Article Courtesy of The Insurance Journal

By William Rabb

Published January 26, 2024

When a Florida Senate committee last week approved a bill that would raise the policy limit on homes that can be written by the state-backed Citizens Property Insurance Corp., state Sen. Doug Broxson said the change was needed because of a “hole in the doughnut:” Less-expensive homes can find some property insurance coverage, and wealthy owners of high-end houses can probably afford surplus lines coverage or can self-insure.

Some condominium associations are now vigorously pointing out that there’s another massive hole in the Florida insurance doughnut, one that leaves an estimated 9,000 condo buildings underinsured or unable to find affordable coverage.

The condo market is a big swath of Florida’s economy and a significant source of property tax revenue for counties and cities around the state. But without coverage, some condos with rental units could be forced to drastically raise rates or close their doors altogether, supporters of legislative changes said this week.

“We are competing for tourism dollars against our neighboring states. If we are unable to rebuild after a loss, those tourism dollars are going to go elsewhere,” said Matt Mercier, national director of community associations for CBIZ, an insurance advisory firm. He spoke at a Florida House committee meeting last week.

Florida House Bill 625 aims to close the hole by allowing Citizens, designed to be the insurer of last resort, to write wind coverage for condominiums that are rented out on weekly basis. The bill, filed by Rep. James Buchanan, R-Sarasota, would delete the 2014 statute section that declared condos to be ineligible for Citizens’ wind-only coverage if they are rented out more than eight times a year.

The rationale for that 2014 restriction may have been to limit Citizens’ exposure, said Mike Clarkson, managing director of Hilb Group of Florida, the insurance brokerage for some 1,200 condo associations around Florida. But without a “normal” property insurance market, that restriction is wreaking havoc for condos already hit with new inspections costs, repairs and association fees.

The market, already in tough shape, dried up significantly after Hurricane Ian hit southwest Florida in September 2022, damaging hundreds of condo buildings and tightening the reinsurance market for insurers, Clarkson and others in the industry said.

“Right now, there is no admitted market for commercial residential other than Citizens, and if they’re not allowed to participate in Citizens, then they’re put into the surplus lines, which, as we all know, those rates are kind of the wild West,” said Travis Moore, a lobbyist and consultant representing condo associations. He spoke last week at the House Insurance and Banking Subcommittee, which approved HB 625 by a wide margin.

An analysis of HB 625, prepared by supporters, gives examples of the mess that condo owners and associations have faced in recent years:

A condo association on Siesta Key, near Fort Myers, until recently was able to obtain full coverage – a $9.2 million policy limit with an annual premium of $220,811. This year, the carrier would provide only $3.5 million in coverage – at a premium of $384,000. Citizens offered a premium of $62,100, but for only $2.5 million in total coverage.

“The board member immediately calls the agent to see if there was a typo in the proposal,” the analysis recounted. It was no typo. The problem is the statute that bars Citizens coverage if the condo association rents out more than half of the units on a short-term basis.

“How is the board going to explain this to the owners, especially the full-time residents in the building that don’t rent their units,” the analysis asks.

HB 625 passed the insurance subcommittee with flying colors, but a few lawmakers worried that expanding Citizens’ condo coverage will prove to be anathema to the insurer’s and the Legislature’s stated goal of depopulating the carrier. Citizens remains the largest property insurer in the state with some 1.2 million policies in force.

“I am concerned that Citizens is still way too big,” said committee member Tom Fabricio, R-Miami.

Buchanan, the bill’s sponsor, argued that the change in the law should be only temporary: Once 2022 and 2023 reform legislation has had time to reduce litigation costs for insurers, the primary market may bounce back, with private carriers again writing more condos.

The Florida Association of Insurance Agents supports the bill. A Citizens official said the insurer is still reviewing it.

Options for some condo associations may improve slightly this year, with or without help from Citizens. Tampa-based HCI Group announced in November that it is launching Condo Owners Reciprocal Exchange to help fill a “huge need” for condo associations, starting in February. HCI CEO Paresh Patel said Tuesday that HB 625 would not interfere with his group’s plans.

“We’re used to competition. It’s a competitive business and anything that expands options for people is good,” he said.

HB 625 now goes to the full Commerce Committee in the House. But the bill, so far, has no companion bill in the Senate, a hole that must be filled within the next week or so to meet legislative deadlines, Moore explained.

A potential sponsor of a Senate version, Sen. Nick DiCeglie, R-St. Petersburg, could not be reached for comment. But his legislative aide said that it’s possible parts of HB 625 could be folded into other Senate bills that address other Citizens restrictions. Those include DeCeglie’s bill, Senate Bill 1428. That bill, if signed into law, would allow Citizens to develop new criteria and rates for wind-only coverage in certain areas.

House Bill 1213, sponsored by several lawmakers, could also solve the condo coverage problem by making Citizens the primary wind insurer for the entire state. While the bill has bi-partisan sponsorship, it is seen as unlikely to pass the full Legislature.

Meanwhile, Buchanan’s HB 625, as it reads now, may not solve everything supporters hope it would. The bill language does not specifically address a coverage cap on Citizens’ policies, which are held to no more than $1 million for residential and condominium properties. It also would eliminate the Citizens glidepath, which keeps rate increases at no more than 15% annually in coming years.

The bill would help condo owners in another way, though: It would raise the minimum amount of coverage for condo units’ property loss assessment, from $2,000 to $5,000. In other words, condo policies must cover a fee that some associations may levy after storm or other damage, to make repairs. The bill raises that coverage to at least $5,000.

Supporters said the key provisions of HB 625, even they must become part of other bills, are vital to Florida’s future.

“Hurricanes don’t care if a condominium association allows rentals. Neither should the state of Florida,” said Mercier, of CBIZ Insurance. “What Florida should be concerned about is getting heads back into beds after the loss.”

“If I’m a community and I bought this condo building as an investment, and all of a sudden my insurance goes up 4 times, that means I’ve got to increase my rents,” said Clarkson, the Hilb managing director. “People are going to start looking at other alternatives other than coming to Florida.”