OPINION
December 14, 2010
Tallahassee Democrat
The 2010 hurricane season has ended and the Gulf and Atlantic are calm, with winter coming in and ocean waters cooling. Florida has been spared a hurricane landfall for the fifth straight year.
We are defying the odds — historically, a hurricane strikes this state at least every other year — and the 2011 legislative session must implement reforms so the property insurance system can once again handle something like the 2004/2005 hurricane seasons.
Five years without a hurricane have caused memories of our eight-storm, two-year nightmare to become distant, while nonhurricane pressures have weakened the property insurance market. Many insurers are losing money and not building the surplus they should build during calm storm seasons — surplus to pay claims when the inevitable big one does strike again. We are in a crisis comparable to Hurricane Andrew in 1992 and the four-storm seasons of 2004 and 2005, Insurance Commissioner Kevin McCarty noted in a recent report to the governor and Cabinet.
During the first six months of this year, 74 of 199 property insurance companies posted surplus losses (nearly 40 percent), with 125 companies seeing at least some surplus growth, McCarty reported. Fifty-eight percent of insurers posted underwriting losses, blocking or limiting surplus growth, with 42 percent reporting underwriting gains.
“We have a new set of challenges that include cost-drivers and an unfavorable economic environment,” McCarty said. “I am confident we can continue to work together to create a better regulatory framework and a better Florida insurance marketplace.”
There is general agreement on how to restore a strong and growing property insurance system.
Solutions include a reasonable cutoff period on hurricane claims, which already exists in Alabama, Texas and other neighboring states — two or three years instead of the five years allowed in Florida.
They include stronger regulation of public adjusters and restrictions on the cash available up front under a property insurance policy until a contract for repairs has been signed or the homeowner has begun to replace lost personal contents, the law in every state except Florida.
The comprehensive fix must address dozens of other issues, including promoting insurance company solvency and consumer protection regulation, halting the continued growth of Citizens Property Insurance Corp. and reducing the reliance of Citizens and the Florida Hurricane Catastrophe Fund on bonding and statewide assessments.
One of the major “cost drivers” does not involve hurricanes — it is questionable sinkhole insurance claims. Citizens and private insurers will pay out $2 billion from 2006 to 2010 in sinkhole losses, according to the Office of Insurance Regulation. Most of these claims do not involve sinkholes — the traditional hole in the ground that swallows a home. The signs are minor cracks in a garage wall or driveway, and the problem is normal settling, not sinkholes.
Still, insurers end up paying tens of thousands of dollars, even the full value of the home (policy limits). At a minimum, the Legislature must enact an appropriate definition of structural damage from sinkholes, defining what is and what is not covered by an insurance policy.
We came close to righting the ship last spring when the Legislature passed SB 2044. This package was supported by McCarty, Chief Financial Officer Alex Sink, then-Insurance Consumer Advocate Sean Shaw, Citizens Property Insurance Corp., the Florida Hurricane Catastrophe Fund, and many others. One official did not support SB 2044, though, and his was the support that would have counted the most. Gov. Charlie Crist vetoed SB 2044.
The broad, strong coalition behind that plan is reforming, and major property insurance packages will be released by the end of the year. It appeared highly unlikely our four-year run of good luck would extend through the 2010 hurricane season, but it has and we have more time. Six months separate the end of this hurricane season and the beginning of the 2011 hurricane season. We will need every day of it to pass and implement the necessary revisions and allow them time to begin to produce positive results. We must take advantage of this year’s reprieve.
About the author: Cecil Pearce became president of the Florida Insurance Council in October, after being Southeastern director of governmental affairs for the American Insurance Association in Atlanta for eight years. Contact him by at cpearce@flains.org or go to http://www.flains.org.
