Orlando Sentinel
by Mike Thomas
July 30, 2011
My property insurance once cost as much as the cable bill, then the YMCA membership, then the electric bill — and now it’s approaching the property-tax bill.
Insuring a house in Florida soon could cost almost as much as the house itself.
None of this bodes well for the value of your home or the future of the state’s real-estate market.
It may be time to resurrect a Marco Rubio idea from 2007: lower the cost of homeownership by eliminating property taxes.
But more on that later.
The newest insurance blow comes from sinkholes, or at least sinkhole-insurance scams.
Last week folks in counties to the west of us got hit with jaw-dropping, thousandfold increases in the cost of sinkhole coverage. This comes on top of continuing increases for hurricane insurance and general all-hazard insurance.
It is not the handiwork of the big, evil insurance companies. There is no profiteering going on.
The rates are coming from Citizens Property Insurance, which is owned by the state.
And they are fully justified. Citizens simply calculated how much it was taking in with sinkhole premiums versus how much it was paying out in sinkhole claims.
The outflow was more than four times greater than the inflow.
So it adjusted its rates to put the two figures in balance. Legislators are screaming, but how do you argue against that logic and methodology?
It costs what it costs.
If we are going to allow public adjusters and homeowners to file thousands of claims attributing cracks to sinkholes, we are going to have to pay for it.
The areas getting clobbered the most are the areas with the most claims, those in the so-called “sinkhole alley.”
So an average sinkhole policy in Hernando will cost about $6,000. In Pasco it will cost about $4,000.
Policies in Tampa will go from an average of $156 to $3,651.
A lot of people simply won’t be able to afford this and will have to drop sinkhole coverage. And that’s going to be a problem because a growing number of lenders require the coverage, including Freddie Mac.
How will mortgage companies that require this coverage handle existing homeowners who no longer can afford it?
And what will this do to sales when a buyer is looking at insurance payments that come close to the mortgage payment? This could either shut down the market in high-risk counties or force drastic price reductions.
We are far from safe in Central Florida, given that sinkholes are not a rarity here. Private insurers have been increasing their rates to cover the claims. For you State Farm customers, sinkholes were behind your recent increase. Other insurers are following suit. This move by Citizens will spur them on.
If the state is allowed to recoup its losses from sinkholes, then how can state regulators deny private insurers the same right?
The days of Charlie Crist are over. The state can’t magically suppress the true cost of insurance by waving a regulatory wand. The market correction is coming in painful, lump-sum payments.
We are in the cross hairs. An important new analysis of hurricane risk says Orlando is much more prone to storm damage than previously thought because hurricanes maintain much of their strength when traversing our thin, flat state.
Insurance companies will have to respond.
All this means we will face continual increases as Florida transitions from a state-subsidized market to a free market.
This will kick a housing market already down for the count. It will kick homeowners already down for the count.
There is only one way to reduce the strain. In 2007, Rubio proposed eliminating taxes on homestead property and replacing them with a 2.5-cent increase in the sales tax.
Back then, the idea was to rein in spending of local governments. It also would have done away with all the wild disparities in property taxes caused by Save Our Homes. Rubio was blocked by Gov. Charlie Crist. One criticism is the now-amusing notion that property taxes are stable.
The idea still holds promise. I’d prefer a plan to expand the homestead exemption to something like $200,000 and close loopholes in the existing sales tax, including some services, to make it less regressive. That gives you the added benefit of creating a tax that more closely mirrors economic activity. People can control consumption; they can’t control their insurance company or property appraiser.
There are a number of variations to play with here. However you calculate it, the concept needs to be revisited.
mthomas@tribune.com or 407-420-5525
http://www.orlandosentinel.com/news/opinion/views/os-mike-thomas-sinkhole-insurance-07320110728,0,6723632.column?page=1
