Florida homeowners might want to go without wind coverage, and may decide on a higher deductible in return for lower rates, but mortgage companies could keep these options from producing what the Florida Legislature wants: lower property insurance rates for all consumers.
Lawmakers in special session trying to lower skyrocketing insurance rates agreed Friday that consumers should be able to decide whether they want to go without wind coverage. They also agreed to remove the 10 percent cap on deductibles, which only exists for homes that are worth $500,000 or less. Consumers would have to clearly indicate that they understand and have approval from lenders to choose these options.
Many consumers want the choice, and some believe they will place less stress on insurers and lower rates as a result. If homeowners can choose to pay a higher deductible if a storm strikes, they can pay lower rates in the meantime.
But individual banks argue these options may never come to fruition because the large companies that purchase the mortgages they provide may not do so on homes without wind insurance, or on homes with higher deductibles.
Sen. Steve Geller, D-Cooper City, said the proposals aren’t likely to produce significant results.
“I think this whole thing is much ado about nothing,” Geller said. “If you have a mortgage, we’ve been told that in order to be resaleable, (the deductible) can’t exceed 5 percent.”
“Obviously that’s not going to help an awful lot of Floridians,” said Sam Miller, vice president of the Florida Insurance Council.
Fannie Mae, one of the two largest companies in the so-called secondary market, has already indicated it won’t buy mortgages on Florida homes that don’t have wind coverage, said Bret Rock, spokesman for the Florida Bankers Association. The secondary market is also likely to balk at agreements with deductibles higher than 10 percent; the most common policy has a 2 percent deductible.
That, in turn, puts individual banks in a bind.
“It’s just tricky when it comes to that because it puts our members in a position of making decisions knowing that they can’t sell it to the secondary market,” Rock said. “We definitely want our consumers to have as low of rates as possible, but we want to make sure that it’s done in a manner so that our consumers and our members will be covered in case we have another hurricane season like we did in 2004 and 2005.”
It’s difficult to project how widespread the impact would be if the mortgage companies take a hard-line stance, because each bank would have to make an individual decision based on its own risks, Rock said.
Allowing more policy options may help one group of consumers: the small number of people who are able to own their homes in full, and don’t have the constraints of a mortgage. If a resident owns their home in full, the owner and insurance company could agree on a deductible of any size under the proposal.
Many wealthy homeowners in South Florida who own their home outright want the ability to forgo wind coverage, but can’t currently do so if they want other coverage such as fire, Miller said. If they’re given the option to simply forgo wind, they will take a chance on a hurricane — and if one strikes, the land is so valuable they can sell it and simply move elsewhere with the profit.
Another issue that lawmakers haven’t yet agreed on may encounter the same resistance from banks and mortgage companies. House and Senate negotiators have not yet decided whether to allow homeowners to have an insurance policy that covers only the portion of the home they own.
Rock said there are no guidelines as to what would happen if the damage to a home is greater than the value of the portion the consumer owns.
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