COLUMN: Competition may fix Florida’s storm insurance market

Sun-Herald–June 6, 2008

One way or another, everything the Florida Legislature has done on property insurance these last few sessions has revolved around the question of “How do we keep Citizens afloat until market conditions improve?”

The Legislature has shown a preference for measures designed to promote competition. But competition involves risk — and Gov. Charlie Crist is a little more risk-averse than the Legislature.

Lawmakers reason that encouraging new private insurers will help Citizens retreat to its intended role as the state-chartered “insurer of last resort.” Citizens was organized in 2002 to write hurricane insurance only for homeowners who couldn’t find anything on the private market.

If Crist is consistent, he soon will be vetoing for the second time this year the extension of a state loan program designed to help new property insurers write more business and take pressure off Citizens.

The twist here is that both measures would have funded the Insurance Capital Buildup Incentive Program with money from Citizens’ reserves — although only after the end of what everyone hopes will be Florida’s third uneventful hurricane season in a row.

Sitting on Crist’s desk right now is House Bill 5057, which was sponsored by Rep. Ron Reagan, R-Bradenton. An insurance man in private life, Reagan chairs the House Jobs and Entrepreneurship Council.

HB 5057 would make $250 million available for low-interest loans to new or expanding property insurers, which would have to be matched with private money at least dollar-for-dollar.

But Crist has already expressed his disapproval in a May 28 veto message on Section 16 of Senate Bill 2860, an insurance omnibus bill which, among many other provisions, extends a Citizens rate freeze through Jan. 1, 2010. This section Crist vetoed is basically the same as Reagan’s HB 5057.

“While I believe the program is well intentioned … the funding source is inappropriate,” Crist stated. “Taking $250 million away from Citizens’ ability to pay claims will increase the likelihood of assessments for Floridians across the state.”

Assessments are the tax specter haunting Florida’s gradual recovery from the bad 2004 and 2005 hurricane seasons, with eight named storms and $34 billion in claims. Already, the Florida Hurricane Catastrophe Fund — another state entity that provides low-cost reinsurance to property insurers — is levying a small assessment on nearly every policy written in Florida.

The fear is that both Citizens and the Catastrophe Fund will have to pay out so much after the next big hurricane that Floridians will be paying assessments for the next 30 years or so. By extending the Citizens rate freeze, Crist and the Legislature are making an act of faith that 2008 will be a quiet year as well.

And even with a rate increase, there are many factors that the state can’t control, such as weak financial markets, which might prevent Citizens and the Catastrophe Fund from selling all the bonds they would need to make good on a heavy disaster payout.

Crist’s message emphasized that the original capital buildup program passed in a 2007 special insurance reform session was funded with general revenue money, not by diverting money from Citizens.

Near-panic conditions prevailed at the time, as insurers were raising rates and canceling policy renewals by the boatload. A lot of Florida homeowners were seeing their property insurance bills doubling, while others were worried whether they could obtain coverage at any price.

Capital buildup was only one of many provisions of an insurance bill that was passed in haste, and has been subjected to the inevitable second-guessing ever since.

Still, the capital buildup program seems to have done no harm and some good. Even while they disagree on the potential impact of extending the buildup program, Crist and Reagan both noted that the state’s new insurers have removed about 200,000 policies from Citizens. And the 480,000 policies they’ve written would almost certainly have gone to Citizens otherwise.

Sam Miller, executive vice president of the Florida Insurance Council, said the industry can accept Crist’s reasoning — although they would much sooner have had his signature. He noted that both bills were written to make minimal demands on Citizens’ reserves, especially since they wouldn’t be tapped until after the end of hurricane season.

Miller added Florida now has 13 new property insurers filling the void left by many of the big players. So the ultimate question is whether the risk of touching Citizens’ money isn’t outweighed by the benefit of greater competition and more new carriers.