Property Insurance Reforms On Table

Tampa Tribune–Mar. 2, 2008

By RUSSELL RAY

A year after passing a comprehensive package of property insurance reforms, lawmakers will consider reforms that would place more hurricane risk in the laps of private insurers.

Although the proposed changes would reduce the state’s exposure, they could lead to higher premiums for homeowners.

But the higher rates wouldn’t be nearly as costly as the billions in assessments Florida policyholders would have to pay if a major hurricane hit the state, said Jeff Grady, president of the Florida Association of Insurance Agents.

The state’s exposure "would produce assessments that would pale in comparison to any small rate increase," Grady said.

Thanks to legislation passed last year, the financial burden for repairing the damage caused by a big storm has shifted to Florida taxpayers.

Here’s how: The Legislature expanded Florida’s Hurricane Catastrophe Fund from $16 billion to $28 billion, increasing the state’s exposure to assessments, or fees that are passed on to policyholders. Lawmakers also froze the rates of state-run Citizens Property Insurance Corp., the insurer of last resort, allowing it to compete with the private market and increase its exposure.

State Sen. Bill Posey, R-Rockledge, who is chairman of the Senate Banking and Insurance Committee, said it’s time to undo part of the Cat Fund expansion and allow the private market to shoulder more risk.

"The big companies have testified that it didn’t help them that much anyway. So if it ain’t helping them, they shouldn’t mind losing it," Posey said.

If the Cat Fund and Citizens run a deficit because of a large number of claims, state law requires private insurers to offset the loss by paying fees. Those fees are normally passed on to policyholders in assessments.

If a major hurricane hit the state, assessments from the Cat Fund could exceed $20 billion, the amount the state would have to borrow to cover claims. The money would be paid back gradually each year through assessments on homeowners and auto insurance policies.

"You’re going to see those assessments for 30 years," Grady said.

Under legislation proposed by lawmakers in the House and Senate, the Cat Fund would be reduced by $3 billion, a measure designed to reduce the state’s risk and encourage competition among private insurers.

"The legislators have realized that they’ve put a lot of risk on the state," said Gary Landry, of the Florida Insurance Council. "They’re saying, let’s focus on solvency."

Reducing the state’s exposure and spreading the risk, even if it means higher rates, would be better for consumers, Grady said. But the debate in both the House and Senate is sure to be fierce.

"Some will just stand on the idea of no rate increases, no matter what it would do to the fiscal health of our state," Grady said. "And that’s a shame."