GULF BREEZE - Fred Levin's seaside estate featured 47 rooms, six wet bars and an Italian marble pier that stretched far enough into Santa Rosa Sound for him to dock his gleaming yacht.

Levin, a high-profile Pensacola lawyer, entertained celebrities, politicians and athletes who marveled at his wine cellar and toasted his extensive art collection with works by Salvador Dali and LeRoy Neiman.

Hurricane Ivan destroyed the home in September 2004. Storm surge pulverized the ground floor, as 135 mph winds tore at the exterior and sent debris crashing like cannon balls into windows and walls.

No private insurance company would risk covering a mansion so dangerously close to the Gulf of Mexico. So Levin bought coverage from Citizens Property Insurance Corp., the state-created insurer that covers much of Florida's most vulnerable coastal property.

Now Levin sits with a $4 million payout from Citizens considering whether to rebuild or sell and let someone else take a chance on Mother Nature.

Rebuilding is a fact of life in paradise.

Consumer-backed Citizens paid more than $150 million in claims in Gulf Breeze and Pensacola Beach in 2004. The payout was partially to blame for Citizens' $516 million deficit that year.

Why should Floridians care?

Because all property owners in Florida are paying about 7 percent more for their homeowners insurance to bail out Citizens. Consider this: a mobile home owner on a fixed income in Gainesville must pay more so people such as Levin can rebuild.

But don't blame Levin. Citizens must insure properties that private companies won't, so long as the home meets building codes.

The past two hurricane seasons provided an expensive glimpse at the downside of Florida's unrestrained building and rebuilding along the state's shores.

Florida has increasingly turned to consumer-backed insurance programs, such as Citizens, as private insurers become increasingly unwilling to cover vulnerable coastal properties. Like no time in history, Florida property owners are underwriting the state's desire to keep building booming.

Florida's insurance system worked reasonably well until four hurricanes smacked the state in 2004. Citizens ran out of money. The state's Hurricane Catastrophe Fund is nearly drained.

Both have turned to consumers for a bailout. And the worst could be ahead as scientists predict we are in a two-decade cycle of increased hurricane activity.

"The state of Florida is living in denial," said Robert Hartwig, chief economist with the Insurance Information Institute, an industry group in New York. "Florida is not living up to its obligation to control growth and shows no signs of living up to its obligation."

 

Pensacola Highlights Problem
 

To walk the powdery sand of Pensacola Beach is to be immersed in a vision of Florida bliss.

Waves claw at the warm sand as a sea breeze dulls the burn of the afternoon sun. Redfish frolic underneath the waves as pelicans prowl the sky in search of their next meal.

State and local leaders have encouraged people to live and play on this barrier island since 1933 when a wooden swing bridge spanned Pensacola Bay from Gulf Breeze.

The landscape soon changed from sand dunes and wild oat grass to hotels, high-rise condominiums and a growing number of multimillion-dollar homes along the coast.

The Sunshine State has nearly $2 trillion in coastal property, more than any other state in the nation. Despite two active hurricane seasons, the value of insured coastal property increased 20 percent.

Franklyn and Joyce Weddle, who retired from New York to Gulf Breeze 11 years ago, never imagined anyone would build closer to the water than where their home sits, about a block from the Gulf.

Now they take their morning walk in posh communities of elevated homes that sit at the edge of swampy marshes a few feet from the Gulf.

"I'm surprised that all these homes are going in," said Joyce Weddle, 71, whose home sustained $20,000 in damage by Hurricane Ivan and is covered by Citizens. "It seems like they are taking a big risk."

Florida has made it difficult but not impossible to build on the water. State leaders have tried to toughen building codes and encourage people to reinforce their homes using window shutters, better roofs and other strengthening measures.

Yet, these initiatives are generally of little help in the strongest hurricanes, with storm surge that can crush homes or topple them from their stilts.

"Recent hurricanes like Katrina showed it doesn't make sense to develop to that extent on barrier islands," said Eric Goldberg, assistant general counsel for the American Insurance Association.

But often the lure of a picturesque home on the water is stronger than the chorus of caution.

"I like the land," said Levin, who has bought another home nearby. "I still use the dock for my boat."

