Lawmakers' Plans Would Cut Premiums

By JEROME R. STOCKFISCH The Tampa Tribune

Published: Jan 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 ownerswere 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.