Back in November, Florida Gov. Rick Scott asked Citizens Property Insurance Co. to come up with a plan that would help the company stay afloat. The state-backed company has long struggled with financial viability, and lawmakers are beginning to wonder aloud if the problem can't be traced to business practices rather than legislative and regulatory limitations.
Citizens' leadership responded recently with a long list of cutbacks. Most of the proposals involved cutting benefits or simply doing away with certain kinds of coverage. Law and ordinance coverage is among those facing extinction. Homeowners, though, may not know to object to the proposal because the coverage is seldom discussed.
Let's say a fire damages your home. The kitchen is a total loss. Your homeowner insurance will (generally) cover repairs and restoration of that kitchen, right? Sort of. The insurance will cover the cost of bringing the kitchen into compliance with the original building code.
But this is Florida, and building codes (or ordinances) can change quickly. If your kitchen is only rebuilt to meet the original code, you will have to pay, out-of-pocket, to bring it into compliance with the current building code. Law and ordinance insurance coverage takes care of the difference in cost -- mitigating what could be an enormous additional expense for you.
Citizens is considering dropping law and ordinance coverage. Even offering the proposal suggests that the premiums for law and ordinance coverage aren't covering the claims.
Or, the premiums may not cover the claims if there is a big storm. The state has eluded a major hurricane this season, but both Citizens and the governor are concerned that the next big one will drain the insurer's reserves. That surplus stands now at $5.7 billion. Combined with other funding sources, including the Florida Hurricane Catastrophe Fund and private insurers, the total surplus is $16.7 billion.
We'll wrap this up in our next post.
Source: Insurance Journal, "Florida's Citizens Insurance Says Legislation Needed for Real Change," Michael Adams, Dec. 6, 2011