Florida’s Hurricane Insurance Market Task Force 2/28/2006

The Task Force on Long Term Solutions for Florida’s Hurricane Insurance Market (the “Task Force”) held its final meeting Monday to review and finalize a draft report. The Task Force plans to issue an updated draft of its report on Friday, and hold a conference call Monday, March 6, 2006, to get final approval of the report.

The Task Force draft report contains the following recommendations:

(1) Properties valued at $1 million or more would be ineligible for coverage in the Citizens High Risk account.

(2) Delaying next year’s requirement that the HRA boundaries be reduced to achieve a 25 percent reduction in the account’s PML. Commissioner McCarty made a recommendation, which the Task Force accepted, stating that studies should be conducted into possible expansion or contraction of HRA territories throughout Florida, or whether Citizens should issue wind-only policies at all. Throughout the Task Force meetings, Commissioner McCarty has contended Citizens could take the profitable all-other-perils premium in HRA areas and improve its overall financial status.

(3) Continuing the takeout bonuses for Citizens.

(4) Recommending that the Legislature use increases in sales tax revenues to avoid or reduce assessments from Citizens and replenish cash reserves in the Cat Fund.

(5) Recommending that the Legislature consider an increase in limits from $300,000 to $500,000 for Florida Insurance Guaranty Association claims.

(6) Requiring Citizens to establish actuarially sound seasonal occupancy surcharges.

(7) Requiring Citizens to develop limited benefit policies to be offered in certain circumstances. A Citizens representative noted that the association is developing an HO-8 policy and already offers a dwelling fire policy. One specific recommendation was development of an actual cash value policy for older mobile homes.

(8) Requiring Citizens to consider the insurability of pool cages and other attached or free-standing structures.

(9) Proposing a constitutional amendment requiring a three-fourth’s majority vote in the House and Senate for any appropriation from the Florida Hurricane Catastrophe Fund other than $10 million a year required for mitigation under Florida’s agreement with the Internal Revenue Service to achieve a tax exemption for the program.

(10) Requiring a rapid cash buildup surcharge for Florida Hurricane Catastrophe Fund premiums of an unspecified amount.

(11) Recommending a national catastrophe fund.

The hurricane task force is recommending an expedited rate approval process for limited rate increases, with the exact language to be proposed by staff for the final report. Consumer Advocate Burgess objected to a plus or minus 5 percent expedited approval process proposed by Commissioner McCarty. The group had rejected a proposal to increase the band to plus or minus 10 percent. However, language relating to this is contained in the recently release House Insurance Committee’s proposed committee bill relating to property insurance.

The task force is recommending deregulation of insurance rates for property valued at more than $1 million which would no longer be eligible for coverage in Citizens’ High Risk Account. A likely source for insurance for this property will be the surplus lines industry, where rates currently are not regulated by the Office of Insurance Regulation. The task force is recommending that if a voluntary market carrier, whose rates are set by OIR, is willing to cover these risks, it could do so at an unregulated rate as well.

The report also emphasized the need for adequate rate to attract capital to Florida and cover the hurricane risk, and further stated that Citizens Property insurance Corporation rates must be adequate.

In addition, the Task Force adopted recommendations relating to mitigation methods, including an endorsement of shutters or other opening protections in windborne debris areas. Specifically, the Task Force will recommend that the windborne debris region for the Panhandle be eliminated. This would repeal the statutory Panhandle Carve out, which limits windborne debris regions at one mile from the water in Franklin through Escambia counties. The Task Force also adopted recommendations that strengthen the Florida Building Code.

Interestingly, the Task Force also accepted language regarding implementation concerns with the requirements contained in the 2005 property legislative package. The report states that the Task Force heard testimony from insurance industry trade groups about the implementation of SB 1486. and this testimony includes correspondence from industry representatives outlining major expenses and software problems for insurers in implementing last year’s property package.

Although the Task Force discussed enhancing the Florida Hurricane Catastrophe Fund, including the so-called Beta Plan, the Task Force did not come to a final position on this. Under the “Beta Plan,” carriers would be required to meet the full Cat Fund retention only once a season and be allowed to use cumulative losses in a series of storms to reach the trigger. The Task Force also discussed increasing the Florida Hurricane Catastrophe Fund capacity regardless of whether there is an increase in cash reserves.

Regards,

Katherine A. Scott