Returning Florida Lawmakers’ Agenda Includes Property Insurance Woes

Insurance Journal--February 23, 2009

By Brent Kallestad

Florida Gov. Charlie Crist’s political mantra has been to hold down property insurance rates, taxes and almost anything else costly for people he wants voting for him next year.

Whether Crist seeks re-election or Mel Martinez’s U.S. Senate seat, his political fortunes are intricately tied to the weather, if not a crystal ball.

Floridians’ pocketbooks could be, too.

After years of trying, Florida lawmakers still haven’t found a solution to the state’s volatile property insurance market. They’ll try again when the 2009 legislative session begins March 3.

A top priority will be dealing with the Florida Hurricane Catastrophe Fund, which pays claims when private insurance companies can’t. The companies pay into the fund, but the coverage is cheaper than the private backup insurance carried by most of them.

Even by its own numbers, the state concedes it would be billions of dollars short if a catastrophic hurricane or a series of destructive ones hit Florida.

Such events could wipe out many existing private insurance carriers, the state-backed Citizens Insurance company, which covers property owners who can’t get private policies, and any state reserves, not to mention Crist’s lofty approval rating. At best, tens of thousands policyholders would be forced to wait before having claims paid.

“We’re overexposed,” said Chief Financial Officer Alex Sink. “They’ve got to address the CAT fund.”

“They (Legislature) will do something because they have no choice,” said Sam Miller, executive director of the Florida Insurance Group, an industry organization.

But what that is, no one is sure.

“This is a very complex issue and I hope we will see some solid solutions come forth, but it won’t be easy,” conceded new House Speaker Larry Cretul, R-Ocala.

Even without a devastating storm, Florida needs to shore up the CAT fund or have its bond ratings lowered, which would cost the state millions more when it tried to borrow money.

“We certainly cannot rest easy … without some stabilization being brought to the CAT fund,” Senate President Jeff Atwater said. “We have a $28 billion CAT fund that we frankly couldn’t sell the bonds for if we had a $28 billion event.”

Big national companies like State Farm and Allstate have already reduced their stake in Florida with the former leaving the state’s property insurance market entirely.

State Farm, the largest private property insurer in Florida, is planning to drop some 1.2 million policies over the next two years to escape, in part, what it sees as an unfriendly governmental climate for doing business. The state regulators rejected its plan to increase rates by 47.1 percent. It is appealing the ruling in court.

State Farm Florida President Jim Thompson said the company faced an “unacceptable danger” of being “unable to pay claims and honor other obligations,” if it continued to underwrite homeowners without being permitted to increase premiums.

“It’s sad when a company with the status of State Farm has decided to leave our neighborhood,” said former state Sen. Locke Burt, who now operates Security First Insurance Co. out of Ormond Beach and is zeroed in on folks affected by State Farm’s pullout.

“There shouldn’t be panic among those who may have had State Farm policies,” Crist said. He points to 40 new companies, including AIG’s Private Client Group, American Integrity, Magnolia, PURE and Southern Oak, now doing business across Florida.

“They’re good, that’s why we’d like to write them,” Burt said about the State Farm customers. “The private market has not abandoned Florida.”

But the new companies haven’t had to pay major claims in the aftermath of the most severe hurricanes.

“Our future is being built on the stability and soundness of these new players,” Atwater said. “There are people who would say ‘I want a brand name player. I know they’ll be here tomorrow. This is the only thing that I have. I can’t go two years without getting a claim paid.”’

The Republican-led Legislature — not quite as obsessed as Crist with keeping premium rates low while gambling on no whopper hurricanes — also has a decision to make on a provision of statute that can expire.

Consumers would be faced with paying higher property insurance rates before the increases are approved by regulators if a temporary prohibition enacted in 2007 is allowed to expire. Insurance companies want to keep a previous provision that allows them to charge the higher rates before receiving final approval.

“I have a wonderful place to keep an eye on how the policy will be shaped,” said Atwater, who would prefer to see the statute permanently retired.
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