Insurers Tell Media About Risk

By MICHAEL FECHTER The Tampa Tribune

Published: Jan 6, 2007

Property insurance premiums still lag behind the risk facing Florida insurers despite a series of dramatic rate increases during the past two years, an industry economist told reporters Friday.

Explosive property values, combined with development along the state's massive but vulnerable coastline, make Florida "literally the most dangerous place in the world in terms of the location of property," said Bob Hartwig, chief economist for the industry-funded Insurance Information Institute.

The prospect of a hurricane causing $100 billion in damage is one that insurers must be prepared to cover, he said. Premiums "are not adequate today," Hartwig said.

Legislators will gather Jan. 16 for a special session on property insurance. A host of legislative reforms are expected next week, including one from Gov. Charlie Crist, who has promised rate reductions.

"It's going to bring relief to the people," said George LeMieux, the governor's chief of staff.

Friday marked the second straight day business and industry officials tried to tamp down expectations for rate cuts. On Thursday, Associated Industries of Florida unveiled its Florida Hurricane Crisis Coalition with a message that, if anything, insurance rates may not be high enough.

Although insurers made about $2.75 billion in Florida last year, the eight storms in 2004 and 2005 wiped out all the money they made here since Hurricane Andrew hit Miami-Dade County 15 years ago, Hartwig said. Last year's profits should be viewed positively because they help insurers replenish their reserves for the next big storm, he said.

Coastal properties are valued at nearly $2 trillion, Hartwig said, a figure that could double by 2014. At the same time, experts predict a cycle of above-average hurricane seasons for the next 10 or 15 years.

Both Sides Of House Skeptical

Hartwig gave state House members a similar PowerPoint presentation last month.

House members of both parties are increasingly skeptical about the industry's portrait of impending financial ruin.

"There's no integrity in that information that's being forwarded," said state Rep. Julio Robaina, R-Miami. He wants insurance companies audited by the state to ensure that rate increases are justified.

Likewise, House Democratic leader Dan Gelber suspects "some monkey business with the figures."

"It's very easy, when you control the numbers, to make the case that best suits you," Gelber said.

Some insurance companies buy costly reinsurance policies from their parent corporations, he said. In quiet seasons such as 2006, the reinsurance money is virtually all profit and not reported to the state.

Gelber has advocated increasing the state's catastrophic fund to cover a majority of storm-related claims. Private insurers would be on the hook for claims in excess of an established threshold, perhaps $50,000 or $75,000. That covers a majority of claims in a typical storm, which would allow insurers to reduce premiums, Gelber argues.

Now, he wants to empower the governor to decide when, and to what degree, the catastrophic fund is used. Gelber expressed confidence that Crist, a Republican, shares his commitment to rate reduction.

"I read his quotes. I'm looking for my name on them," he joked.

Florida faces an economic meltdown that could be akin to the Depression if nothing changes, Gelber said. The governor should be empowered to ward that off.

Florida's economy is hurting from the squeeze of higher insurance and property taxes, said Rep. Kevin Ambler, R-Lutz. People have less disposable income, he said, and that cuts into state sales tax collections.

The Super-Catastrophic Fund Plan

Ambler is drafting legislation to divert one penny of the state's 6-cent sales tax to what he calls a super-catastrophic fund to provide reinsurance. Insurers would tap the fund after spending an aggregate of $1 billion in claims per storm.

This could reduce premiums as much as 40 percent, Ambler says. The savings would spur economic activity and compensate the state for the diverted penny of sales taxes.

Insurers would be required to pass the savings to customers. Consumers, in turn, would have to agree to divert any FEMA claims to the state.

Ambler's plan also envisions a series of 10 state-owned regional storehouses to stock roofing shingles, plywood and other rebuilding necessities. This, Ambler said, would hasten rebuilding efforts and allow the state to provide materials at cost directly to contractors.

Rebuilding costs, adjusted for crisis supply constraints, are factored into premium costs, Ambler said. The storehouses, which could be run by private contractors, would reduce those cost estimates.

It's not clear how lawmakers will sift through the varying proposals to arrive at something with enough support to pass. LeMieux declined to discuss details of the governor's plan, saying that would wait until next week. It will cover the issues Crist discussed during the fall campaign, including an end to "cherry picking" by requiring companies that sell auto insurance in Florida to also sell homeowners policies and expanding the state's catastrophic fund.

Asked about the back-to-back public presentations by insurance interests defending the need for increased premiums, LeMieux said Crist sees the insurance industry as trying to protect record profits and welcomed the challenge. "He wants to represent the people who elected him, and the people are suffering," LeMieux said. "They will have no stronger advocate than Gov. Crist."

Reporter Michael Fechter can be reached at (813) 259-7621.