Florida lawmakers rethinking backup insurance coverage

Lawmakers, worried about the cost of a monster storm, are rethinking backup coverage.

Orlando Sentinel— Feb. 9, 2008

TALLAHASSEE–One year after passing radical property insurance changes to lower homeowners’ premiums, legislators are increasingly worried the overhaul could cost the state — and homeowners — billions of dollars if a major hurricane hits.

Instead of pledging more rate relief, lawmakers are drafting proposals to cut back a key provision in last year’s bill that offers $12 billion in publicly financed backup insurance coverage to private insurers.

"Many of our leaders have been guilty of running their mouths before using their brains," said House Insurance Chairman Don Brown, a DeFuniak Springs Republican and unabashed critic of the reforms.

Gov. Charlie Crist and lawmakers increased from $16 billion to $28 billion the amount of cheap "re-insurance" the state would provide private carriers after a future mega-hurricane like Andrew or Katrina. They predicted the cheaper coverage would result in an average 24 percent rate cut.

But the actual reduction has been only 15 percent — less than that for many homeowners — and companies continue to cut back their business here. Meanwhile, fear is growing that one big storm would result in the state having to sell bonds that would result in 30-year surcharges on the insurance bills of anyone with an auto or homeowner policy.

"Everybody’s realizing we placed a great deal of burden on Floridians, and we haven’t brought back the private market," said Rep.Dennis Ross, R-Lakeland, who last year voted against the plan and was stripped of his committee chairmanship as a result.

"That’s a reality that no politician wants to sell to a voter."

The reality is that the 24 percent savings hasn’t materialized for most homeowners. And 46 of the 121 companies writing homeowners policies inFlorida are seeking rate increases, though no hurricane has hit Florida since 2005.

For example, Allstate cut its statewide average rate 14 percent — but only because a 42 percent rate increase was rejected by state regulators. The state’s fourth-largest insurer isn’t selling new homeowner policies.

State Farm, the state’s second-largest insurer, cut its rates 9 percent after it reached a settlement agreement with the state. But it canceled 50,000 policyholders.

Senate Banking and Insurance ChairmanBill Posey, the Rockledge Republican who sponsored last year’s overhaul, says the net effect of the legislation has been a success.

"It has lowered rates, and hasn’t cost the policyholders a penny. It’s actually saved them money," he said.

But, he added, "Could that all change if the big one comes in June? Yes, it could."

Posey is planning this year to sponsor Chief Financial Officer Alex Sink’s plan to shrink the state’s exposure to hurricane losses.

Sink, the state’s top elected Democrat, and House SpeakerMarco Rubio, R-West Miami, have for weeks quietly discussed plans to reduce the risk.

Their argument is as scary as any storm front.

Sink’s office told the House Insurance Committee Friday that surcharges after a mega-storm could cost every insured homeowner anywhere from $11,000 to $18,000 over 30 years. Policies insuring autos and boats would be surcharged as well.

That doesn’t include additional assessments the state-run Citizens Property Insurance Co., Florida’s largest home insurer, would have to levy to pay claims.

And that’s to pay for just one Katrina-size storm. If a second mega-storm were to hit in the same year, the state treasury could go under.

The legislation also assumes private banks and investors would buy bonds to provide money to pay claims.

But last summer, the state tried to sell $7 billion in hurricane catastrophe bonds and found buyers for only half that amount — at interest rates more than three times higher than money managers had expected.

Last month, the advisory panel that oversees Florida’s Hurricane Catastrophe Fund wrote that it is "uncomfortable" that already-volatile financial markets wouldn’t have the stomach to buy the bonds after a huge storm.

"There’s not anyone in the financial world who thinks Florida will be able to sell those bonds," said Gerald Wester, a lobbyist for several insurers and the American Insurance Association.

But election-year politics could complicate efforts to fix the law.

Crist and his legislative allies have tirelessly defended the reforms, and shifting risk back to private insurers could raise premiums.

"I don’t see any way of reducing the risk without raising the premiums," said Senate Minority Leader Steve Geller, D-Cooper City, who co-chairs the Senate Select Committee of Property Insurance Accountability.

For example, Sink’s proposal would charge insurers a higher co-pay before they could tap into Florida’s backup fund, known as the Florida Hurricane Catastrophe Fund.

It would require insurers, after a storm that inflicts more than $22 billion in insured losses, to pay 30 percent of those losses before turning to the Cat Fund. Under existing law, they need pay only 10 percent of losses before drawing on the Cat Fund.

The change would cut the state’s exposure by $3 billion — but is expected to produce a rate increase of between 1.5 percent and 3.2 percent.

"It’s going to require everybody to be humble, to be realistic about the risk and be honest to the public," Ross said. "That’s a big pill for a lot of politicians to swallow."

Aaron Deslatte can be reached at adeslatte@orlandosentinel.com or 850-222-5564.