Florida lawmakers will confront insurance woes when the session begins Tuesday

Miami Herald–Mar. 02, 2008
BY BEATRICE E. GARCIA

Pay now or pay later?

Once again lawmakers will wrestle with this question as they deal with the insurance crisis during Florida’s regular legislative session, which opens Tuesday.

There’s still work to do to make sure insurance is affordable and available to Floridians. But this year, some of Tallahassee’s focus has shifted to lifting some of the risk the state took on last year when the catastrophe fund was expanded.

The fund has promised to help cover insurers’ losses up to $28 billion after a major storm. Lawmakers fear a huge burden could fall on state residents if the fund runs out of cash and surcharges are tacked on to all insurance policies in the state to make up the shortfall.

”We’re one major hurricane away from a catastrophic tax increase,” says Marco Rubio, the Miami Republican who is serving his second session as House speaker.

A measure to reduce the state’s hurricane exposure has the backing of Florida’s Chief Financial Officer Alex Sink. It’s moving quickly through the state House already.

Among other bills that will draw a lot of attention:

A bill to create a statewide windstorm program, giving insurers the option of selling policies with hurricane coverage or letting the state take it all on.

• A proposal, coming with the backing of the powerful Florida Chamber of Commerce, to exempt commercial insurance policies from surcharges needed to make up deficits of the state-run insurer, the catastrophe fund and the guaranty fund, which pays the claims of failed insurers.

As the Legislature returns to business, the state’s insurance market is far from recovered from the blows delivered by the storms of 2004 and 2005. Agents say rates have stabilized somewhat on homeowners’ coverage, and dropped a bit on commercial insurance for businesses. But finding a carrier willing to write a policy with windstorm coverage in a coastal area of the state remain a challenge.

Some insurers just won’t do it.

STATE FARM CUTS

State Farm, Florida’s largest private insurer, told regulators late last month that it will no longer write new policies in Florida. It also has started not renewing about 50,000 policies. Allstate and Nationwide have been cutting policies from their books since 2005.

Lawmakers are waiting for recommendations from a special Senate committee, headed by Jeff Atwater, R-North Palm Beach, and Steve Geller, D-Cooper City. Committee members heard from five insurers, reinsurers, a computer modeling firm and state regulators as they explored the reasons why the insurance bills passed in 2007 didn’t produce the expected rate reductions.

Yet, there still is keen interest among lawmakers to provide relief to homeowners.

”A lot of my members won’t vote for [any bill] that significantly raises people’s insurance costs,” says Rep. Dan Gelber, a Democrat from Miami Beach who is the House Minority Leader.

The potential for higher rates is the downside of the bill to reduce the size of the Florida Hurricane Catastrophe Fund to $25 billion from $28 billion.

If insurers can’t buy the cheaper back-up insurance from the state, they would have to buy in the private market at possibly higher rates.

When Sink’s office first presented the measure to the House Insurance Committee, it said rates could go up an average 3 percent with the CAT fund reduction.

However, some lawmakers, including Ronald Brisé, D-North Miami, and Carlos Lopez-Cantera, R-Miami, have asked for a detailed regional breakdown of the possible rate impact.

The concern is that rate hikes could be much bigger in coastal areas such as Broward and Miami-Dade counties.

The prospect of providing affordable insurance coverage is behind the bill that would create a state windstorm pool. Insurers would have the choice of offering policies with hurricane coverage or leave that to the state program.

Theoretically, the policies with wind coverage from the state would carry a lower premium. But policyholders could face surcharges if there’s a major storm and the pool runs out of funds to pay claims.

Policies from private insurers would pay no assessments, but their premium rates would be higher.

Insurers can’t sell coverage without having appropriate capital to back it up, says Dennis Ross, a Republican member of the House Insurance committee and the bill’s sponsor.

”If we all run the risk of assessments, we’re doing a huge disservice to the community,” he adds. Ross and several other House members have been big proponents of getting the state out of the insurance business.

Critics of this bill contend such a measure would provide no exit. They say many private insurers gladly would not write any hurricane coverage and leave it all to a state pool.

House Democrats had floated a similar plan as the 2006 session was winding down.

But, as Gelber puts it, the insurance industry ”would keep a little skin in the game,” because the state would provide the first level of windstorm coverage and private insurers would do the rest.

Business owners, though they’ve gotten some relief from skyrocketing premium rates on commercial properties in the past 12 to 18 months, remain concerned about the burden of high insurance bills.

David Daniel, who handles legislative affairs for the Florida Chamber, said 75 percent of the organization’s members have seen insurance costs shoot up since mid-2006. Besides the initial cost, they fear surcharges that can be tacked on by the state-run insurer, the catastrophe fund and the Florida Insurance Guaranty Association.

If lawmakers don’t defer an assessment change that was part of the 2006 law, business owners as well as homeowners could face multiple double-digit assessments from Citizens if a major hurricane hits this season.

Many business owners would prefer to pay ”an adequate premium and eliminate the risk of an assessment,” says Daniel.

The Florida Chamber was opposed to last year’s bill that expanded the CAT Fund because of the burden it put on residents and businesses to cover any future deficit.

Many in Tallahassee as well as in the northern and interior regions of the state see the surcharges on policies as a subsidy for those who live in coastal areas.

”Those costs are staggering when you consider you’re paying for someone who might have not have paid enough up front,” Daniel adds.

Feedback from the chamber’s members has shown that the high insurance costs make it harder for businesses already in this state to stay here and expand, and it’s a big deterrent to companies considering a move to Florida.

FUND EXPANDED

A few other insurance measures could come from the special Senate panel that has been investigating why rates haven’t fallen as much as lawmakers had expected after the CAT Fund was expanded to $28 billion last year. The idea was insurers would buy the cheap back-up insurance from the state and pass on the savings to their policyholders.

A small percentage of Florida-based companies have dropped their rates, but the majority of the national companies have asked for increases. State regulators have yet to approve a rate hike.

Ken Pruitt, the Senate president, is taking the long view about what the Legislature has done on the insurance front since early 2007.

”Major public policy takes time for it to develop and for it to start working. In insurance, I believe it even more so,” he said. “It’s just agonizing in terms of the times it takes. Because I believe we’re headed in the right direction, I would hate to see us go 180 degrees because I believe it’s working.”