Brace yourself for another insurance surcharge.
The association that pays the claims of defunct insurers has approved an emergency 2 percent surcharge that will be added next year to the bills of most property insurance policies in Florida.
It's the second levy the Florida Insurance Guaranty Association has approved this year, and it comes on top of two other assessments levied against homeowner policies. The combined levies will add about 9 percent to insurance premiums next year.
That's on top of double-digit rate hikes this year that have more than doubled the premiums of thousands of homeowners in Palm Beach County and the Treasure Coast.
Michelle Lovern, deputy director of the guaranty association, said Tuesday that the latest surcharge is needed because of the growing financial consequences of the failure of three insurance companies run by Tampa-based Poe Financial Group: Southern Family, Atlantic Preferred and Florida Preferred.
She said the association decided during an emergency meeting last week to impose an additional levy after determining the financial impact of the Poe insolvency is much larger than expected. What had been estimated at a $250 million to $300 million shortfall has grown to $460 million.
The 2 percent charge to make up the difference will bring in an additional $225 million to the association, Lovern said. Without the infusion, the state-created association would have run out of money to pay claims of the last 5,000 Poe policyholders.
"It was a painful decision,' she said.
All property policies, except those covered by state-sponsored Citizens Property Insurance Corp., will be subject to the surcharge. It also applies to medical malpractice, marine, aircraft and other liabilities policies.
Auto and workers compensation policies are exempt.
Many of Florida's insurers have yet to implement the 2 percent surcharge the association levied in June but plan to do so early next year. The second increase probably will be implemented around April, Lovern said.
That means many policyholders, especially those renewing in the middle of 2007 and later, could see both surcharges added at the same time.
It's difficult to pinpoint when the new surcharges will appear. Citizens and various property funds and associations first bill insurers, who then pass along their charges to customers. Implementation dates vary by insurer.
Here's how the assessments stack up for 2007:
• Four percent, in the form of two 2 percent assessments from the guaranty association.
• About 4 percent to offset Citizens' losses from the 2005 hurricane season.
• About 1 percent from the Florida Hurricane Catastrophe Fund, which provides reinsurance coverage, or insurance for insurers.
State law requires both the catastrophe fund and Citizens to cover financial losses by assessing homeowner insurance policyholders. The catastrophe fund surcharge also will apply to auto insurance policyholders and other lines of property insurance.
The most recent assessment is related to the failure of the Poe companies. Founded by former Tampa Mayor Bill Poe Sr. in the mid-1990s, Poe grew from one small Florida homeowner insurance company to the third-largest voluntary market writer in Florida by 2004. There were more than 300,000 policyholders when state insurance regulators seized the companies last spring.
The total cost of the Poe claims paid by the guaranty association will come to $1.1 billion, but Lovern said Poe reinsurers will reimburse the association more than $600 million.
Poe was aggressive in writing new policies, wagering big that the 2005 hurricane season could not be as bad as the 2004 season. It focused on the South Florida market, insuring condominiums and coastal homes that other insurers felt were too risky for coverage. It also agreed, in exchange for bonus fees, to assume policies from Citizens.
'It was foolish," Robert Hunter, insurance director of the Consumer Federation of America, said of Poe's calculations.
When the guaranty association took over paying Poe claims on June 1, there were 20,000 outstanding claims, some still stemming from the 2004 storms, Lovern said.
The number quickly grew to 40,000 as customers reopened paid claims, maintaining that they were underpaid for their damage, she said.
Part of the problem was that the rising cost of labor and materials increased repair bills beyond original expectations, increasing the total cost of the insolvency, Lovern said.
The new emergency assessment still will leave the guaranty fund about $5 million short, but Lovern said the association hopes to recover other assets, such as reinsurance from the accounts of other insolvent insurers, to pay the differences.
If they don't, she said a small additional assessment, less than a quarter of 1 percent, would be necessary next year. The association cannot assess more than 2 percent at a time.
In the event of another failure, Lovern said the guaranty association would have to make another assessment.
