Mortgages at risk if insurance ratings lowered

TALLAHASSEE, Fla. – May 18, 2009 – The state’s property insurance troubles could imperil mortgages, and a pair of measures approved in the just-completed legislative session isn’t enough to solve the problem, according to industry and consumer groups.

During a conference call Thursday, two weeks before the official start of hurricane season, representatives with the Florida Association of Insurance Agents and the Consumer Federation of the Southeast painted a bleak picture of the current property insurance market in the state and what might happen if a major storm hit.

One of the dangers they highlighted was a warning by a national insurance rating company that it might downgrade some property insurers in the state.

“If a rating agency were to take this step, tens of thousands of Floridians would be in default on their mortgage,” said Jeff Grady, president of the insurance agents’ group. Under the terms of most mortgages, homeowners must have insurance from a properly rated company.

Insurers currently buy extra coverage from the Florida Hurricane Catastrophe Fund, a state-backed reinsurance agency, so they can cover claims in the event of a storm. But the state estimated the fund could come up billions short if a major hurricane strikes, which led to the warning by Ohio-based Demotech Inc.

The Legislature approved a bill that would allow the fund to gradually shed some of its responsibilities for paying after a major hurricane. That measure is headed to Gov. Charlie Crist to sign.

Crist has stopped just short of threatening to veto another measure, sponsored in the House by Rep. Bill Proctor, R-St. Augustine, that would allow companies with large reserves to offer insurance policies at essentially unregulated prices. Crist consistently warned about allowing insurance rates to rise too quickly, but anger sparked by State Farm Florida’s decision to leave the state helped push the bill through the Legislature.

State Farm announced it was pulling out of the property insurance market about two weeks after Insurance Commissioner Kevin McCarty rejected the company’s request for a rate increase that would have averaged 47 percent across the state.

The insurance association and the Consumer Federation said Proctor’s measure could allow the large insurance companies to jack up premiums on undesirable policies – essentially dumping them into other private companies or state-run Citizens Insurance Property Corp. – while offering low prices on more desirable, inland properties, perhaps only temporarily.

“There’s no guarantee they won’t raise their rates,” said Walter Dartland, executive director of the Consumer Federation, “and then disappear the year after that.”

© 2009 The Florida Times-Union, Brandon Larrabee; via ProQuest Information and Learning Company. All rights reserved.

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