Property and Casualty Insurance Reform Committee Meeting 8/29/06

On August 24, 2006, a meeting of the Property and Casualty Insurance Reform Committee was held in Orlando, Florida. Lt. Gov. Toni Jennings presided over the meeting.

The meeting consisted of two parts.

First, members of the public were allowed to express their concerns about property and casualty insurance in Florida. 

      A representative from the City of Miami Beach expressed concern that condominiums and other multi-family dwellings often are overlooked. 

      A representative from the Florida Chamber of Commerce explained that insurance for commercial property is becoming so unaffordable that businesses are being driven out of Florida.

      A representative from the Florida Legislative Alliance, which represents condominiums and homeowners’ associations, proposed the following changes to Citizens Property Insurance Corporation:

      Citizens should only write wind coverage and let private insurers accommodate needs for other types of insurance (e.g., fire).

       Citizens’ service company should be eliminated and private insurers should adjust any wind loss claims for Citizens on properties they insured.

        Florida should impose a $0.05 sales tax or implement a graduated tax on closing costs to fund Citizens’ reserve fund.

        A representative from the realtor association in Pinellas County addressed her concerns that property insurance premiums negatively affect the affordability of housing. She also mentioned that sinkholes are a problem unique to her region and agreed that removing sinkhole coverage as a mandatory component of homeowners’ policies would alleviate this financial burden.

        A representative from the manufactured/mobile homes industry urged the committee members to remember that such homes comprise 10% of Florida’s population. She cited “tie-down” programs and mitigation credits as issues important to mobile home owners.

Second, the committee received presentations from guest speakers in various areas.

        Susan Patschak of Endurance Specialty Holdings, Ltd. addressed the problems facing Florida from the perspective of reinsurers. Ms. Patschak pointed out that reinsurers were more likely to do business with insurers if they are “highly capitalized.” In her opinion, a surplus of $25 million qualified a company as adequately capitalized from the reinsurance perspective. She also suggested insurers who maintain accurate insurance-to-value (ITV) ratios are more attractive to reinsurers, as well as those with high-quality exposure data and close relationships with producers.

        A colleague of Ms. Patschak’s in the reinsurance industry addressed the need for increased capacity and increased funding for the CAT fund. He also noted that high collateralization requirements had a significant negative effect on European and other foreign reinsurers and that there are innumerable regulatory issues facing reinsurers due to the fact that each state has enacted its own set of standards.

        Brit Newhouse of Guy Carpenter emphasized the need for increased capacity. He also noted that the industry responds to hotspots in the market, making those spots more manageable. 

        Steve Goldberg of the US Benfield Group also cited the need for increased capacity. He noted that the chief benefit of the CAT fund is that it allows for the creation of a tax-free reserve. The fund also has a direct impact on the way insurers plan their business. Mr. Goldberg also addressed the possible issuance of a catastrophe bond, an investment tool directly linked to whether a catastrophe occurs during a given time period. Finally, Mr. Goldberg referenced “sidecars” as a means by which insurance companies can increase capacity by creating small companies within the larger insurance group. Lt. Gov. Jennings questioned whether the “sidecar” model could apply to Citizens.

        Brian Murphy of Royal Palm Insurance Company addressed several problems that make it difficult for insurers to expand in Florida. Mr. Murphy explained that there has been a significant reduction in capacity in the reinsurance industry – globally but particularly in Florida and Florida’s high-risk areas. Additionally, rating agencies impose high capitalization requirements on insurers while regulatory challenges inhibit the flow of capital. Mr. Murphy proposed that the state continue to pursue and expand its matching fund program. He also urged the committee to look to capital markets as a means of supplementing reinsurance since CAT risks can be attractive parts of a diversified portfolio. Finally, Mr. Murphy reminded the committee that any changes to be effective in 2007 must be made now.

        Paschal Brooks and David Levy of Goldman Sachs observed that the market is facing pressure from a variety of sources, including rating agencies and their high capital requirements. Mr. Brooks further addressed the CAT bond topic and explained that, depending on its specific terms, such a bond could be attractive to investors.

        John Laurie of Wyman, Green & Blalock, Inc. spoke about mitigation and recommended that the industry devise standardized forms and credits. Mr. Laurie also emphasized the importance of educating consumers about steps they can take to mitigate their risk and receive credit from insurers.

Lt. Governor postponed the remaining testimony by representatives from other insurance companies. That testimony is scheduled to resume at the Committee’s next meeting, which will be held on September 7, 2006, in Tallahassee. This office will be in attendance and will provide a report on those proceedings.