Storm Assurance? Lack of Affordable Property Insurance Could Stunt Business Growth in Florida, and May Force Businesses to Dip into Reserves as Premium Payments Rise

By Karkaria, Urvaksh | The Florida Times Union, July 9, 2006 | Go to article overview
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Storm Assurance? Lack of Affordable Property Insurance Could Stunt Business Growth in Florida, and May Force Businesses to Dip into Reserves as Premium Payments Rise


Karkaria, Urvaksh, The Florida Times Union


Byline: URVAKSH KARKARIA

This hurricane season John Meserve is bracing for a storm -- a financial one.

The executive director of Fleet Landing, an Atlantic Beach retirement community, is preparing for a walloping increase in his property insurance premiums.

Insuring the community, which includes 320 homes and apartments, a nursing home and an assisted-living facility, cost Fleet Landing about $450,000 in premiums last year. This year, the bill could top $1 million when Fleet Landing's policy comes up for renewal in August.

Many Northeast Florida businesses are scampering to find affordable insurance in a shrinking market. The scarcity could extend a long shadow over economic development in the Sunshine State as firms look out-of-state for business expansions or even relocation.

Just like homeowners need to have property insurance to qualify for a mortgage, so do businesses when seeking loans or mortgages.

First Coast firms are watching with dread as their property insurance bills have rocketed on average about 60 percent to 70 percent over the past year -- with some being socked with a 100 percent to 200 percent surge.

"There's one word that would describe this whole insurance availability and pricing scenario ... and that word is frightening," St. Augustine-based insurance agent Greg Baker said.

One Jacksonville nonprofit's annual property insurance premium rocketed from $38,000 last year to $277,000 this year, said Dan Dieterle, a senior vice president at insurance broker Harden & Associates.

And a limited supply of insurance means some businesses have to be content covering only part of their property.

Somebody who might have $20 million or $30 million worth of property might now only be able to find $5 million of coverage, Dieterle said.

As the renewal date looms, Meserve is mulling various options, including the last resort -- foregoing wind insurance.

It's a crapshoot and could be financially devastating were a hurricane to hit the community.

"Life is risky," Meserve said. "But on the other hand we've got 50-year-old homes out here that I don't see any high-water marks on."

He also notes Northeast Florida has the "lowest probability of a direct strike from a hurricane on the East Coast."

THE PERFECT STORM

As potential hurricanes churn in the Atlantic, an equally powerful storm is brewing in the insurance industry. Two frenetic years of hurricane activity have forced insurers in Florida to pay up to $35 billion in claims, according to the Florida Insurance Council.

With such walloping losses many carriers are rolling back their exposure or refusing to write new coverage.

Even those with a higher risk tolerance find themselves hamstrung by soaring reinsurance costs, which is fueled by demand in Florida and the Gulf states following two tempestuous hurricane seasons. Reinsurance is insurance that insurance companies buy to help pay for catastrophes like hurricanes and earthquakes.

"Some carriers who have not been able to renew their reinsurance ... have come in and ... canceled [policies] mid-term," Dieterle said. "Every month since January, and in some cases every week, there has been significant deterioration in the property market."

CARRIERS REDUCING EXPOSURE

Rising reinsurance rates is one reason North Pointe Holdings Corp., a property and casualty insurer, said last month it is evaluating its commercial insurance lines in Florida.

"At the end of the day, if we can't sustain profits while assuming a reasonable level of risk, we feel it is prudent to reduce exposures to more acceptable levels," James Petcoff, chief executive officer, said in a statement.

North Pointe, which declined to comment for this story, said in the statement that it expects to reduce its Florida commercial policy count by about 40 percent.

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