Windstorm Insurance Rates Create Ongoing Crisis in Monroe County

1. Windstorm Insurance RatesCreate Ongoing Crisisin Monroe County A Presentation to Key West City Commission Prepared by the Grassroots Organization FIRM Fair Insurance Rates in Monroe August 3, 2009

2. FIRM(Fair Insurance Rates in Monroe) on behalf of Monroe County • FIRM is a grassroots, 501c4 non-profit organization that in conjunction with Monroe County, and actuarial and legal assistance presented testimony to the Office of Insurance Regulation (OIR) in 2006 resulting in a 32% windstorm rate rollback for all Monroe County residential property owners. • Subsequently, FIRM lobbied the Florida Legislature to freeze the rates for 3 consecutive years at a 2007 savings of $110.6 million, 2008 savings of $153.7 million and 2009 savings of $143.3 million for Monroe County residents and property owners.

3. Taxpayers are the Government • Residents and property owners pay taxes and insurance in Monroe County and both expenses have been extremely high and, for many, unaffordable. • The County and municipalities have a responsibility to the economic welfare of the taxpayers to effect change when a county-wide financial crisis arises for its citizens. • Monroe County residents and property owners have benefitted, financially, from the windstorm insurance savings because of FIRM’s work, jointly with Monroe County, and the expert advice of Actuary Allan Schwartz, and Atty. Tim Volpe, in 2006.

4. Savings to the Taxpayers • Due to the joint presentation on August 1, 2006, the Office of Insurance Regulation (OIR) ordered Citizens Property Insurance Corp. (CPIC) to reduce Monroe County residential windstorm premium rates. The disposable income savings to Monroe County residents and property owners, over the last 4 years, are highly significant. • Based on an average $350,000 insured structure

5. Without FIRM, Monroe County, and Actuarial and Legal Expertise in 2006, for example…. • A $350,000 insured structure one year wind insurance premium would have cost $9,100 instead of $4,795 in 2007 $11,200 instead of $4,795 in 2008 $14,000 instead of $4,795 in 2009 $14,000+ instead of $5,275 in 2010 • Inasmuch as most properties are mortgaged, those owners are required to carry windstorm insurance. • If owners cannot prove insurance, mortgage companies force coverage at as much as twice the cost.

6. Proposed Citizen Property Insurance “Actuarial Sound Rates” for Monroe County Residents • CPIC proposes that a 100% increase is equal to an “actuarial sound” windstorm rate for Monroe County. Given that increase on the 2007 frozen, reduced rate of $13.70 per $1,000 insured value, our rate would almost double in 6 years due to compounding • $13.70 + $1.37 = $15.07 x 350 = $5,274.50 annual premium 2010 • $15.07 + $1.51 = $16.58 x 350 = $5,803.00 annual premium 2011 • $16.58 + $1.66 = $18.24 x 350 = $6,384.00 annual premium 2012 • $18.24 + $1.82 = $20.06 x 350 = $7,021.00 annual premium 2013 • $20.06 + $2.01 = $22.07 x 350 = $7,724.50 annual premium 2014 • $22.07 + $2.21 = $24.28 x 350 = $8,498.00 annual premium 2015 • $24.28 + $2.43 = $26.71 x 350 = $9,348.50 annual premium 2016 (Source: Preliminary CPIC increase information – July 2009)

7. What does this mean to Monroe County residents? With our county’s building codes, a complete building loss, or even damage up to an insured’s out-of-pocket costs, due to wind damage, is highly unlikely. • After storm damage caused by wind, the insured still must meet their deductible after having paid their annual premium. • For example in 2010, a $350,000 insured building with a 10% deductible could pay $5,274.50 premium & up to $35,000 out-of-pocket for damage before they could expect to receive any compensation from their Citizens Property windstorm policy. • The average wind damage claim in Monroe County during Hurricane Katrina was $915 and for Hurricane Wilma was $931. • Therefore, Monroe County continues to pay significantly higher wind premiums than dollars received in wind policy claims. (NOTE: Before mitigation credits)

8. What else does this mean to our County? • Insurance costs affect real estate values. • In 2006, real estate sales agreements were falling through when buyers realized the exorbitant cost of windstorm insurance. • If these insurance costs go unchallenged and rates are allowed to increase unchecked, sellers will have to reduce the price of their properties to motivate buyers. • Lowering sales prices devalues neighborhoods by affecting all comparable properties, insured or not. • Lowering insurance rates make it a more affordable purchase. • Insured properties protect families, the asset, and are more likely to be maintained. • Lower insurance rates will help real estate be more attractive to buyers.

