TALLAHASSEE, Fla. – Feb. 1, 2007 – Insurance reform legislation that passed last week shows what’s possible when lawmakers seek “ideas that help Floridians,” Gov. Charlie Crist said in a weekly newsletter sent to supporters.
“Help for the people of Florida is on the way! Help is on the way in the form of lower homeowners insurance rates for every Floridian,” Crist wrote Friday.
And it might work, too, unless the state gets hit by a strong hurricane in the next few years.
“We are screwed if that occurs,” said Senate Democratic Leader Steve Geller of Cooper City, one of the plan’s architects.
A few worst-case scenarios are tempering some of the enthusiasm over what Crist and others bill as a bipartisan triumph:
• What if Florida gets hit by a costly storm before it can build up a bigger, new public catastrophe fund, designed to lower premiums by relieving insurers of some risk?
• What if new rules against “cherry picking,” the practice of offering the most profitable types of insurance but not property insurance, send automobile insurers packing from Florida?
• What if a bulked-up Citizens Property Insurance Corp., the public insurer of last resort that’s now empowered to offer other types of insurance, steals customers from private businesses?
Crist even added his own scenario, which he plans to address at a Cabinet meeting this morning: What if private insurers try to rush through rate increases now, while the reform plan is being implemented?
Crist has an answer for that one: offer an emergency ruling to prohibit policy cancellations and require rate changes to incorporate the new legislation.
Precarious ground
Insurance industry officials accept the reforms as a political reality but caution they put state finances on precarious ground.
The eight storms that hit Florida in 2004-05 created $36 billion in insurance claims. Insurers warn this could be a drop in the bucket if the right storm hits the wrong part of Florida.
They insist that Citizens’ premiums are irresponsibly low and won’t be able to cover all of its claims in a future storm. That could lead to another taxpayer-financed bailout such as the one approved in 2006 and more assessments on all insurance policies.
Floridians would also be hit with huge assessments on their property, auto and other insurance policies to cover any damages charged to the newly expanded public catastrophe fund.
Private insurers are responsible for the first $6 billion of payouts in a storm under the new reforms. The state’s catastrophe fund covers the next $16 billion. If additional claims remain, as in an especially powerful hurricane, a second tier of the public catastrophe fund covers the next $20 billion in losses. The state would have to issue bonds to finance all of that.
The goal is to save private insurance companies the expense of buying “reinsurance,” a form of institutional protection that spreads the risk of damages. This is an expense passed on to customers through their premiums.
A state fund, theoretically, can do it more cheaply than private insurance companies because it isn’t taxed and has no profit motive. Insurers who buy this lower-cost state coverage must pass the savings to consumers. The catastrophic fund now has less than $2 billion.
No one disputes the cost estimates. But advocates of the reforms say Floridians were going to pick up the tab under the old system, too. Skyrocketing premiums and sharp increases in property taxes were starting to crimp the Florida economy, said Bill Newton, executive director of the Florida Consumer Action Network.
“People had to have rate relief,” he said. “The shock to folks was more than people could bear.”
Meanwhile, Citizens spokesman Rocky Scott acknowledges that some customers may seek coverage by the state-run insurer now that it can offer lower rates and insure other perils for less than the private companies they now use. But Scott dismissed talk that the state might aggressively pursue the new business.
“We don’t have a sales force,” Scott said. “That would be hard for us to do. We don’t have agents. We’re not out there marketing.”
Citizens must file a business plan by March 1 detailing how it intends to bulk up its staff and apply the new latitude.
But homeowners will flock to Citizens with or without a sales force once they learn it may have cheaper premiums, State Farm spokesman Chris Neal said. Although Citizens was created to be a last resort, he predicted a migration from private insurance customers to the state.
“I’m just afraid what we’re seeing is the beginning of the end of the private maker, and everybody’s going to end up in Citizens,” Neal said.
Fewer concerns are being raised about a possible exodus of automobile insurers as a result of the “cherry picking” provisions. Companies selling automobile insurance in Florida now must offer property insurance, too, if they provide it in other states.
So far, no one has threatened to leave the state, Miller said. The new provision might discourage new companies from offering policies in Florida, Miller and Neal said.
Legislator criticizes changes
Nothing that passed last week encourages insurance companies to come to Florida or companies here to offer more policies, said state Rep. Dennis Ross, a Lakeland Republican and an insurance agent.
Encouraging such behavior is the only way to create long-term rate stability, Ross said.
It would have been better to offer subsidies to Floridians who couldn’t afford insurance premiums than to put the entire state on the hook if the state gets walloped, he said.
Ross was one of two legislators to vote against the reform bill. As a result, he was forced to resign last week from a House leadership post.
“I think time will prove me right,” Ross said. “There’s no question in my mind, I would not have been so steadfast in my opinion if I did not believe we would be the recipients of more storms for a prolonged period of time.”
Copyright © 2007 Tampa Tribune, Fla., Michael Fechter. Distributed by McClatchy-Tribune Business News. Tampa Tribune, Fla.
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