Consumer eViews

Volume 3, Number 4, January 23, 2006 

Like many Americans across our nation, I was alarmed by the U.S. Supreme Court’s weakening of traditional property rights in the case of Kelo v. City of New London.  I am grateful that, in the wake of that decision, Speaker Bense formed the Select Committee to Protect Private Property Rights to examine Florida law in this critical area.  While some observers believed that our law already protected Floridians from a Kelo-style economic development taking, the presentations made to this committee have demonstrated that additional property rights protections are needed.

As a member of the Florida Cabinet, I have had the opportunity to address many property issues, and I consider the following ideas to be the most promising in enhancing the protection of property rights in Florida.

  • Clarify that Florida law does not permit pure “economic development” takings. 

  • Uncouple the use of tax increment financing and other redevelopment powers from the use of the power of eminent domain in the Community Redevelopment Act (“CRA”). 

  • For purposes of eminent domain in the redevelopment context, limit takings to conditions that threaten public health or safety. 

  • Evaluate blight on a parcel by parcel basis, or, at a minimum, apply an “immediately surrounding area” standard. 

  • Ensure full and fair compensation for those whose homes or businesses are taken. 

  • Review the treatment of bona fide agricultural properties. 

Let your voice be heard on this important issue by reaching out to your state representatives.

-- Tom Gallagher


In Orlando during an address before the Windermere Rotary Club, Florida’s Chief Financial Officer Tom Gallagher renewed his call for solutions to strengthen Florida’s property insurance market.

Last year, in the wake of two unprecedented hurricane seasons, Gallagher proposed a comprehensive insurance reform plan to better protect homeowners. This session, he is also asking the Legislature to consider reforms to Citizens Property Insurance Corp., the state’s insurer of last resort, which he believes are critical to improving coverage options for homeowners.

“Eight catastrophic storms in 15 months have caused more than $32 billion in insured damages, and Florida homeowners are bearing the brunt of this burden,” Gallagher said. “The comprehensive approach I am offering provides the solutions our state needs to protect consumers and to prevent an insurance market meltdown.”

Since first announcing his plan last November, Gallagher’s comprehensive insurance proposal has received support from elected officials, industry experts, and consumer advocates.

As part of his proposal, Gallagher is asking the Legislature to earmark the increase in sales tax revenue collected during hurricane recovery to help offset assessments against homeowners.

“Providing rate-relief to Floridians through use of surplus sales tax revenue should be our state’s first legislative priority. Florida’s families should not be taxed twice,” Gallagher said.

Other solutions being advocated by Gallagher include:

• creation of a national Catastrophe Fund,
• allowing tax-deferred catastrophe reserves for insurance companies,
• standardizing Florida’s building codes statewide, and,
• creating federal tax-free Catastrophic Savings Accounts.

As part of his comprehensive approach, Gallagher is also advocating reforms of Citizens Property Insurance Corporation, including capping coverage of homes at $1 million or less, reallocating a portion of mitigation dollars provided through the Florida Hurricane Catastrophe Fund to retrofit older homes now trapped in Citizens, and requiring the Office of Insurance Regulation to evaluate the success of Citizens’ Market Assistance Program and take-out programs, followed with an annual report to the Florida Legislature.

Gallagher, whose office is investigating fraud involving Citizens, also said that stricter oversight and greater accountability were needed at Citizens and other quasi-governmental insurers. Gallagher, who made recommendations at a Cabinet meeting last year, is calling again for reforms to improve transparency and accountability at Citizens, including:

• requiring Citizens employees to adhere to the same code of ethics as public officers/employees,
• establishing an inspector general within Citizens to conduct internal investigations,
• requiring staff of quasi-governmental insurers to provide notification to their respective boards for any financial transactions in excess of $10,000 (consultant fees, advisors, vendors),
• requiring a background check for all executive officers and executive staff of quasi-governmental insurers,
• requiring the Division of Insurance Fraud within the Department of Financial Services to be notified within 48 hours of any suspected fraud and/or compromise of public trust by a quasi-governmental employee.

“Citizens Property Insurance Corporation should be transparent and accountable for its financial performance, and its ethical performance,” Gallagher said. “Too many Floridians are counting on Citizens for their homeowners insurance, and they deserve nothing less.”

Since last year, the Department of Financial Services has assisted more than 600,000 Floridians with questions and requests for help after the hurricanes. The Department has advocated on behalf of nearly 61,000 consumers struggling with their insurance companies. Eighty-eight percent of those complaints were resolved in favor of consumers, a total of 54,000 families helped.


During the repair phase of the hurricane recovery process, homeowners may encounter difficulty getting the hurricane claim settlement released from the mortgage company. An awareness of these issues may help the process go more smoothly, so here are some tips:

Checks made out in name of both homeowner AND mortgage holder

Insurance checks are usually made payable to both the homeowner and mortgage holder.  To receive funds, homeowners should endorse their claim checks and forward them to their lenders.  Depending on the size of the check, your account and payment history and the amount of equity you have in your home, the lender may return all or some of the funds to you or provide guidelines on how the funds will be released to you.  However, lenders may have additional procedures to follow so you should always contact your lender first to find out how they would like you to proceed.

