Adding windstorm protection saves associations more on insurance

TALLAHASSEE, Fla. – Oct. 31, 2008 – Condominium and homeowners associations that have added storm shutters, reinforced doors or roofs and put in impact-resistant glass to make their buildings more storm-resistant can get a bigger break on their windstorm insurance.

Citizens Property Insurance, the state-run insurer, began in September offering discounts of up to 45 percent for taking mitigation steps. As with hurricane coverage for single-family homes, apartments and condo units, the insurer was required to double mitigation credits it offered the associations.

The Office of Insurance Regulation required all insurance companies offering windstorm coverage on condominium communities with multiple buildings and homeowner associations to double their mitigation credits as of Sept. 1.

The deeper discounts are a boon for all homeowners in these developments, but especially those in South Florida. After the 2004 and 2005 storms, rates on windstorm insurance for these associations doubled – and in some cases even tripled. Citizens, as the insurer of last resort at the time, took up many of the riskiest properties along the coast – and throughout the state.

Now agents are worried about a negative impact on Citizens because the deeper discounts could attract more policyholders at a time when the insurer would like to shed policies.

More competitive

Though premium rates in the private market have eased in the past 12 months, Citizens’ rates are frozen by law and tend to be the lowest in many areas of the state. The state-run insurer is also more competitive now with private carriers. Law changes last year now allow Citizens to provide total coverage for these associations.

So agents aren’t surprised when clients are eager to consider a policy from Citizens to save some dollars, even though they could find coverage in the private market as well.

Evan Glassman, an agent with Advanced Insurance Underwriters in Hollywood, says he’s nervous about adding risk to Citizens, which is the largest insurer in the state. However, “as an independent agent, it’s our job to shop the entire marketplace and present every option available and present the pros and cons to our clients.”

Glassman said by taking advantage of the mitigation discounts, one client’s premium dropped to $25,000 with Citizens covering a small condo development from $45,000 with a private carrier affiliated with Zurich Insurance. Many individual homeowners as well as condo associations may have been eager to switch from Citizens because now the insurer’s own policyholders are required to make up a big chunk of any future deficit the company may face after a huge hurricane. The higher requirement was put in place by lawmakers last year.

But tough economic times could make some associations more willing to accept the risk of a big assessment in the future versus the benefit of lower premiums today.

“We’re going to see a rush back into Citizens,” says Dulce Suarez-Resnick, an agent with Brown & Brown Insurance’s HBA Division in West Miami-Dade. “In part, the economy is driving everything. These associations are trying to save where they can.”

Trimming budgets

She notes that many associations have many empty units, so collecting the full amount of maintenance fees they had budgeted for isn’t possible. So many are coming up short to cover insurance payments and upkeep on their buildings. “They have to trim budgets where they can. You can’t turn off the electricity in the common areas for a few hours to save money.”

For associations that are hard-pressed, any savings can be significant.

Resnick recalls the homeowners association in Doral where she lives saw their premiums shrink to about $80,000 from a high of $134,000 a couple of years ago due to the mitigation discounts and slightly lower rates. The higher credits are available on buildings valued under $10 million, which tend to be garden-style condo projects.

A Citizens’ spokesman said since the deeper mitigation discounts just went into effect two months ago, the company hasn’t seen a sharp increase in new condo policies so far.

However, the insurer has been feeling the pinch of having to credit back to the deeper discounts to homeowners who have taken the needed steps to harden their homes and buildings.

Sharon Binnun, Citizens’ chief financial officer, told a meeting of the company’s board of governors last week that she expects about 50 percent of the company’s windstorm policyholders to receive the mitigation discounts next year. That means the insurer will have to credit back about $640 million in premiums.

Citizens won’t allow condo associations to switch back to the company before their current policy expires just to capture the bigger mitigation discounts. The change-over must be done at renewal.

Associations already covered by Citizens also have to wait until renewal time to apply for the bigger discounts.

Copyright © 2008 The Miami Herald, Beatrice E. Garcia. Distributed by McClatchy-Tribune Information Services

source: floridarealtors.org

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