National Study Focuses on Florida’s Insurance Crisis

February 5, 2008–Insurance Journal

Florida got an ‘F’ grade on a national insurance report card based on a study outlining the state’s insurance ills. The state earned the dismal rating � the lowest possible � after a national study compared the insurance environments in all 50 states and the District of Columbia. Only four other states fared as bad.

Fla. Rep. Dennis Ross, R-Lakeland, and Fla. Rep. Don Brown, R-DeFuniak Springs, fittingly unveiled the report card midday on Monday in Tallahassee while Florida senators grilled insurance executives in another wing of the capitol complex.

According to the study conducted in collaboration with the James Madison Institute, the Competitive Enterprise Institute and Heartland Institute, insurance reforms passed in 2007 failed to achieve lasting rate reductions for property owners and caused massive liabilities for taxpayers. Additionally, the reforms caused many private insurers to reduce or eliminate their Florida exposure.

Reps. Ross and Brown said insurance experts and economists agree that the reforms are not working and have forced the state’s taxpayers to assume excessive risks:
– The Florida Hurricane Catastrophe Fund (Cat Fund) has failed to produce promised reductions in consumer rates.
– Florida could potentially issue $30 billion in bonds to back the Cat Fund when a catastrophe occurs.
– The Cat Fund would collapse and leave liabilities for insurers and the state if not enough bonds are sold.
– Citizens Property Insurance Corp. has written far more policies than the state originally anticipated.
– Existing laws allow Citizens and the cat Fund to impose massive new taxes (or “special assessments”) without legislative or voter approval

Ross said, based on the above, a catastrophic event could translate into added expense of $1,600 per year, per family assessed on auto and property insurance policies.

Brown said the collective mentality has developed a paradigm of sickness rather than one of wellness and the focus is on symptoms rather than a cure.

“We’ve crafted a solution to the wrong problem,” Brown said. “We must treat the root of the problem. We must admit what the real problem is: wind; exposure; and human behavior that continues to produce the exposure. The course we’re on is not the correct course.”

The Representatives and members of the organizations that conducted he study outlined a series of recommendations going forward to help solve the pervasive insurance crisis:
– Create a limited purpose wind-only insurer and phase-out Citizens as it currently exists. Reduce the Cat Fund’s liabilities and mandate the purchase of private reinsurance.
– Establish a national coastal wind insurance zone that would fall under special federal regulation but would not receive any federal subsidies.
– Offer property tax credits (paid by the state, administered through local government) to encourage mitigation and help people of modest means purchase private wind insurance.

In coordination with the unveiling of Florida’s failing grade, JMI also released a report, “Restoring Florida’s Insurance Market” that examines the development of the state’s wind storm insurance system, the likely fate of the current system and a variety of proposals for reforming it.

Source: Florida House of Representatives