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Insurance Premiums are on the Rise

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Fluctuating home insurance rates are one of the perils of living in South Florida.

Citizens Property Insurance, the state-run insurance company, approved a plan that could reduce base rates for about 70 percent of policyholders, especially those that have a “multi-peril” policies – ones that include protection against theft, wind, and fire… Unless you live in South Florida, that is.

For condominium owners in South Florida, however, the rate hikes will continue with average increases of 6.4 percent (Miami Dade), 3.2 percent (Broward) and 1.4 percent (Monroe).

Rate increases will also occur for many coastal area homeowners who have wind-only policies held by Citizens. The rate increase in Broward County for wind-only policies will average about 5.3 percent and 7.9 percent in Monroe County.

So why are they cutting costs everywhere else?

Lower rates have been available to policyholders largely because of a decline in re-insurance costs and an absence of hurricanes.

“It’s important to recognize that for the first time in many years, Citizens has achieved actuarially sound rates for the multi-peril groups of business,’’ said John Rollins, chief risk officer for Citizens.

When rates rise, it is because the risk assessment has increased for the property. According to Citizen Data, condo units are being charged an average 74 percent less than the risk associated with their windstorm policies. However, current laws forbids charge increases greater than 10 percent.

The proposal to lower rates at Citizens comes at a time when constituents are keen on pocketbook issues. It would be the first time in four years that state-run Citizen’s Insurance has sought a reduction.

“In Florida, upscale insurer PURE Risk Management raised premiums 11% this year. Fireman’s Fund Insurance Co., a subsidiary of Allianz SE, says it has started to raise premiums in some areas.” – Invest in Miami.

The logic seems counter-intuitive. Why are premiums increasing if property values are lessening? Insurers state that premiums are partly based on rebuilding costs, not on a home’s appraised market value. “When energy and building-materials costs rise, insurers sometimes raise premiums,” said Mike LaRocco, chief executive of Fireman’s Fund Insurance. “Even with the recent decline in commodities prices, gasoline is up 37% in the past year, copper is up about 20% and plywood is up around 8%.”

Federal-flood insurance prices are on the increase as Congress seeks to restore the coffers after the significant costs of the Katrina clean-up. Certain congressional proposals seek to raise annual premium ceilings from 10% to 20%, making it more difficult for homeowners in flood-prone areas to afford coverage.

This may be disconcerting to homeowners who have grown accustomed to the stable insurance rates. According to the Industry Researcher Insurance Information Institute, the recession and decline in home construction also sapped demand for insurance.

Aside from shopping around, there is little recourse for homeowners looking for a more affordable option, as price increases are industry-wide. Jack Powers, an independent agent at Gulfshore Insurance in Naples, Fla., says some of his customers face rate increases of 20% or more. Powers advises to accept the price increases as cheaper carriers may not be able to fulfill their insurance obligations.

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