Leading Question

With rates roughly doubling in parts of Southwest Florida next year, people will leave the state, would-be homebuyers will lose the opportunity to own, and outside companies will avoid us altogether. And as those insurance costs spiral, expect some fallout to hit mortgage lenders, builders, realtors and anyone else associated with the housing industry.

Fortunately, the short-term effects of rate spikes will not devastate the economy.

"Considering the [housing] market as a whole is soft, it's just another layer of costs. It definitely will have a dramatic effect on buying decisions," says Naples-based Michael Timmerman, managing director of Florida's Hanley Wood Market Intelligence division.

Combined with rising energy costs, interest rates and increased home prices, higher insurance rates make for "a perfect storm" of negative movement in the region's economic well-being, he says.

A recent whammy came in July when State Farm Florida Insurance boosted rates by 52.4 percent, on average, across the state. But the escalation is far higher in certain areas of our region. For example, parts of coastal Collier and Lee counties will see increases of 90-plus percent, according to the Florida Office of Insurance Regulation.

Farther inland, rate hikes will be slightly less-42.6 percent in Lee and 87.3 percent in Collier. These figures do not include condo or rental structures.

The increases are, of course, the result of two consecutive years of heavy hurricane activity that resulted in more than $38 billion in damage statewide. State Farm ranks first for the number of policies in force across Florida and in Lee, Collier and Charlotte. Second in the state is Citizens Property Insurance, which raised homeowners' rates by 13.3 percent in 2006 and 23.2 percent in 2005.

The Florida Legislature created Citizens in 2002 to cover policy holders in high-risk locations who are unable to afford coverage from traditional insurers. Legislators have agreed to bail out debt-ridden Citizens, which charges the highest premiums in the state, to the tune of roughly $920 million.

Nationwide Insurance Co. of Florida, another major carrier, has a 71.4 percent rate hike pending.

TIB Bank has noticed that some consumers are losing their chance for home ownership because they can't handle the cost. "We have heard of transactions that have not taken place because of the increases," says Mill Younkers, TIB's Southwest Florida president. "It disqualifies many people because it changes the ratio of income to debt."

But the finance industry is not taking the matter in stride. Recently a contingent of 15 Florida bankers traveled to Washington, D.C., to discuss the issue with elected officials. And at Fifth Third Bank, people with good credit may receive help regardless of debt ratio and other factors considered when obtaining a mortgage, says spokeswoman Jama Dock.

So far, agencies such as Oswald Trippe and Co. are able to find policies for customers, but it can get pricey, particularly with older homes that were constructed before enhanced building codes, says Oswald Trippe president John Pollock. If carriers decline coverage based on dwelling age, the business often goes to Citizens.

To address the situation, Pollock and his colleagues propose establishing special funding pools-at state and federal levels-to provide coverage that would be triggered after damage costs reach a certain amount per dwelling. Insurance companies would not have to pay out after that figure is reached, minimizing their losses. Those kitties could be capitalized by using portions of bed taxes, state sales taxes, impact fees and even federal dollars to spread the burden around. If insurers felt the risks were lowered, more might come back to the state or offer coverage at competitive rates, Pollock says.

Until that happens, local building industry officials are closely monitoring the issue. "This is a huge concern for us," says Brenda Talbert, executive vice president of the Collier Building Industry Association. "[The premium increases] are a major cost driver in the affordability quotient." And if higher home prices drag down sales, it also hurts the building industry, which accounts for a quarter of the local economy, says Talbert, who supports establishing a federal catastrophic fund.

Economist Hank Fishkind of Orlando-based Fishkind and Associates foresees a rate increase next year, as well. That will result in people having to move from their homes and, just as disturbing, people and businesses considering a move to Southwest Florida might pass it over in favor of another state with lower insurance rates, he says.

"It's not going to be in great numbers, though," Fishkind says.

-Phil Borchmann