Florida Legislature may act to cut state’s insurance risk

South Florida Sun-Sentinel— Feb. 10, 2008

For Florida homeowners expecting deep-reaching insurance relief, the last year of political bickering between state policy makers and insurance companies has been more sizzle than substance.

But this spring, the tough talk appears to be masking plans for retreat.

Legislators are approaching the March 4 start of this year’s 60-day lawmaking session with mounting fear that one mighty storm could spell financial disaster for the state and millions of homeowners.

In January 2007, the Legislature rushed to try to cut homeowner insurance rates in part by offering an additional$12 billion in publicly-financed backup insurance coverage to the private market.

Now, though, the post-election buzz has worn off.

Growing ranks of legislators are drafting proposals to pull back from last year’s government expansion into the insurance market.

“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.

The gamble Gov. Charlie Crist and legislators took last year grew the amount of cheap “reinsurance” the state would pay private carriers after a future megahurricane like Andrew or Katrina from $16 billion to $28 billion.

The catch: Florida would have to sell bonds after a major storm to pay claims, and the cost would get passed on as a higher assessment 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.”

Legislators’ cold feet is worsened by the fact that going forward larger insurers want to boost — not cut — rates.

Despite quiet seas the last two years, the promise of a 24 percent statewide average premium reduction hasn’t materialized.

The statewide average reduction from last year’s reform has been a 15 percent reduction in rates, while 46 of the 121 companies writing homeowners policies in Florida are seeking rate increases.

Allstate’s statewide average rate went down only 14 percent as a result, 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.

At State Farm, the state’s second-largest insurer, rates have dropped 9 percent — only after the state reached a settlement with the company.

Senate Banking and Insurance Chairman Bill Posey, the Rockledge Republican who sponsored last year’s reform, said the net effect of the 80 or so changes the reform enacted has been a success.

Nonetheless, he’s planning to sponsor Chief Financial Officer Alex Sink’s plan to shrink the state’s hurricane risk this spring.

“It has lowered rates, and hasn’t cost the policy holders a penny. It’s actually saved them money,” he said. “Could that all change if the big one comes in June? Yes, it could.”

House Speaker Marco Rubio, R-West Miami, and Sink, the state’s top elected Democrat, have quietly discussed plans for weeks to reel back last year’s reinsurance expansion.

Their argument is as scary as any storm front.

Sink’s office told the House Insurance Committee Friday the assessments after a megastorm could amount to anywhere from $11,000 to $18,000 on every insured homeowner over three decades.

Someone who owns a car, a house and a boat could face even higher charges.

And that’s just to pay for one Katrina-sized storm. It doesn’t include any assessments the state-run Citizens Property Insurance Co., Florida’s largest insurance company, would also have to levy to pay claims.

If a second megastorm were to hit in the same year, the state treasury could go under.

Florida’s reform also assumes private banks and investors would purchase the bonds.

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

Last month, the advisory panel that oversees Florida’s Hurricane Catastrophe Fund wrote to the Cabinet that they were “uncomfortable” that already volatile financial markets wouldn’t have the stomach to buy the bonds in the wake of 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 at the heart of the problem is election-year politics.

Crist and legislative allies have tirelessly defended their reforms, and most of the changes to shift risk back to the private market could raise premiums.

“I don’t see any way of reducing the risk without raising the premiums,” said Senate Minority Leader Steve Geller, the Cooper City Democrat co-chairing the Senate Select Committee of Property Insurance Accountability.

Sink’s proposal, for instance, charges insurers a higher co-pay before they could tap into Florida’s backup insurance fund, known as the Florida Hurricane Catastrophe Fund.

Instead of making companies pay 10 percent of their own claims in a storm that inflicts more than $22 billion in insured losses, companies would pay 30 percent of losses before the state Cat Fund would kick in — lowering the total risk to ratepayers by about $3 billion.

But the move is expected to produce a rate increase of 1.5 percent to 3.2 percent.

Rubio and House leaders want to let homeowners out of paying those assessments if they give up their state-run Citizens policies and return to a more expensive private policy.

“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.