Don Brown

Fort Myers News-Press
by Donald D. Brown
May 16, 2011

I was shocked to read Sen. Mike Fasano’s letter to Gov. Rick Scott asking him to veto SB408, the comprehensive property insurance package enacted in the 2011 regular session.

Despite the research and debate he devoted to the issue, Fasano does not seem to have a working knowledge of how the legislation will operate.

As a result, nearly every statement in his letter is inaccurate.

Actuaries, insurance professionals, and regulators deal with filings every day and their views are more instructive than the post-session scare tactics of those who did not win the legislative debate.

Here is what I have learned.

First, the bill does not contain an “onerous rate increase.” Nothing in this legislation diminishes regulatory authority to review any aspect of rates.

Only the timeline for such a review is affected. For Florida insurers, a significant component of their costs is the risk of loss from hurricanes — which is uniquely severe in Florida, particular in our coastal areas.

Frequently, the most cost-effective means to protect from these losses is through reinsurance, which is generally sold for annual periods commencing on a date (June 1) for most Florida insurers.

It is important that should such costs change, regulators quickly determine what degree of change will be allowed to be passed on in rates.

The bill simply provides that in lieu of the standard 90 days, the review should proceed in 45 days for this specific issue. The bill does not allow for unjustified increases, nor restrict regulatory authority to limit increases.

Second, no justified cost-based rate increase is “on top of” anything else. All cost components are reviewed separately in each rate filing.

If any one or more of these components are not fully justifiable as a basis for rates, it is rejected by regulators. This bill does not change that, and does not allow any new source for higher rates.

Third, nothing will “exponentially multiply.” Each insurer is required to file rates annually by law for a full review by regulators. If, and only if, cost levels exceed current rates, will an increase be allowed in any given year.

A one-time cost increase, for reinsurance or anything else, is never “embedded” in the base rate and allowed to compound over multiple years and filings.

Fourth, “profits for U.S. property and casualty insurers” are utterly irrelevant.

Florida property insurance filings must be, by law, based solely on Florida property insurance costs — no exceptions.

Insurers cannot raise rates in Florida due to tornadoes in Alabama or hurricanes in Texas.

Likewise, a good year writing workers’ compensation insurance in Kansas does not relieve an insurer of the obligation to file an actuarially sound rate for Florida property.

Fifth, insurers may not require homeowners to “pay for some repairs in advance.”

In fact, this practice is directly prohibited.

The legislation simply restores Florida law (for dwelling repairs only) to that similar to the other 49 states, where actual cash value is disbursed immediately and the difference between that value and replacement cost is disbursed when the insured arranges to make repairs.

The only insured hurt by this procedure would be the one who never intended on making repairs in the first place.

Finally, it is almost laughable to suggest that a five-year time limit for filing claims would somehow harm homeowners who did not detect damage.

It’s difficult to fathom what type of damage would not be detectable until five years after a storm or sinkhole began to affect the home.

Most other states have reasonable limits of two or three years, and as a result are not paying continuing taxes to fund a 2005 hurricane as we are for Hurricane Wilma.

After all his public service regarding insurance matters, it is embarrassing to see Fasano lose his expert credibility by displaying such a poor understanding of the property insurance package passed by his colleagues.

Donald D. Brown is a senior fellow at The Heartland Institute, whose mission is to discover, develop, and promote free-market solutions to social and economic problems.

http://www.news-press.com/article/20110517/OPINION/110516045/1075/Donald-D-Brown-Senator-misinformed-legislation-s-effects?odyssey=nav%7Chead

Florida Tribune
Gary Fineout
May 16, 2011

Hurt by the ongoing volatility in the municipal bond market, Florida’s main backup fund for insurance could have a much tougher time coming up with money to pay off major losses during the looming hurricane season.

A new round of estimates prepared for the Florida Hurricane Catastrophe Fund conclude that the state-created reinsurer could borrow just enough to cover all of its obligations for 2011 — but the estimates are roughly $4 billion less than ones drawn up by the fund’s financial advisors last October.

