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Lawmakers' Plans Would Cut Premiums
By JEROME R. STOCKFISCH - The Tampa Tribune
Published January 11, 2007
TALLAHASSEE - Homeowners insurance rates could
drop 33 percent to 40 percent starting in July under a plan unveiled by the
state Senate on Wednesday.
Taxpayers could be on the hook for damage from
megastorms under the proposal, which upped the stakes in the homeowners
insurance debate as lawmakers prepare for a special session on the crisis.
Across the Capitol, meanwhile, the state House
took shots at private insurers and the state-backed Citizens operation, pledging
crackdowns that would yield a 25 percent insurance rate rollback.
The moves come as lawmakers and special
interest groups circulate proposals to tame runaway property insurance rates.
The Legislature has been called into special session starting Tuesday to calm a
situation that House Speaker Marco Rubio said is threatening to "collapse our
entire economy."
The proposals suggest the Legislature is in
full retreat from its stance in the spring's regular session, when property
owners were expected to accept higher premiums to stabilize the insurance
market.
Lawmakers emboldened by their constituents'
ire appear prepared to butt heads with the powerful insurance lobby, which
continues to propose market-driven solutions that offer no guarantees of rate
relief. Expanding the state's role in the insurance market is no longer being
considered off-limits.
"This isn't something I look forward to -
government getting more involved in insurance," said Sen. Bill Posey,
R-Rockledge, head of his chamber's Banking and Insurance Committee. "There is
just no other alternative."
The Senate plan would create a "super
reinsurance pool" augmenting the Florida Hurricane Catastrophe Fund. It would
technically exist in name only; any funding would be arranged only after it was
needed, and the strong odds are it would remain dormant. It would, in effect,
give insurers a figure at which their exposure would be capped.
For example, the state would probably set that
level at about $22 billion, which industry models generally consider the damages
associated with a catastrophic 1-in-50-year storm. Such a storm would be
considerably more destructive than any of the last eight hurricanes that struck
Florida. The worst of those was Wilma in 2005, at $10.3 billion, according to
the Insurance Information Institute.
"What insurance companies need is
predictability," said Sen. Steven Geller, D-Hallandale Beach, the architect of
the Senate proposal. "If we are telling them that we're capping their maximum
exposure for a storm that is unlikely to ever hit in anybody's lifetime in this
room, then they are indicating they will come up with dramatic rate reductions."
Premiums Could Fall 33% To 40%
Bills for wind coverage could fall from 33
percent to 40 percent, he said. If the measure passes, insurers would be
expected to refile rate requests reflecting the changes by July 1.
Under the current situation, the private
insurance industry is responsible for the first $6 billion in damages. Then the
state catastrophe fund kicks in, handling the next $16 billion. Any damages
beyond that revert back to private insurers.
The $6 billion in private money and $16
billion in state-backed funding would make a 1-in-50-year storm economically
manageable. It is the threat of an even more catastrophic storm that has roiled
the insurance market.
Private insurers must acquire reinsurance, an
expensive backstop, to cover potential losses from storms of such severity.
That would not be necessary under the Senate
plan. The state "super pool" would kick in above $22 billion. In the event of a
1-in-100-year storm, damages probably would be about $28 billion, according to
industry estimates.
Between the $6 billion in private coverage,
$16 billion in state catastrophe coverage and about $2 billion in other money
earmarked for the "super pool" called for by the legislation, Florida taxpayers
would be left on the hook for about $4 billion in a $28 billion storm.
"For the state of Florida, $4 billion is not a
ridiculous sum," Geller said.
The state has about $6 billion in reserves; if
Florida's portion of the tab were to be higher, a disaster of that magnitude
might merit a temporary increase in the state sales tax, lawmakers said.
The "super pool" proposal will be worked into
a broad Senate insurance bill originally released Monday. Senators said Gov.
Charlie Crist and Chief Financial Officer Alex Sink like the plan, but Sink on
Wednesday expressed caution.
She said she supports proposals to bring rate
relief but hasn't had time to review the Senate plan. "It is my responsibility
to study the proposal closely," she said. "I've got to see something written and
I've got to have a thorough financial review" before endorsing a bill.
Crist is expected to release his
recommendations today.
House Has Additional Proposals
The House, meanwhile, unveiled a series of
bills Wednesday that make up its insurance reform package.
"The legislation we are proposing today is the
most consumer-friendly and pro-homeowner we have ever considered," said state
Rep. Marty Bowen, R-Haines City.
One of the bills would prohibit the formation
of future "pup" companies, which are Florida subsidiaries of massive insurance
companies that are insulated from the greater assets of the parent. Such
companies have formed, suffered losses, and then closed up shop or claimed that
the losses required huge rate increases, all while ignoring the profitability of
the parent.
It would also eliminate the practice of
"cherry picking" by requiring that any insurer offering homeowners policies in
other states do so in Florida if they want to continue offering lines such as
auto coverage.
Nonrenewals during hurricane season would be
prohibited, as would excess profits, and insurers' financial documents would
require an oath of truth with a penalty of perjury.
Another House bill lowers the threshold for
private insurers to tap the state catastrophe fund, with the provision that they
pass along savings to ratepayers. It also bumps up the capacity of the
catastrophe fund to $20 billion from $16 billion.
Harsh criticism was directed at Citizens
Property Insurance Corp., the state-backed insurer of last resort, with a bill
calling for the full replacement of Citizens' board of directors.
As the Senate did, the House also backpedaled
on legislation last year that called for a 56 percent Citizens rate increase
this year and repealed a 25 percent boost that took effect Jan. 1.
Barney Bishop, chief executive of Associated
Industries of Florida, said repealing the rate increase was the wrong thing to
do with the state pool facing unlimited liability. Bishop's pro-business
lobbying group has taken an industry-friendly stance, and he told The Tampa
Tribune's editorial board Wednesday that "we are not operating the state in a
fiscally responsible way when it comes to hurricanes."
Insurance companies are saying they will leave
Florida if rate cuts are imposed by the state, he said.
But lawmakers, even Republicans who
traditionally favor a market-driven approach, apparently have concluded that a
much larger state role is inevitable.
"The financial risk associated with Florida's
fiercest forces of nature can no longer be borne by the homeowner alone," said
Sen. Jeff Atwater, R-North Palm Beach.
Reporters Kevin Begos and Michael Fechter
contributed to this report. Reporter Jerome R. Stockfisch can be reached at
jstockfisch@tampatrib.com or
(850) 222-8382.
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