Frustrated by rising premiums, reduced coverage and a single market, citizens and officials in the Florida Keys are hoping to convince catastrophe modelers, insurers and reinsurers that their islands are not as big a risk for wind damage as they have been labeled.
If they fail at attracting more favorable treatment from the existing marketplace, then they just might start their own mutual insurer.
They are looking to compile specific building and geographic information that they hope will change the outcome of insurance pricing models, possibly attract new insurance carriers and reduce their costs — an approach that others in the state are also taking.
The Florida Keys is a chain of small islands that extends 90 miles south of Florida’s mainland ending in Key West.
Given the location ‘s significant hurricane risk, state-backed Citizens Property Insurance Corp. is the only insurer that provides coverage to the islands’ 24,000 residents.
Dramatic premium increases and coverage changes are affecting everything from construction to rental properties, according to the local group, Fair Insurance Rates for Monroe County (FIRM), and the Monroe County Commission.
“The cost of windstorm cover is higher than peoples’ mortgages,” said Monroe County Commissioner Heather Carruthers. “And the deductibles are so high they can replace their roofs twice before seeing money from a claim.”
Annalise Mannix, executive director of FIRM, said that based on current models, Monroe County has been a money-maker for Citizens. The county provided more than $500 million in premiums between 2003 and 2011. At the same time, Citizens’ claims payments have been “fairly marginal,” according to the group.
“There is no way to justify the rates we pay in Monroe County,” said Mannix.
When Hurricane Wilma, a Category 3 storm, swept through the Keys and flooded 60 percent of the area in 2005, it produced $23 million in wind claims, compared to $323 million in flood claims even though flood claims are capped at $250,000.
The groups say insurers’ computer models used in pricing do not take into consideration certain unique features of the Keys such as the fact that the islands’ highest elevation is just 14 feet above sea level, making storm surge and flooding the prime reasons for damage.
Also, they say that the models and Citizens’ underwriting guidelines fail to reflect that the islands’ building codes are the most stringent in the state.
Their solution is to gather building and geographic information on every structure in the Keys in order to provide modelers with detailed information that would reflect the Keys’ true risk of hurricane damage.
Mannix said the study would allow Monroe County to accomplish two objectives: convince Citizens the county deserves lower rates and provide better information to see what areas of the Keys have the highest risk.
“It would give us detail down to neighborhoods so we know what neighborhoods and what houses need to be mitigated,” said Mannix.
FIRM and the Monroe County Commission are now looking for money to conduct a detailed study, the cost of which could run as high as $350,000.
They also hope that with the more detailed information the islands could attract the attention of reinsurers that might be willing to take on the Keys’ hurricane risk.
Mannix and other county officials said they have held informal talks with Willis Re and Citizens about the study.
Monroe County residents have also talked about the possibility of creating a mutual insurance company that would be owned by residents and would bear the cost of windstorm damage.
“We have several irons in the fire,” said Carruthers.
Jack Nicholson, who is a member of Florida’s Commission on Hurricane Loss Projection Methodology, said that the current models are constructed to assess potential losses over large land masses. In cases where the land mass is as small as the Florida Keys, the models are not calibrated to take into effect the unique land and construction methods.
“The models can’t get down to that granular level without a lot of work,” Nicholson said. “It is the next evolution of the model, but right now it’s just not economically feasible.”
Nicholson also noted that as distinctive as Monroe County is, other parts of the state could make the same argument. “Other pockets like the Panhandle have their own unique characteristics,” he said.
There is precedent, however, for what FIRM and Monroe County are attempting to do.
Pat Maroney, director of the Florida Catastrophic Storm Risk Management Center, said the center is working to compile specific construction and geographic information on colleges in the state’s university system to provide more information to the modelers and reduce reinsurance costs.
Maroney, a professor at Florida State University, said the project is based on one that Disney World conducted in 2006 after its reinsurance costs increased after hurricanes Katrina, Rita and Wilma. That project entailed creating a global positioning map of each Disney property, along with the architectural and engineering characteristics of each building.
Now, Maroney said, the center is applying a similar methodology to create a profile for universities along the state’s coastline. So far, he said, the results have been positive.
“We found at Florida Atlantic University the loss assumptions were better than what they were originally indicated,” he said.
According to Maroney, there are several caveats including that the more detailed information doesn’t mean that the state is immune to increases in the cost of global reinsurance and that the added information to the modelers might actually result in higher rather than lower prices.
Then there is the time and money it takes to survey just one school. For example, FSU in Tallahassee has more than 400 buildings that need to be inspected and evaluated.
Even so, Maroney said, he believes the project will eventually lead to a template that can be used on all state buildings and which will save some of the taxpayer dollars now going to buy reinsurance.
“The more information you can give to reinsurers, the more you can remove the uncertainty, hopefully the more will bid on our program,” Maroney said.
Catastrophe models are not the only concern among islanders. FIRM and Monroe County also want Citizens to stop changing coverages in the Keys as part of its depopulation campaign. This year, Citizens stopped insuring homes above $1 million, reduced the amount of its builders’ risk coverage to $100,000, and stopped insuring residences that are rented out for seven days or less.
“Citizens was created for places like Monroe County,” said Carruthers. “We have no other option.”
Citizens’ inspections that result in the loss of premium credits are also a sore subject in Monroe county.
Carruthers said that some policyholders have been able to reverse Citizens’ decisions, but this requires disputing the insurer’s findings and producing engineering and other documents to prove the insurer wrong.
“It can change their inspections, but you have to be savvy about what is going on,” said Carruthers.