Florida Senator Mike Fasano, State Representative Jim Boyd, Florida Insurance Consumer Advocate Terry Butler, Journalist Paige St. John Offer Opinions on Florida’s Insurance Industry at Sarasota Herald-Tribune/New College of Florida Forum

 

Florida Senator Mike Fasano, State Representative Jim Boyd, Florida Insurance Consumer Advocate Terry Butler and journalist Paige St. John participated in a June 1, 2011 panel-style forum entitled “Insurance: Surging Premiums, Shrinking Choices, The Florida Insurance Industry Nightmare.”  Plaintiffs’ attorney Chip Merlin was scheduled as a panelist, but did not ultimately attend.

The Sarasota Herald-Tribune-sponsored event focused on discussions of rising insurance premiums, insurers’ financial stability, the Florida Insurance Guaranty Association, the health of Citizens Property Insurance Corporation and the Florida Hurricane Catastrophe Fund, as well as what Floridians can expect in the wake of a 1-in-100-year storm.

Ms. St. John, who spoke first, gave a brief slide presentation.  One slide showed that 42 percent of Florida’s insurance market was composed of thinly capitalized “Florida Specialty Companies.”  Another showed a picture of Northern Capital Insurance Company executives, which prompted Ms. St. John to ask the audience, “Do these guys look like they know anything about insurance?”  She pointed out that both these executives previously had careers as security guards.  

She described the Florida company model as a “daisy chain of companies,” where only the insurance company is regulated.  This prompted extensive audience questions and comments about these companies’ finances. 

Reinsurer profits were another area of focus by Ms. St. John, who emphasized the unregulated nature of reinsurance companies.   Numerous comments from the panelists, as well as the audience, indicated that all participants clearly felt Florida should regulate reinsurers.  Reinsurance, she said, is priced like securities,  not insurance.  “Price is driven by supply and demand  . . . reinsurance prices can be five times the expected loss,” she explained.

Ms. St. John reiterated several times that Floridians pay more in premiums than what they receive in claims.  Further, she said that hurricane loss modelers derive their biggest revenue source from the reinsurance industry, with which they maintain close partnerships.  To illustrate, she cited the post-Hurricane Katrina increase in prices.

In challenging reinsurers’ ability to pay claims, Ms. St. John cited the example of Katrina-related claims having been paid by reinsurers’ raising of additional capital after the event.  Because of the current state of financial markets, reinsurers would not be able to pay for a significant event.

Several times during his remarks, Senator Fasano said that significant rate increase will result from the recent enactment of SB 408.   Under the bill, insurance company CEOs will no longer have to sign and certify the correctness of rate filings.

Thanks in part to the insurance industry’s role in drafting the bill, SB 408 also repealed the annual residential property insurer report card, he explained. 

Insurers should be required to keep their money within the State of Florida, Senator Fasano insisted, adding that never in his 17 years of public service had he seen a bill move so quickly through the legislative process to the Governor’s signature.  He attributed this acceleration to insurance industry propulsion.

During his remarks, Senator Fasano challenged the sinkhole-related language in SB 408 pertaining to “catastrophic ground collapse,” which states that a home must be “uninhabitable as declared by the local authorities or it won’t qualify.”  Under the new definition, he said, zero past claims will qualify.

State Representative Jim Boyd countered by pointing out the financial impact of frivolous sinkhole claims on the insurance industry, which amount to over a billion dollars in losses.

He also corrected Senator Fasano on the subject of the annual insurer report card, explaining that it was not actually repealed, since it was never put in place.  

“I would hate to see someone in a back room in Tallahassee evaluating insurance companies,” he said.  “It is my job as an insurance agent to research the financial strength of the companies that we represent.”

Representative Boyd also challenged another panelist in regard to the financial strength of Citizens Property Insurance Corporation (“Citizens”).

While Representative Boyd was complimentary of Citizens’ operations, he mentioned that historically it has not purchased reinsurance.  This creates a disconnect with those companies that do purchase it, he said, and went on to explain how this affects market pricing.   Citizens charges rates that are up to 50 percent below actuarial soundness and they do not have adequate cash flow or reserves to pay for a large storm in Florida which would trigger assessments to policyholders, he said.

Florida Insurance Consumer Advocate Terry Butler remarked that Citizens is in the “best shape, ever.”   This year, he insisted, ” . . . there will be no assessments, no matter how big of a hurricane we have.”

Sarasota Herald-Tribune Opinion Editor Tom Tryon moderated the forum, which was held at New College of Florida.

 

 

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