Property insurance rates could rise 2.5%

Jul 2, 2008

Miami Herald--July 02, 2008


Florida consumers may get hit with a 2.5 percent hike in their property insurance bills, thanks to a state plan to shore up the fund that helps cover insurance company losses from hurricanes.

Florida is going to spend $224 million now in order to have access to $4 billion the state may need if a massive storm were to hit during the next few months.

State officials approved the plan Wednesday out of fear the Florida Hurricane Catastrophe Fund, a fund created 15 years ago, may have trouble borrowing the money it would need to pay insurers after a big storm, or a series of storms. In January 2007, state lawmakers increased the potential size of the fund in an effort to bring down skyrocketing insurance rates.

Gov. Charlie Crist, Attorney General Bill McCollum and Chief Financial Officer Alex Sink all voted to spend the money to help the fund, even though both Sink and McCollum said they didn’t like the terms of the deal, which was negotiated with Berkshire Hathaway, the company led by Warren Buffett.

”This is not a good thing in my opinion, but I’m supporting it because it is the only responsible choice at the moment,” said McCollum, who noted that Berkshire Hathaway is not obligated to help the state unless the state fund has to cover losses in excess of $25 billion. Policy owners could pay more because the fund normally passes on its costs to the insurance companies that purchase coverage from the fund. Insurance companies are then usually allowed to pass on those costs to policy owners.

But Crist refused to support the rate hike on Wednesday, even though McCollum and Sink voted yes. And Crist said his office believes that any change in the fund’s premiums requires a unanimous vote, not a simple majority. McCollum’s office agreed to do legal research to find out if Crist’s position was correct.

If Crist is correct, the fund would have to take the money out of its $2 billion operating account, meaning it would have less money to pay claims in the event of a hurricane.