Is state help the insurers' answer?
A lot of ideas were kicked around at the
Insurance Crisis Town Hall Meeting. Most of them involved a new tax or a state
subsidy.
By TOM ZUCCO, Times Staff Writer
Published October 15, 2006
Like a seasoned attorney, Bruce Douglas knew the
answer before he asked the question. He had done the same thing a few weeks
earlier at a meeting of Broward County condo owners.
This time, he was a panelist in front of about
400 people at the Insurance Crisis Town Hall Meeting on Thursday at the Hilton
Carillon in St. Petersburg.
"By a show of hands, how many of you would
support a state income tax to help reduce your property insurance?" Douglas, the
chairman of Citizens Property Insurance Corp.'s board of governors, asked the
audience.
Groans 400, Hands 0.
Then Douglas asked how many would support a
1-cent increase in the state sales tax, from 6 to 7 cents, for the same purpose.
Nearly every hand shot up.
Here's the theory: The money raised by a
1-cent increase, about $3-billion a year, would be placed in the Florida
Hurricane Catastrophe Fund, or CAT Fund, the state's reinsurance pool that makes
money available to insurance companies in times of natural disaster.
(Reinsurance refers to any added layer of insurance that insurance companies buy
to hedge against paying claims for catastrophic losses).
The insurance companies could then buy large
chunks of reinsurance from the CAT Fund, which sells it at a lower rate than the
private market.
Allowing the insurance companies to have more
money to work with would lead to lower rates and more availability.
The plan is gaining momentum among the public,
something politicians notice. When insurance experts such as Douglas, who helped
clean up Citizens, add their support, the dreaded "t" word - taxes - suddenly
loses some of its negative connotation.
But there are potential flaws. The first is
the assumption that insurance companies want to write more business in Florida.
They have risk models that warn them we're in store for a lot of hurricane
activity in the coming years and that adding more exposure in Florida is not a
good business decision.
The second, and most important reason, is
profits. The insurance industry as a whole made at least $40-billion in profits
last year, despite losses from hurricanes Katrina and Wilma.
Add in the profits from all the years when no
major storms hit the country, plus the highly lucrative auto business they
write, and it's hard to think of Allstate, State Farm, Nationwide and the others
as poverty-stricken.
Another panelist, Insurance Commissioner Kevin
McCarty, stressed hardening our homes. Commendable, but remember that 85 percent
of the 4.3-million homesteaded properties in Florida were built before the 2003
building code changes, and a large percentage of those homeowners don't have an
extra $5,000 to $10,000 to buy shutters and retrofit their roofs.
That's going to take time that we don't have.
State grant money covers only a fraction of
those homeowners and won't be available until next year, and there is no
guarantee what, if any, discount homeowners will receive on their premiums.
But let's pull back and look at the big
picture. Much of the focus Thursday centered on the bizarre soup that is the mix
of public and private insurance.
It's clearly not working.
That's because of two things we don't know:
how much (or little) the private market will respond to any inducement, and when
(not if) a densely populated part of the state will take a direct hit from a
major hurricane and turn the insurance industry inside out.
There is another plan, one that was mentioned
briefly by a questioner Thursday and that has been floated for months in and out
of the insurance industry.
The plan: Allow Citizens, which already
insures one in three Florida homes, to write all the windstorm policies in the
state. And in high-risk areas, which the private market has largely abandoned,
let Citizens also write all the perils, including the lucrative fire and theft
policies.
This plan would unburden the private market of
the worst risk, while rewarding Citizens by allowing it to stockpile capital for
future storms.
In the event of a Katrina-like disaster, the
state would be on the hook anyway, through assessments by Citizens, the CAT Fund
and Florida Insurance Guaranty Association.
But most importantly, the plan would allow
every homeowner in the state to do something they can't do now - find windstorm
coverage, hopefully at affordable, predictable rates.
Turning the plan into reality would be tough.
The insurance lobby in Florida is a considerable force, and too many legislators
are diametrically opposed to the idea of the state jumping into the insurance
business with both feet.
But that doesn't mean it's impossible,
especially if the next governor is willing to try surgery instead of a Band-Aid
to heal the patient.
"We're all in this together," McCarty said as
the meeting drew to a close.
He couldn't have been more right.
ON TV
To watch the entire Insurance Crisis Town Hall
Meeting, go to Bay News 9 On Demand, Channel 342, on Bright House Networks
digital cable.
What to do?
Possible solutions to the insurance crisis:
- Increase state sales tax from 6 to 7 cents
and use the funds to make reinsurance more available.
- Encourage more expansive mitigation efforts
and strictly enforce building codes.
- Create a nationwide catastrophe program,
similar to the National Flood Insurance Program, that insures all natural
disasters.
- Allow the state-run Citizens Property
Insurance to write all windstorm policies in Florida, and all perils in high
risk areas.
Drawn from the recent town hall discussion in
St. Petersburg.
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