Homeowner’s insurance changes proposed

Premiums continue to rise despite last year’s reforms

By JIM ASH
news-press.com–February 09, 2008

TALLAHASSEE — Florida has gambled long enough and needs to reel in risky insurance reforms that threaten homeowners with billions in extra charges, a top aide to Chief Financial Officer Alex Sink warned lawmakers Friday.

“There is this cost looming over our heads,” Michael Carlson, director of legislative affairs for the Department of Financial Services, told members of the House Insurance Committee. “The CFO is gravely concerned.”

More than a year ago, lawmakers agreed to put taxpayers on the hook for an additional $12 billion worth of risk in the state’s $28 billion catastrophic fund. The idea was to sell dirt-cheap backup insurance to companies who would pass along the savings to policyholders.

But premiums continue to rise and state officials are worried the next major storm could cripple the fund, Carlson said. A medium-sized storm packing the punch of Hurricane Charley could cause $35 billion in losses if it hit the Tampa Bay area, Carlson said.

That would trigger payouts from the fund and send financial dominos tumbling, he warned.

Policyholders would be socked with $1.8 billion in increased premium taxes for the next 30 years to pay for the recovery, Carlson said. Rough estimates show the average policy holder could face between $11,000 and $18,000 in premium assessments over the 30-year life of the bonds the state would have to issue to pay off the debt.

The state would be forced to borrow because the Cat fund has only about $6 billion in cash reserves.

And lenders are scarce, warned Ben Watkins, head of the state’s Division of Bond Finance. Wall Street investors are skittish after the collapse of the subprime mortgage industry and capital has all but dried up, Watkins said.

“It has created an element of uncertainty that has affected our ability to borrow money that is unprecedented in my career,” Watkins said. “It is more challenging than ever to access the credit market.”

Sink’s solution, backed by conservative Republican House Speaker Marco Rubio, would be controversial. She is proposing to cut the $12 billion optional pool in the catastrophe fund by $3 billion and force insurers to buy co-insurance on the private market.

The move would remove at-risk indebtedness of $111 million to $217 million a year or $3.3 billion to $6.5 billion over a 30-year period.

The additional cost to insurance companies would be passed on to policyholders who could expect to see rates increase between 1.5 percent and 3 percent, Carlson said.

Some of the state’s most powerful business groups lined up in the committee room to support the measure, even though no official vote was scheduled.

“It is intuitive that this is the right step going forward,” said Randy Miller, executive vice president of the Florida Retail Federation.

The political climate may be right in the Senate, even though Senate insurance chief Bill Posey, R-Rockledge, initially gave the proposal a cool reception.

Earlier this week, a Senate select committee put insurance executives under oath and grilled them for hours about why the January 2007 reforms have not led to bigger savings.

House Insurance Committee Chairman Don Brown, a Republican from DeFuniak Springs, said the idea of reducing Catastrophe Fund risk still doesn’t touch what he considers to be the real problem, an onslaught of coastal development enticed by availability of state-backed insurance.

“The real problem in Florida is not lying insurance company executives,” Brown said.

“The real problem in Florida is $2 trillion in exposure on our coastal areas. They ought not to expect everybody else to pay for that risky behavior.”