He has been offered $4 million for the 1.3-acre vacant lot. The buyer wants to build a new home on the water. "I don't know what I'll do," Levin said.

No matter the owner, the new home likely will be insured by Citizens.

 

Insurance Problem

Bill Sacco lives nowhere near the water, and he is tired of subsidizing those who do.

The Tampa Palms resident said he resents that he had to pay a surcharge this year to bail out Citizens customers who aren't paying the real cost of living in risky coastal areas.

The premiums for his home insurance jump hundreds of dollars every year.

"It wouldn't be fair to ask everyone in the state to help me pay for it," said Sacco, a University of South Florida psychology professor.

Florida lawmakers allow Citizens to levy a surcharge on all private insurers in the state when it has a deficit. Insurers forward that surcharge to consumers.

Hurricanes that struck Florida in 2004 and 2005 caused the insurer to run out of money twice.

In 2005, all Florida homeowners had about 7 percent tacked on to their property insurance bills to bail out Citizens.

Now Citizens faces a $1.3 billion deficit for 2005, primarily from Hurricane Wilma and additional losses from 2004. Property owners can expect an 10 percent surcharge on next year's insurance bill, along with a smaller surcharge on other insurance premiums, including auto, which Citizens is allowed to do in extreme cases.

Citizens continues to grow as private insurers pull out of the state, giving property owners nowhere else to turn.

Floridians sometimes have an array of policies to protect their homes. Private insurers often cover against theft and fire, leaving Citizens to cover wind damage and the National Flood Insurance Program to cover against flood. But as insurers pull out, Citizens becomes the last resort for homeowners seeking to insure against all threats to their property, except floods.

 

Options Are Dwindling

No consumer will argue that Citizens is a bargain. Florida law requires Citizens to charge the highest rates in the state, so it does not compete with private insurers. Citizens is seeking approval from state regulators for an increase of about 60 percent to 80 percent in coastal areas, and more than 130 percent in sinkhole-prone Pasco County.

Consumers need only look at a map highlighting Citizens policies in Florida to see how private insurers have pulled back from the state's shores. The largest private insurers are most comfortable writing policies in Florida's interior communities, where the threat of storm damage is less. That means Citizens, designed as an insurer of last resort, often becomes the only option in many of the state's coastal counties.

Allstate Floridian and Nationwide Insurance plan to drop 125,000 Florida policyholders throughout the state. Allstate Floridian, which is based in St. Petersburg, won't write new policies in its home county. Other companies, such as State Farm, Florida's largest property insurer, won't write new policies in most coastal areas.

Anything closer than about a half-mile from water "is not a business that we feel comfortable with," said Chris Neal, a State Farm spokesman.

Citizens could become the state's largest insurer by summer, as it picks up about 30,000 policies a month. Citizens is Florida's second-largest insurer, with about 810,000 policies in the state.

Citizens insures 6,024 properties valued at $1 million or more, including 126 in the Tampa Bay area. Last year, Florida lawmakers scrapped a proposal prohibiting Citizens from covering homes worth more than $1 million, but the issue is expected to come up again during this year's legislative session.

Insurers claim Floridians are paying property insurance rates far below the true risk associated with living in the state most vulnerable to hurricane landfall.

Nine of the 10 most expensive hurricanes to make landfall in the United States affected Florida. By the end of 2004, insurance companies that sell in Florida had combined losses of $8 billion over the past 15 years, according to the Insurance Information Institute. That has forced insurers to tap customers in other states to replenish Florida's reserves.

Florida also has among the highest number of repeat hurricane claims in the nation. Floridians filed 1.6 million claims in 2004 and 850,000 last year.

Florida property insurance rates would have to at least double in most communities, and increase potentially fourfold in some high-risk coastal areas, before insurers would write more policies in the state, insurers and analysts said.

"It's a very poisonous atmosphere right now," said William Stander, a Tallahassee-based lobbyist for the Property Casualty Insurers Association of America.

 

Losses Are Mounting

Another form of hurricane assistance has run out of money.

Lawmakers created Florida's Hurricane Catastrophe Fund in 1993 after Hurricane Andrew to serve as a backstop for insurers in the event of massive storm losses. Citizens and private insurers nearly exhausted the fund after the past two hurricane seasons.