“Our cushion has eroded,” noted Cat Fund chief operating officer Jack Nicholson.

An advisory council is expected to sign off on the revised estimates on Tuesday.

The Cat Fund remains an important part of Florida’s overall insurance market since it sells low-cost reinsurance to both Citizens Property Insurance Corp. and to private reinsurers. In 2007, state lawmakers greatly expanded the size of the Cat Fund in the wake of skyrocketing premiums among private insurers.

The size of the fund is being trimmed back down. But part of the overall capacity of the fund depends on the ability to borrow money after a storm, or a series of storms.

Last year financial advisors concluded the fund could borrow up to $16 billion if the state was struck with devastating storms and needed to pay off reinsurance claims.

The new estimates, drawn up by consulting with Wall Street firms, conclude that the fund could now borrow about $12 billion. That’s just slightly higher than the $11.3 billion the fund would need to borrow in order to pay off all of its obligations.

“Given current market conditions, significant uncertainty still exists as of the FHCF’s bonding capacity after an event,” states the overview prepared by John Forney of Raymond James & Associates, the financial advisor for the reinsurance fund.

Forney’s presentation notes that there has been a significant drop in the amount of municipal bonds issued this year. There has been a bit of volatility in municipal bond markets as some investors earlier this year fled the markets amid fears of financial instability. But lately the trends have shown more stability.

Another item that could hurt the resources of the Cat Fund is the fact that it will lose access to $3.5 billion in bond proceeds next year as those bonds mature.

Despite the new estimates, there are two positive trends for the Cat Fund. Insurers continue to pare back the amount of optional reinsurance they are purchasing from the Cat Fund, which lowers its obligations.

Nicholson also noted that the Cat Fund is expected to have more than $7 billion on hand by the end of the 2011 hurricane season.

“The project cash balance of $7.245 billion is a big plus,” Nicholson said, adding that it would “buy us some time” in the event a major storm hit.

Any bonds issued by the fund would have to be paid back by assessments on most insurance bills. Currently insurance customers in Florida already pay an annual assessment for bonds issued to pay off claims from the 2004 and 2005 storms.

http://fltrib.com/states-hurricane-fund-could-have-tougher-time-getting-money-storm-season

Radey Thomas Yon and Clark Blog
By Travis Miller, Esq.
May 13, 2011

In the property insurance arena, the legislative process is a delicate balancing act as the House and Senate attempt to make adjustments that will lead to insurance coverage that is both available and affordable while also ensuring that consumers are protected. SB 408, which recently passed in the legislature and is awaiting action by Governor Scott, reflects this balancing act. Some may be disappointed that the bill does not do enough to address the so-called cost drivers behind rate increases, while others may believe the bill went too far. In the end, though, the bill represents a reasonable balance between these views.

One provision that has been portrayed unfavorably is the reinsurance cost recovery clause. Current Florida law allows insurers to make reinsurance cost recovery filings with a 45-day review window instead of the 90 days that applies to base rate filings. The legislature made adjustments to this filing process in SB 408 that are designed to make the provision more useful. These efforts have been labeled by opponents of the bill as virtually assuring that Floridians will receive 15% rate increases, and allowing rate increases on top of other rate increases insurers receive. Neither of these criticisms is correct.

Reinsurance costs are one of the factors included in insurers’ rate filings. Section 627.062(2)(b) specifically includes reinsurance costs among the factors the Office of Insurance Regulation must consider in reviewing an insurer’s rates. The only questions then are when, and how, insurers recover those costs. One possibility is to include the reinsurance costs in their annual base rate filings. Insurers are required to submit base rate filings each year, or certify the appropriateness of their existing filings, under Section 627.0645. This helps ensure that insurers’ rates keep pace with the needed changes, both upward and downward. Thus, whether they are increasing or decreasing, insurers’ reinsurances cost can be one of the many factors included in base rate filings.

