HURRICANE INSURANCE COSTS ARE HITTING
SMALL BUSINESS
By RANDY DIAMOND The Tampa Tribune
Published September 12, 2006
How could an $18,000 insurance premium jump to
$441,000 a year?
David Ewing is doing more than scratching his
head. He's wondering how he can afford to keep running his small Tampa office
park on 56th Street North when his expenses exceed the rent he collects from his
tenants by more than $25,000 a month.
Canceled by insurer Zurich North America three
months ago, and with him unable to find new windstorm policy, Ewing's bank,
Wachovia, forced insurance on him Sept. 1 at the new rate.
"This is theft without a gun," Ewing said.
As the problems of finding coverage in
Florida's troubled homeowners insurance market engulfs the commercial insurance
market, state banking regulators expect more and more banks to force high-priced
insurance policies on businesses that can't afford the premiums.
The state Division of Financial Regulation,
which regulates banks, doesn't maintain statistics on how many businesses get
forced into insurance policies, but such placements are growing because
insurance companies are dropping commercial policies, Deputy Commissioner Alex
Hager said.
"I'm concerned this could start looking like a
snowball coming down the mountain," he said.
But banking regulators are part of the
problem. It's common practice for regulators to cite banks for not making sure
commercial loans carry insurance or other kinds of collateral.
"It's a solvency issue," Hager said.
Though lenders require mortgage holders to
maintain insurance, forced placement of policies has not become common on
commercial properties so far, even though more businesses are losing coverage
and having trouble finding it, said Ken Jacobs, the senior vice president of the
commercial division at Acordia Insurance Brokerage & Consulting in Clearwater.
"Banks have threatened such placements, but
they haven't been able to find the insurance themselves," he said.
Wachovia apparently didn't have that problem
with Ewing's office park. Wachovia spokesman Carol Clarke said the bank can't
comment because it seeks to maintain customer confidentiality.
Anne Watson, spokeswoman for Great American
Insurance Co., the company that now insures Ewing's property, said the coverage
is high because it's insurance of last resort to protect a bank's assets when a
customer can't come up with coverage. "There is a premium associated with this
coverage," she said.
Watson said she could not go into details.
Under the terms of forced placements, the
insurance is solely for the bank; it offers no protection for Ewing, said Robert
Hunter, insurance director of the Consumer Federation of America. Premiums for
such arrangements usually are high because the insurance company usually splits
part of the profit with a bank, he said.
Clarke says Wachovia doesn't get any money or
fees from the insurance company.
Ewing says he understands the bank is within
its rights to force insurance on him to protect the $4 million mortgage. He
doesn't understand the justification for the massive premium increase. The
58-year-old moved from Pittsburgh to Tampa in 2000 and purchased the
nine-building, 109,000-square-foot office park for about $5 million, expecting a
10 percent yearly return on his investment from rent. His problems began in
March when his old insurance company, Zurich, sent him a cancellation notice for
his Tampa office park.
The company cited the potential for windstorm
damage for the office park, even though it's miles from the coast. The insurer
also said the buildings, built in 1975, didn't meet current construction codes.
The state is expected to start a new insurance
pool this week for commercial owners unable to get coverage in the private
market. Coverage would be limited to properties worth less than $1 million,
making Ewing's park ineligible.
"I honestly believe that we cannot continue
operation personally and businesswise," he said. "This property doesn't generate
enough cash."
Reporter Randy Diamond can be reached at (813)
259-8144 or
rdiamond@tampatrib.com.
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