No more million dollar homes in Citizens means a billion less storm risk
This is a story of John and the “Dear John” letter he got from Citizens Property Insurance this month informing him that his premium payments for insurance coverage are no longer welcome. His $1 million-plus home would no longer be covered by the state-run insurer effective May 1, and he was more than mildly miffed. He suggested this column, so this one is for John and those like him who are wondering why Citizens would drop coverage for the people who clearly pay the most for coverage on high-value homes.
He questioned the business decision of carving out people who paid the highest premiums and wondered if the decision was merely politically expedient, rather than strategic. The chart below says it all. Strategic, definitely. Decreasing the maximum coverage from $2 million properties to $1 million for wind-only policies and multi-peril policies will cut more than $1 billion in Citizens’ exposure.
|Citizens’ Risk Exposure* (1-in-100 year storm probability)
||With $1 Million+ Homes
||Without $1 Million+ Homes
|Coastal Residential Multi-Peril
|Coastal Residential Wind Only
|REDUCED EXPOSURE: $1,081,150 *As of 6/30/11
Knowing this will not make John happy. Yet, he was a reasonable man, informed on the issues and readily admitted the $6,000 he paid in annual premiums to Citizens should have been higher. (Few people would say that!) He wished the change had been gradual and that there were more options for finding new property insurance at a price closer to what he was paying for tax-payer backed coverage. He acknowledged that no one feels sorry for so-called rich people who live by the water. But he thinks Florida’s mansions are better built and have more storm protection, which should count for something. And, it probably will with a private-market company. It’s just that the state is waking up to the reality that offering below-cost insurance today brings a high cost problem tomorrow – and yeah, tomorrow always comes.
Citizens wishes to reduce its storm risk – from the $513 billion it has right now to something that won’t leave all policyholders picking up a big tab for years to come. Cutting $1 billion at a time is progress. It may seem like a drop in the bucket, yet remember these aren’t the only changes Citizens is undertaking. Trim a billion here and a couple of million in other areas, and it adds up to real money in an effort to reduce the neccesity of post-storm bailouts.