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CAN ALERT: The Second Self Insurance Fund for Windstorm Coverage Has Been Approved!

Dear

On November 19th, the Florida Office of Insurance Regulation (OIR) approved the forms and rates of The Palm Beach Windstorm Self Insurance Trust. This trust is the second Self Insurance Fund (SIF) for windstorm coverage to be approved for community associations. The other SIF to receive approval is the CAM Property Self Insurance Fund put together by Continental Property Management. There are also two other SIF's pending: one for Broward and one for Dade.

Experts say that participating in a SIF may save eligible associations as much as 30-50% on windstorm coverage. SIF's are able to offer comparable coverage for much lower premiums as a result of:

1.  Eliminating profits. SIF's operate as not-for-profit Florida corporations that are owned by the SIF's member associations;
2.  Purchasing the truly catastrophic high cost reinsurance on a wholesale basis;
3.  Reducing expenses through limited commissions and fees to intermediaries and only requiring insurance company functions on a part-time/contract basis; and
4.  Retaining a portion of the risk (i.e. the self insurance layer).

While having the option to significantly reduce insurance expenses is a welcome relief to many, there are potential drawbacks:

1.  SIF's are assessable and each SIF policy must contain the following statement:

"This is a fully assessable policy.  In the event the fund is unable to pay its obligations, policyholders will be required to contribute on a pro rata earned premium basis the money necessary to meet any unfilled obligations."

2.  Participants in a SIF are not protected by the Florida Insurance Guaranty Association (FIGA). This means that if a self-insurance fund becomes bankrupt, associations participating must pay the unpaid claims which could result in assessments being levied by the participating associations against individual property owners who are members of those associations.

3.  In a self-insurance fund, unit owners can ultimately be responsible for the shortfall of the SIF.

Right now, associations meeting the following criteria may be eligible to participate in the Palm Beach Windstorm Self Insurance Fund:

(i)    Condominiums located east of I-95 in Palm Beach County;
(ii)   Buildings at least six stories high;
(iii)  Buildings insured for more than $10 million;
(iv)   Buildings constructed with steel reinforced concrete and recently updated roofs; and
(v)    Associations with sufficient financial resources to qualify for a letter of credit from a bank or other accredited lending institution.

During the 2007 Regular and Special Sessions, the Florida Legislature effectively deemed Self Insurance Funds to be a viable option for many communities to consider for windstorm coverage. However, SIF's are not for everyone. Every eligible community should carefully consider all options for windstorm coverage as well as the strengths and weaknesses of each available choice. The ultimate decision to place coverage with a private insurance company, Citizens or with a SIF lies with each community's own tolerance for risk.

In addition to the two SIF's discussed herein, there are applications pending for two others (the Broward and Dade SIFs) and plans are underway for additional SIF's serving different types of properties including homeowners' associations. If you would like more information about participating in The Palm Beach Windstorm Self Insurance Trust or you would like us to do an analysis for your community as to whether or not a SIF can save you money, please contact me directly at the phone number and/or email address listed below and we can tell you what information is needed from you in order to perform such a study.

You can also find posted on the CAN website at www.canfl.com under the Latest Issues and Legislation tab in the Insurance category, the following documents:  Palm Beach Windstorm Frequent Questions and Answers; Approval from the OIR for the Palm Beach SIF and an Advisory from the Office of the Florida Insurance Consumer Advocate. If you have forgotten your password to log on to the CAN website at www.canfl.com, please contact my assistant, Diane Schick, at dschick@katzkorr.com.

Please remember that the information contained herein regarding SIF's is a basic overview. CAN will be providing additional insight and educational materials on self-insurance funds in the near future.

Lastly, please check out the newest feature on the CAN website, our Past Alerts tab where you can check out any previous CAN alerts that you may have missed.

Happy Holidays to All,

Sincerely yours,
		
Donna D. Berger, Esq.
Executive Director of the Community Advocacy Network (CAN)
Telephone: 954.486.7774 
Facsimile:   954.486.7782
Web: www.canfl.com
Email: dberger@canfl.com

For more information, please contact Donna Berger at 954-486-7774 or via email at dberger@canfl.com