Insurance hikes slam (Florida) businesses

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Insurance hikes slam businesses

By Jeff Ostrowski, Palm Beach Post Staff Writer

Wednesday, October 16, 2002

The Kravis Center for the Performing Arts took a financial hit recently when

it renewed its property insurance policy: The premium more than doubled,

from less than $350,000 last year to more than $700,000 this year.

" Obviously, we have to add about $350,000 to our annual fund-raising goal, "

Kravis spokesman Bill Underwood said Tuesday. " It goes straight to the

bottom line. "

The nonprofit Kravis Center's bottom line isn't the only one being battered

by skyrocketing insurance rates. Landlords and insurance experts say twofold

increases are common for businesses in Palm Beach County and the Treasure

Coast.

Catalfumo Construction & Development of Palm Beach Gardens has sustained 100

percent insurance premium increases on some of its properties.

Memorial Medical Center in Stuart also has seen its property insurance

double this year, to $3 million.

The insurance industry's woes affect not just policies on commercial

buildings but all types of coverage -- including health, auto, liability,

workers compensation and homeowners insurance.

State Farm on Monday said it won a 19 percent statewide average increase in

homeowners insurance. The hike by the state's largest insurer outraged

policy holders, consumer advocates and Florida's insurance commissioner --

but many commercial property owners would be happy if their rate hikes were

so small.

The price of the typical commercial property policy jumped 30 percent in the

past year, according to the Insurance Information Institute, a New

York-based industry group -- and properties such as the Kravis in West Palm

Beach suffered much bigger hikes. For the Kravis Center, the increase means

property insurance alone accounts for nearly 6 percent of its $12.5 million

budget.

The Kravis Center's increase outpaced the 30 percent national average

because it's near the ocean in an area insurers fear is susceptible to

hurricanes, and because the new threat of terrorism has made public

buildings riskier in the eyes of carriers.

" Anywhere people congregate poses a potentially huge liability risk, " said

Bob Hartwig, chief economist at the Insurance Information Institute.

But hurricanes and terrorism bear only part of the blame for the sudden,

steep jump in premiums. Insurers say they're reeling from a variety of

factors.

In the late 1990s, competition pushed rates down to unprofitable levels. New

problems such as toxic mold boosted claims. Reinsurance -- the coverage

insurers buy to hedge their risks -- has grown more expensive.

What's more, insurers' huge investment portfolios -- carriers invest

premiums until a disaster forces them to pay claims -- have taken hits as

returns on those investments have dwindled with the bear stock market and

the falling interest rates of the past two years.

Then there were natural disasters, including Tropical Storm and a

large hailstorm in the Midwest, that cost insurers $7.8 billion last year,

Hartwig said.

Rates were rising even before Sept. 11, but the attacks on the World Trade

Center and the Pentagon cost insurers an estimated $27 billion, according to

the Insurance Services Office. That makes it the costliest insured disaster

ever, a throne previously occupied by Hurricane .

" All of these things have combined to form what I call the perfect storm in

insurance, " Hartwig said.

The premium storm's gusts have spared few property owners. The Palm Beach

County School District, for instance, learned late last year that it faced a

property insurance hike of up to 54 percent.

In the case of office buildings and shopping centers, the businesses that

rent space typically take the brunt of insurance hikes, and some see the

rising costs of insurance as a potential drag on an already-sluggish

economy.

" It gets passed along to the tenants, and they pass it along to their

customers, " said Randall Greene, Catalfumo's director of development. " So

ultimately it's the consumer who's paying for it. "

Customers absorb much of the costs of higher insurance, but landlords take a

hit, too, said Dweck, head of the Boca Real Estate Investment Club, a

group for investors who own rental properties. It would be difficult to

expect renters to swallow the steep rate hikes and property tax increases of

the past decade, said Dweck, who owns a number of properties in Palm Beach

County.

" It definitely takes away from the bottom line, " Dweck said. " It hurts every

month to write that insurance check, because it's like writing another big

mortgage check. "

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