9. Monroe County Residential, Condo, and Commercial Properties • The Office of Insurance Regulation evidentiary hearing August 1, 2006, was provided to specifically address residential windstorm insurance rates, as required by the OIR. • As of June 2009, Monroe County CPIC insured policies totaled 25,024; of which 22,902 (91.5%) are residences, 401 (1.6%) are condos, and 1721(6.9%) are commercial. • The greatest percentage of CPIC policies are residential. • In past years, the Monroe County windstorm insurance policy percentages for residential, condominium, and commercial classifications vary little from the above percentages.

10. Monroe County Residential, Condo, and Commercial Properties • FIRM continues its stand today that in Monroe County, due to strict building codes and other factors, a building is a building is a building, regardless of its use. • In 2007, FIRM requested Monroe County commercial-residential (condo) and commercial windstorm policy information from their owners. • Although the information has been very slow, and minimal in coming from condo and commercial property owners, FIRM’s analysis provided the same result - that these windstorm rates were also too high. • Condominium rates came down in 2008 due to mitigation credits recalculated by CPIC.

11. Actuarial and Legal Expertise • FIRM and Monroe County, on behalf of all residents, must present to the OIR at a public hearing within 45 days of CPIC’s new rate filings submitted July 31, 2009. • In order to present the most accurate and verifiable information, we need actuarial and legal assistance. • In 2006, Allan Schwartz, Actuary; and Atty. Tim Volpe were contracted by Monroe County to assist in our evidentiary hearing presentation, funded by county and municipality taxpayers. • The result was a windstorm insurance rate reduction of 32% for which county residents and property owners have benefitted from hundreds of millions of dollars in savings for 2006, 2007, 2008, and 2009.

12. Taxpayer Return on 2006 Actuarial and Legal Investment • At an insurance premium savings of $445 million to Monroe County taxpayers from 2006 through 2009 because of the combined efforts of FIRM, the County, and the actuarial and legal assistance… • Monroe taxpayers realized in excess of a 2,542% return on their investment over the 4 years (or 635% return per year).

13. Need more reasons? • In this depressed economy…… • Let’s help keep the cost of living in the Keys down. • Collectively, we have a responsibility to do all we can to help our residents and property owners, • And this is what we, as residents and property owners, expect from our elected officials. • It’s the right thing to do

14. Summary • Time is of the essence. • The 2009 public hearing is the one and only opportunity to address CPIC’s “actuarially sound” filed rate increase. • We need actuarial and legal expertise to produce the best presentation on behalf of all County residents. • We are already into the 45 day period in which the public hearing will be scheduled. • Monroe County insurance rates affect real estate values and the cost of living for all of us.

15. On behalf of all Key West City Residents and Property Owners • FIRM respectfully requests that the Key West City Commission, today, approve the suggested city contribution to help fund the contracts with Mr. Allan Schwartz, Actuary; and Atty. Tim Volpe to expedite the creation of the public hearing presentation. • The BOCC of Monroe County had pre-approved funding these contracts which were reviewed yesterday. • FIRM attended the August 3 county meeting in Marathon to answer any open questions. • FIRM has contacted each municipality to assist in funding this effort and, to date, Key Colony Beach has made the financial commitment. • The City of Marathon will be addressing this request at today’s meeting being held at this time. • The Village of Islamorada and the City of Layton have yet to respond.

16. Thank You • FIRM is grateful for this opportunity to present to you on behalf of all Key West and Monroe County residents and property owners. • And… if you aren’t a member of FIRM, become one today at www.FIRMKeys.org • Membership is free and the savings to each of us is priceless. • We’re all in this together.