Florida Insurance Commissioner, Citizens VP Testify Before Florida Senate Insurance Committee: October 6

 

The Florida Senate Committee on Banking and Insurance Committee (“Committee”) held its first meeting today, October 6, 2009, in preparation for the 2010 Regular Legislative Session.  Testimony was provided by representatives of the Florida Office of Insurance Regulation (“OIR”), Citizens Property Insurance Corporation (“Citizens”) and Senate Committee staff. To view the meeting packet, click here.

First on the agenda, Florida Insurance Commissioner Kevin McCarty noted in his presentation that statewide non-catastrophe losses have increased approximately 19 percent, and that the Florida Hurricane Catastrophe Fund (“FHCF”) is facing $2.1 trillion in exposure for 2009.  Commissioner McCarty noted that reinsurance costs increased approximately 15 percent during 2008, which caused the need for higher insurance rates. 

Commissioner McCarty addressed other industry cost drivers, such as:

• The implementation of mitigation discounts, which has reduced insurer premiums and thus made it more difficult to pay claims.
• Fraud and abuse, such as that practiced by public adjusters, has increased.
• Florida’s law requiring immediate replacement cost payment, rather than actual cash value, is being abused.
• Sinkhole claims

Next, Commissioner McCarty addressed the implementation of House Bill 1495 including the expedited rate filings.

In order to comply with the expedited rate filings associated with the purchase private reinsurance of reinsurance, the OIR updated its electronic filing system in July 2009 and provided related industry training.  To date, 13 insurance companies have filed using this provision.  Seven of those filings have been approved. The rest are very recent and several more are anticipated.  The rate impact for these filings ranges from 3.4 percent to 10 percent.

Commissioner McCarty also addressed the status of the State Farm Florida proposed withdrawal. Conditional approval of withdrawal has been challenged by the insurer, but there is a hope of a finalizing an agreement that will keep the company in Florida.

After his presentation, Commissioner McCarty was questioned by Committee members about the state of Florida’s property insurance market for approximately two hours. 

Senator J.D. Alexander asked about fraud issues, federal guarantees and the OIR’s process of ensuring insurer financial solvency.  Commissioner McCarty noted that the OIR has stress-tested all Florida-licensed companies and that the issues regarding those unable to pass a 1-in-100 year event have been adequately addressed.

Senator Alexander also asked about Commissioner McCarty’s change in position on House Bill 1171 from the 2009 Session. Commissioner McCarty noted that the bill had metamorphosed from an expansion of “consent-to-rate” to one that completely deregulated rates.

Significant discussion took place among several Committee members regarding the State Farm issue and a rate-based market. 

• Chairman Garrett Richter expressed his view that Florida can only improve its insurance market by moving to a free-market system.
• Senator Mike Bennett expressed his displeasure with the veto of House Bill 1171.
• Senator Ronda Storms expressed her concerns with the problems created by mitigation discounts.
• Senator Mike Fasano suggested that non-catastrophe claims have increased due to fraud and system abuse by public adjusters. He also outlined issues he would like the Committee to address this Session in the property insurance market, including fraud, inflated claims and replacement cost methodology.

To view Commissioner McCarty’s presentation, click here.

Citizens Executive Vice President Susanne Murphy provided general overview of Citizens to the Committee.  Citizens, which insures 22 percent of the Florida residential market has three accounts (Commercial (“CLA”), Personal (“PLA”) and High-Risk (“HRA”)) and is not a wind-only insurer.  She also stated Citizens insures 62 percent of commercial-residential risks. 

In the PLA/CLA accounts, the probable maximum loss is $10.6 billion.  The HRA account probably maximum loss is $14.6 billion.  Ms. Murphy noted that Citizens’ reliance on assessments to fund large losses is significant.  Senator Alexander was concerned about the ability for Citizens to pay its claims in a timely manner. 

Finally, Senate Committee Staff Director Steve Burgess provided an update on the FHCF.

The enactment of HB 1495 has resulted in a transfer of risk back to the private market–possibly as much as $6.4 billion. The FHCF has liquid claims-paying resources of $8 billion but, due to the lack of bonding capacity in the financial markets, a shortfall still exists in its ability to pay its obligations.  This shortfall is estimated to have decreased to approximately $7 billion from a former level of $18 billion in January 2009.  

 

Should you have any questions or comments, please contact Colodny Fass.

 

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