Condominium Conundrum

Article Courtesy of The Tampa Tribune

Published  August 23, 2006

SEMINOLE - Up until this year, life was good for older residents who owned condominiums at the Seminole Hill Villas in Pinellas County.

They enjoyed living in this modest 38-year-old garden-style condominium complex where life revolved around socializing, playing cards and shuffleboard. As a bonus, Florida's real estate boom gave a healthy boost to condo values.

"It was an inexpensive and nice place to live," said 80-year-old Lee Priester, who purchased a two-bedroom unit with her husband, Art, for $37,000 seven years ago.

That was until the realities of Florida's homeowner insurance market intruded, ending residents' days of cheap sunshine. Owners at Seminole Hill Villas and thousands of other Florida condominiums are quickly discovering what many homeowners have faced for the past several years - skyrocketing insurance premiums are putting a dent in their budget.

The insurance increases don't just affect lower-end complexes for retirees. Moderate and luxury condo owners also are being hit hard as private insurers exit the market and state-sponsored Citizens Property Insurance Corp. picks up condominium association policies.

Passing The Buck

As the cost to insure condominium properties rises, condominium associations are passing the increases on to individual owners via higher maintenance fees. In some cases, maintenance fees have risen hundreds or thousands of dollars a year. The coverage is in addition to personal property insurance.

The worry for owners and investors: whether added costs will make Florida condo living less desirable, triggering owners to sell their units in a depressed market where there will be few buyers.

Florida's condo industry could be at stake unless premiums stabilize, said Brian Smith, president of Rampart Properties.

"I've never seen anything like this in 31 years of being in the condominium management business," he said.

For low-income condo owners and retirees, the situation has reached the crisis point.

Insurance premiums at Seminole Hill Villas more than tripled in February from $22,000 to almost $73,000 after The Allstate Floridian Insurance Company dropped the complex's master policy. Master policies for condominium associations cover condo unit walls, roofs, foundations and plumbing, as well as the clubhouse, swimming pool and grounds.

Individual polices that cover owners' appliances, cabinets and personal belongings cost between $350 and $500 a year for Seminole Hill Villas residents.

When Seminole Hill Villas' condominium board tried to shop for a better rate, they quickly discovered there was only one insurer who would cover them: Citizens, the insurer of last resort for those who can't find private coverage in the private market. Citizens must, by law, charge higher rates than the largest private market insurers.

Now owners at Seminole Hill Villas face monthly maintenance fee increases of between $52 and $67. The Priesters, who mainly live off Social Security and a small pension, now pay almost $300 a month in maintenance fees, a $61 increase from last year.

"We're afraid our money will run out before the years run out," Lee Priester said. Although the Priesters own their unit, the appreciated value is only in the $100,000 range. It's an amount that Lee Priester said wouldn't go far renting somewhere else.

Mickey Flynn, the president of the Seminole Hill Villa condo association, said at least half of the residents in the 121-unit complex are seniors on fixed income. She worries some longtime residents will be forced to sell their units whether they want to or not. "This is very scary for many people," Flynn said. "They can't afford the insurance increases."

The situation will get worse before it gets better. Citizens raised condo association rates 33 percent in May in most of Pinellas County, meaning Seminole Hill Villas maintenance fees will go up again in February at renewal time.

The situation is even more drastic on the barrier islands in Pinellas County. Beginning this month, Citizens is imposing a 259 percent rate increase for hurricane wind coverage. In Pasco County, condominium associations west of U.S. 19 started receiving a 290 percent increase Aug. 1.

Citizens officials said the new increases, like those for homeowners, are necessary to prevent more deficits due to another bad hurricane season. The insurer ran deficits of more than $2 billion from the 2004 and 2005 hurricane season, requiring surcharges on homeowners' policyholders throughout Florida.

More increases are on the horizon.

'Contact Your Legislature'

Citizens officials told a state legislative committee in the spring that condo rates in coastal areas could go up an additional 100 percent if the Legislature imposed new rules requiring the insurer to have enough capital to pay claims from a so-called "hundred year storm." The Legislature approved the rules but agreed to ease the pain for coastal condominiums by implementing the new rates over a three-year period. Those new rates are scheduled to start for policies renewing on or after March 1.

Inland condominium complexes, however, will have to absorb the increase all at once as policies renew on or after that date.

Paul Palumbo, the director of underwriting for Citizens, told a forum of condo association officials in Pinellas Park this month that the insurer shouldn't be blamed for the rate increases because it is only following the Legislature's mandate to prevent more red ink.

"Contact your legislator," he told his upset audience.

In the past five months the number of condo associations covered by Citizens has increased from 3,500 to 5,000. Citizens picked up more than a thousand condo policies from the insolvent Southern Family Insurance Company. But Citizens officials say thousands of others will be joining the insurer's ranks in the coming months because major insurers are quickly shedding condo association policies.

Starting in January, State Farm will begin to drop all of its 1,500 condo complexes. Other major condo insurers such as Allstate Floridian and Nationwide Insurance are in the process of dropping several thousand Florida condo complexes as their policies come up for renewal.

State Farm decided to get out of the condo business because the potential for huge losses is too great, said Chris Neal, a spokesman for the insurer. "Major damage to one big condo could be as much as $10 million," he said.

Condominium insurers who still offer coverage, such as Australian-based QBE, are more selective, dropping some older complexes that don't meet updated building codes, said Adam K. Lopatin, an insurance broker with Acordia Insurance Brokerage and Consulting in Clearwater.

The exodus has left high-priced Citizens as the only player in the condo game for many complexes.

"Once they sign up with Citizens, they are seeing insurance increases of 200, 300, even 500 percent," Lopatin said.