The losses could trigger a one-time surcharge of potentially 3 percent on most insurance premiums in the state to replenish the fund. Property owners will pay this on top of the surcharges to bail out Citizens.

The National Flood Insurance Program also is out of money. The program has paid Floridians $2 billion in claims since 1978. Of that, $667 million was paid to customers who filed repeat claims, such as in Gulf Breeze and Pensacola. Because of Florida's growth in coastal areas, the number of Floridians who filed repeat claims has soared 121 percent since 2001, far more than any other state.

Congress created the flood program to insure property owners who build in flood-prone areas. The program caps policy payouts at $250,000 per storm.

Hurricanes Katrina and Rita drained the program. Losses from the two storms could top $10 billion, forcing the program to borrow billions from taxpayers with no guarantee of being repaid.

"Regardless of losses, people are going to build close to the water," said Todd Davison, regional director of mitigation for the Federal Emergency Management Agency, which administers the flood insurance program. "Our program does not dictate land use."

 

Lessons Not Learned

Even areas ravaged by recent hurricanes are rebuilding closer to the water.

Hurricane Charley roared up Charlotte Harbor and devastated Punta Gorda in August 2004. The 145-mph winds destroyed more than 11,000 buildings and homes. Charley turned mobile home parks into landfills, peeled back hotel roofs and turned parts of the quaint downtown into rubble.

Community leaders quickly formed a redevelopment committee and promised to rebuild bigger and better than before, fueled by billions in government aid and insurance payments.

Rather than pull back from the shoreline, builders are rushing to Charlotte Harbor. Community leaders even plan to build a convention center next to the water, near where Charley came ashore.

Months after the storm, Core Construction broke ground on Peace Harbor Condominiums, a 42-unit complex with spectacular views and water on three sides.

Buyers snapped up every unit for about $450,000 apiece. Residents should be able to move in by April.

Project manager David Sabo said he is confident the building will do well in a storm because the lowest unit is elevated 11 feet, with parking underneath.

But experts predict the building would be no match for a Category 5 storm, which could include 27 feet of storm surge that would send water and debris crashing through the second-floor units, jeopardizing the structure.

Charley didn't deter Stock Development and Bove Co. from moving ahead with plans to build Vivante at Punta Gorda, a condominium community on Charlotte Harbor.

Units sell for $300,000 to about $1 million, featuring granite countertops, designer appliances and vaulted ceilings.

The project is near a much larger area Charlotte County leaders want to develop, the Burnt Store area. Community leaders completed a master plan that sets aside dozens of acres for development, much of it along Charlotte Harbor.

An official with the Florida Department of Environmental Protection was stunned that a community so devastated by Charley seemed so eager to develop fragile areas at risk for storms. The plan for the Burnt Store area threatens natural barriers that could protect the community from storm surge.

"It seems so wrong," said Sylvia Cohen, a program specialist who reviewed the plan and submitted a list of concerns for leaders to consider. "At first, I thought there was a mistake, that they were talking about a different piece of land."

Martina Kuche, a Charlotte County planner who oversaw the plan, said county leaders addressed most of Cohen's concerns and ultimately won the blessing of the state. Charlotte County commissioners approved the plan unanimously in November.

But Cohen remains concerned about potential development that threatens natural barriers. She plans to work out the issues with county leaders.

"I am still not sure they've learned the lessons from Charley," she said.

 

State Needs Money

Florida has a lot at stake in keeping development booming and coastal areas filled with houses, high-rises and hotels.

Because the state has no income tax, it is largely reliant on property taxes to pay for government services. New development means more money for health care, roads and education, while reducing the need to raise taxes.

"Politicians are loath to do anything that would hurt development in their local district," said Hartwig, with the Insurance Information Institute. "Politically, it would be impossible to propose limiting development."

The same is true for tourism, the state's most thriving industry. Allowing development on tourist meccas such as Pensacola Beach makes economic sense, despite the risk of repeat storm losses. The 35 million people who visit the state's beaches each year spend more than $41 billion.

"You can't just say, 'Let nature take its course,' because that comes with a huge economic price tag. A critical part of the overall economy - tourism - would die," said Florida House Speaker Allan Bense, R-Panama City. "Having that coastline is similar to having a gold mine in your county."