You've Been Cancelled

The 2008 hurricane season no sooner ends than storm warnings are heard in Pensacola over pending changes in hurricane insurance coverage. The news isn't all bad, we hasten to add, but every Pensacola Beach home owner (and others with homes in Florida) covered by a "wind-only" insurance policy that expires after February 1 should stay alert for threatened cancellation notices even as they prepare for next year's tropical storm season.

Florida Citizens Property Insurance held a public forum at the Civic Center last evening to explain the scary-sounding letters many of its customers have been, or will be, receiving. Citizens has been staging similar public meetings around the state since late summer.

Wind Only Policies

Essentially, the state-owned insurance company is scrapping the wide variety of policy language and differing policy provisions in all of its "wind-only" residential insurance policies and replacing them with a single, uniform policy that uses identical language. Or, at least, so the insurer explains on its web site in the FAQ section:

Currently, all of Citizens’ residential wind-only policies are written on a unique policy form. This form can cause confusion for policyholders, agents and claims adjusters. We are transitioning these policies to improve our service to you. This will make our claims process smoother and will enable us to handle your requests more efficiently. This new Internet-based system will give your agent the ability to do more for you.

"Transitioning" is Pencil-Head Speak for "we're canceling your policy and you'll have to reapply for coverage." Here's an example of the cover letter every wind-only residential home owner will be receiving "six, four, and two months prior to the renewal date of their existing policies":

There are some exceptions. "Wind-only" policies that expire before February 1 will be renewed without change for one more year. Multi-peril policies covering hazards other than, or in addition to, wind damage are not affected, Citizens says.

Back Story

In truth, there's no compelling reason why the state-owned insurance company couldn't have made the transition, month by month, to a uniform policy for everyone without the added terror of a cancellation letter. What's really going on is that the state-owned insurance company is trying to limit its own exposure by requiring home owners to certify their roofs are in good repair and by stopping them from over-insuring property for more than it's really worth.

That last point could become very sticky in a plummeting real estate market that some expect, as Prof. Christopher Mayer observed on NPR last night, to fall another 12-18 percent over the next year and a half. It remains to be seen just how rigorously Citizens will enforce the over-insurance rule.

There will be consequences beyond the obvious. For one thing, Citizens is inviting anyone with a "wind-only" policy to contact their agent before they get a cancellation warning to "discuss transitioning" to a 'full home owners policy' now. That sounds to us like a great idea, frankly. As bad as Citizens can be, we all should know by now that corporate and privately-owned property insurers almost always are worse when it comes to post-hurricane adjustment practices.

For another, some among the three hundred thousand-plus "wind-only" Citizens customers out there in hurricane lane are not going to get their mail, or they'll be too infirm or distracted to read it, or too stupid to understand it. Some will deliberately ignore it. Others will not realize they have to go through their local agent. Policies will lapse. When a storm hits, some homeowners 'suddenly' will discover they weren't insured.

Somewhere deep in the data base bowels of Citizens, you can be sure there is a statistical projection developed by actuaries coldly projecting exactly how many existing customers are likely to let their policies lapse and how much money Citizens will save as a consequence when the next storm hits.

There's no need to make that projection come true. If you're currently insured under a "wind-only" policy by Citizens Property Insurance, you'll probably be eligible for renewed coverage under the new uniform policy. But you must reapply through your local agent.

Those not eligible for renewal fall into these categories, in the words of Citizens Property:

• If you built or rebuilt your own home, it must be approved by local government or a Certificate of Insurance must have been issued.
• Seasonal and secondary properties may be accepted.
• Your property cannot have four or more mortgages. Government-backed loans such as Fannie Mae are not counted.
• Roofs that are damaged, have visible signs of leaks, or have a remaining useful life of less than three years are not insurable. This does not apply if you are a renter and your coverage is only for your contents OR you have a condominium policy.
• If you have a shingle roof more than 25 years old OR your home is older than 50 years and your roof has any other type of roof material, you must have proof that your roof has been replaced or that the remaining useful life is at least three years.
• Your property is constructed partially or completely over water.
• Your prior policy was not been issued for a full annual term.
• Your property has been condemned or is in disrepair.
• Your policy covers a building that is not on the same property as your home.

Home owners are being urged to contact their local property insurance agent if they have any doubts about their eligibility for renewal -- and even if they don't -- well beforehand.

Real Estate Webmasters has a summary of how these changes may affect your premiums:

• New insurance quotes will be sent out at least 60 days prior to the current policies' expiration.
• Premiums may increase to cover the increased value of the home. Homeowners that are dissatisfied with the new appraisal will be allowed to appeal the valuation.
• Policyholders will be allowed to choose from a variety of payment options.
• Multi-Peril, Condo Association, and Commercial Non-Residential policies are not affected.

One last point that needs emphasis: The bad news is that state law still compels Citizens to try to "privatize" as many of its policies as possible, using the infamous "take out offers" where Citizens pays money to a for-profit company to take over your policy. Just last month, another 110,000 policy holders received notice they were being "depopulated" from Citizens.

The good news is, you don't have to leave Citizens Property Insurance if you don't want to. For example, if you suspect the private insurer who's offering you what seems like a cheaper premium charge is in reality a deadbeat who doesn't pay its bills, or potentially a criminal enterprise, or just a dog, you're free to remain a customer of Citizens.

But you have to watch for those "depopulation" notices, too. You have the burden of saying "no."