New insurance legislation gets mixed reactions in Miami
By Marilyn Bowden and Charlotte Libov
Reactions to the Florida Legislature's new insurance bill, designed to bring relief to homeowners, range from jubilant to pessimistic, but most agree that the bill's complexities make its long-term efficacy hard to predict.
"I think it's incredible," said Keyes Co. President Michael Pappas. "Basically what our state legislators are saying is that it's our responsibility to handle insurance for the people, and we are going to do it.
"This bodes well for [Gov.] Charlie Crist and his new administration. It's a great signal that they have heard the cries and taken affirmative action to correct the situation. The real estate industry will be a tremendous benefactor."
"For homeowners, this will provide relief in the short run, but it doesn't do anything to solve the long-term problem," said William Welch, chair of the Department of Finance in the College of Business Administration at Florida International University. "If the rates come down, they'll probably be able to afford to keep their house until the next big storm hits, and then the state will have to raise its rates to cover its losses."
Supporters of the bill, which passed unanimously in the Senate and with just two votes against it in the House, say it will cut property insurance rates for those with private insurers by up to 25%, and up to 19% for those covered by the state-run Citizens Property Insurance. Citizens will now also offer below-market reinsurance to private companies.
But the reductions depend on complicated computations, and whether it will truly have an effect in the long run is still open to question.
"If it delivers significant reductions in homeowners' insurance bills, absolutely it will help the market. Anything that makes a house less expensive is a help," said Beth Butler, vice president and sales manager at Esslinger Wooten Maxwell.
"But how much, and for how long? It will need to significantly affect monthly payments to have an impact. It's hard to tell if this is a big rollback to 2004 and prior, because people took a big hit in insurance costs in the past two years."
That's unlikely to be the case, said David Dabby, principal of The Dabby Group, a valuation and consulting firm.
"Anything that reduces the cost of homeownership at a time when pricing is at a record high is good news for homeowners," he said, "but this is not significant. If your premium is $3,500, your average saving will be about $800. That's some help, but it's not a big help."
The high cost of real estate, insurance and taxes puts Florida at a competitive disadvantage, Mr. Dabby said. "If we have to pay an average of $2,000 more in insurance premiums," he said, "that translates to something like $30,000 less in the value of the property, all other things being equal."
But Mr. Dabby and Ms. Butler agreed that the bill is at least a step in the right direction.
Dr. Welch was less optimistic. "I wish we'd created a magic bullet," he said, "but we haven't. The money has got to come from somewhere. This just looks like the state will be getting in the reinsurance business.
"Money doesn't grow on trees, and neither does risk. The hurricanes are still going to come, and this will just stretch out the pain."
John Zdanowicz, director of the Jerome Bain Real Estate Institute at FIU, called the bill a political ploy that Floridians will end up paying for in the long run.
"The bottom line is, if you live in the tropics, you are going to have hurricanes," he said. "We know that hurricanes can cause massive amounts of damage, and hence the risk goes up. To pass a law to try to restrict that doesn't work, because eventually you have to pay the piper — in the form of either a state income tax or higher taxes."