citizens’ board and staff members to dump policies by any means possible.

“This is being directed by the governor,” Clarkson said. “This is his way to just get rid of the exposure with no thought for the people who can’t afford the increase in coverage.”

People such as Siesta Key resident Gerald Spore are concerned about the proposal’s impact on real estate and the overall economy. Rising insurance rates could hurt condo sales, leading to a glut of properties and continued price declines.

Rents could also increase, leading to fewer tourists said Spore, a resident of the Gulf & Bay Club. There is also more risk that coverage purchased on the surplus lines market could prove worthless after a major storm.

“It could make things much, much worse in Florida,” he said of the policy change.