Friday, January 05, 2007

Insurance Or Extortion In Florida?

The Venice Gondolier reports from Florida. "Norm Finn, who is retired, has lived at 181 Cocoanut St. in downtown Englewood for 10 years. His wife, Marilyn, owned the home 20 years before that. More than a decade ago, the home's $40,000 mortgage was paid off. In ensuing years, it has been refinanced."

"Finn has a $242,900 mortgage through Bank of America. Sarasota County assesses the homesteaded lot at $260,000. His tax valuation increased from $13,000 to $19,000 in 2006. He has replaced windows, walls, and put a new roof on the home. 'I've got about $200,000 in improvements in this place,' he said."

"Finn carried enough insurance through a national provider to cover the mortgage. That's all he thought he needed. That's all he wanted, especially since rates increased twice within a year."

"In September, Finn saw a man on his front lawn, 'measuring off my property.' The man was conducting a 'home care review' for Finn's insurer. It included questions about furnishings and interior amenities."

"Finn didn't think much of it until a letter arrived in October telling him his policy was being rewritten to cover the home's '100 percent total replacement value.' Instead of covering the $242,900 mortgage, it would now cover the home's $304,866 replacement value."

"Starting Jan. 1, Finn will pay $4,560 a year for insurance, or about $400 monthly -- nearly $100 a month more than what he now forks out. And that's not all."

"Apparently, Finn's carrier 'passed me off to Citizens,' the state's 'insurer of last resort.'"

"The whole thing angers Finn. 'It's extortion,' he said, noting his insurance agent said if he didn't renew the rewritten policy 'the bank can foreclose on me' because he wouldn't have insurance."

"But when Finn went to the bank, it told him, 'I only need to be insured for what my mortgage is.' Finn said he is confused and uncertain if he's required to insure at replacement value."

"The short answer, said Dave Dignam at Englewood's Key Agency, is 'yes.' 'That's correct,' he said. 'We don't insure mortgages, we insure houses.'"

"Dignam, an independent broker, said Finn is typical of many homeowners ensnared in the state's insurance crisis. 'He's taking a double hit,' he said. 'The premium is twice as much, and they are also getting the increase of the house structure price.'"

"While he is unfamiliar with Finn's specifics, Dignam said the situation seems common. A bank and an insurance company have different priorities, he said."

"'The bank is trying to protect its interests,' the mortgage, Dignam said. 'The insurance company's obligation is to protect the replacement value of the home.' He said it's difficult to explain the difference to people, even to Realtors and mortgage brokers."

"'I tell them, 'For you, it's a date. For me, it's a marriage,' Dignam said. Insurance clients 'are with me. If it's done wrong, I have to deal with it.'"

"Replacement value is assessed differently than tax and market values, he said. 'You are basically reproducing, on paper, the cost to replace the house, broken down to actual costs at today's current building code,' Dignam said."

"Finn is among Floridians hammered by this 'double whammy' because some insurers, overwhelmed by hurricane claims in 2004-05, are leaving the state. 'We've had to rewrite a tremendous amount of people,' Dignam said. 'In reviewing these policies, we found a large amount of clients were underinsured. It is a complicated thing to explain to a client.'"

"'It's a bad scene. We can't have any more companies leave the state or we'll be left just with Citizens,' he said. 'It's a mess and there is no silver-bullet answer out there,' Dignam said. 'They can't keep raising rates like this,' Finn said. 'People can't afford it.'"


At 1:06 PM, Blogger Loren said...

The insurance companies have a reason for this. Say a house is worth $1M, but your mortgage is only $500k. So you insure it for $500k only. If your house sustains $750k of damage you owe $500k and the bank wants it's money, so they get $500k. Now you're left with a 3/4 destroyed house free and clear. Can you sell it? Can you afford to fix it up? Will you sue your insurance company for not covering the full amount? You may even be liable for cleaning up the debris at additonal cost.


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