Contract with licensed contractors

Be sure work is being performed by licensed professionals at each stage.  However, if you should choose to do your own repairs, you will generally only be reimbursed to the extent of the receipts that you turn in to the mortgage company that deal directly with the loss.  At the end of your repairs and after the lender has made their final inspection, any remaining funds will be used to reduce the balance of your loan or refunded to you (at the lenders discretion.)

Provide Lender with Repair Estimate and Schedule for Repairs

The lender may require a contractor’s estimate of repair costs before any funds are released.  The lender may also retain insurance proceeds for disbursement as repairs are completed.  Your lender may be willing to release a portion of the proceeds if payments are required to begin repairs.  However, consumers are advised never to pay construction contractors, in cash or in full, before work begins. 

Provide the lender with a copy of the construction schedule. This will enable the lender to provide “draw downs” on the settlement in timely phases. Prior to payment at the end of each phase, the lender may require or conduct an inspection of the work to emsure it is being done properly, according to the construction schedule, and up to code.  Consider the lender your partner in the recovery process. The lender has a financial investment in your home and wants to ensure your home retains its value.

 Claim settlement may be applied to bring mortgage payments current

If the homeowner is behind in paying monthly mortgage payments, the lender may apply a portion of the claim settlement to the outstanding balance; however, this is very rare. NOTE: Additional Living Expense (ALE) funds and content funds CANNOT be applied for this purpose.

Educate Yourself on Annuities

A recent Florida law has helped curb abusive sales practices by unscrupulous insurance agents selling annuities to seniors.

"Annuities can be an effective investment tool for many Floridians wanting a steady stream of income for retirement,” said Tom Gallagher, chief financial officer of Florida. “But too many of our state’s seniors have been preyed upon by agents who are motivated by commission payments, not consideration of a senior’s financial circumstances. Florida law now holds companies and agents accountable for the products they sell and the investment advice they give.”

An annuity is an insurance contract that offers a guaranteed series of payments over a period of time. Insurance companies and agents offering annuity products to seniors over the age of 65 are required to clearly document the basis for selling the product, including consideration of a senior’s financial and tax status, as well as investment objectives. The Department of Financial Services has the authority to take corrective action if a company or agent violates the law.

Gallagher helped pass this law in response to calls and letters from hundreds of seniors and their families who told the department they were convinced to liquidate CDs, stocks and savings accounts to fund annuities only to discover these actions robbed them of access to their savings.

Over the past few years, there has been a significant increase in annuity sales to senior citizens. There continues to be confusion among consumers about annuities and some questionable sales practices. Here is some important information that will help you if you are considering purchasing an annuity.

What is an Annuity?

An annuity is a contract in which an insurance company makes a series of income payments at regular intervals in return for a premium or premiums you have paid. Annuities are often bought for future retirement income.

Is an Annuity Right for You?

You should think about what your goals are for the money you may put into the annuity, as well as how much risk you are willing to take. Ask yourself the following questions:

How much retirement income will you need in addition to what you will get from Social Security and pension? Will you need that additional income only for yourself or for yourself and others? How long can you leave money in the annuity and does the annuity let you take out money when you need it? Is this a single premium or multiple premium contract? For a fixed annuity, what is the initial interest rate and how long is it guaranteed?  Can I get a partial withdrawal without paying surrender or other charges and is there a death benefit?

Types of Annuities

  • Single Premium Annuity: An annuity where you pay the insurance company only one premium payment.

  • Multiple Premium Annuity: An annuity where you pay the insurance company multiple premium payments.

  • Immediate Annuity: An annuity where income payments to you start no later than one year after you pay the premium.

  • Deferred Annuity: An annuity where income payments to you start many years later.

  • Fixed Annuity: An annuity where your money, less any applicable charges, earns interest at rates set by the insurance company or in a way specified in the annuity contract.

  • Variable Annuity: An annuity where the insurance company invests your money, less any applicable charges, into a separate account based upon the risk you want to take. The money can be invested in stocks, bonds or other investments. If the fund does not do well, you may lose some or all of your investment.

  • Equity-Indexed Annuity: A variation of a fixed annuity where the interest rate is based on an outside index, such as a stock market index. The annuity pays a base return, but it may be higher if the index goes up.

Review Your Contract Carefully

As with any insurance product, always review the contract and be sure you understand the terms and conditions, as these will vary from contract to contract. Ask the agent and/or company for an explanation of anything you do not understand. Do this before any free look period ends. This period gives you a set number of days to look at the annuity contract after you buy it. If you decide during that time that you do not want the annuity, you can return the contract and get all your money back.

Tax Treatment of Annuities

You should consult a professional tax advisor to discuss your individual tax situation.

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