Another alternative is to separate the reinsurance costs into their own filings. Base rate filings have a review period of 90 days because the Office of Insurance Regulation must review many factors, including reinsurance costs, investment income, non-catastrophe losses, and others. Reinsurance cost filings can be reviewed under a 45-day calendar because they deal only with the single subject of reinsurance costs. However, those costs do not change by virtue of being included in their own filing, and an insurer cannot recover its current year’s reinsurance costs in a segregated reinsurance cost filing only to then seek a further increase for those costs in a base rate filing. Simply put, an insurer’s rates must take its reinsurance costs into account, and those costs will contribute to its overall rates only once in each annual filing cycle.

The Office of Insurance Regulation will review the reinsurance costs in the filings to make sure they are appropriate and accurately reflected in any proposed rate adjustments. The 15% limitation in SB 408 ensures that reinsurance cost recovery filings cannot exceed 15%, but does not provide that the filings must or will reach 15%. If an insurer makes a reinsurance cost recovery filing and justifies only a 4% change or 8%, or even zero or downward adjustments, then the Office of Insurance Regulation will approve only those amounts.

In this manner, the process can be viewed as allowing either one comprehensive rate filing during a year with a 90-day review period, or consideration of the same factors over the course of two filings. The logic behind segregating the reinsurance costs into their own filing is that the reinsurance costs can be readily identified, reviewed within the shorter 45-day window, and implemented in a manner designed to protect the solvency of insurers. Reinsurance costs make up a significant percentage of insurers’ expenses, and being able to better align the receipt of revenues with the outlay of expenses is an important part of making sure insurers are able to pay claims when due.

One can review SB 408 and wonder whether the legislature should have done more in some areas or less in others. However, it is unfair to characterize provisions of the bill as doing things they simply do not do. In the case of the reinsurance cost recovery provision, SB 408 does not assure that policyholders will receive 15% rate increases, and any adjustments made in reinsurance cost filing will not be “on top of” other rate changes in the sense that reinsurance costs recovered under one filing option cannot then be recovered again in another filing.

SOURCE: http://www.radeylaw.com/blog/a-look-at-sb-408s-reinsurance-cost-recovery/

Saint Petersblog
by Peter Schorsch
May 15, 2011

State Senator Garrett Richter is firing back at criticism from Senator Mike Fasano, writing the following op-ed:

I recently read Senator Mike Fasano’s op-ed attacking the property insurance reform bill, and I cannot simply watch from the sidelines as a 17-year career politician mischaracterizes and demonizes badly needed public policy reform. There were many false statements surrounding Senate Bill 408 recently published in Tampa and Sarasota-area publications, and I want to follow up by providing factual information regarding this legislation. Let me begin by addressing many of the points Senator Fasano misrepresented.

First, he stated that this bill “virtually guarantees a 15 percent premium reinsurance increase.” This is a false statement. Any company that proposes a rate increase must file for the increase with the state’s insurance regulator for a full review before it is approved or denied. The 15 percent reinsurance piece he refers to is a limit to what they are allowed to file for, not a predetermined percentage increase. Any rate request must be completely reviewed and approved by the Office of Insurance Regulation (OIR) before it is granted.

Additionally, reinsurance costs are just one segment of a company’s rate formula. For example, if a company was able to prove to OIR the justification for a 10 percent reinsurance increase, that increase would account for only a portion of the consumer’s rate. So, if reinsurance comprises 30 percent of an insurer’s premium and the reinsurance contract goes up by 10 percent, the rate increase would be three percent to the policyholder, not the increase Senator Fasano suggested. Senator Fasano’s statement that “these 15 percent reinsurance increases are on top of regular increases” is also false. Referring to the limit placed in the bill as a “backdoor tax and fee increase” is entirely incorrect and intentionally misleading.

He further proposed that because of this bill “homeowners will have to pay for some repairs in advance and hope to be reimbursed.” This is also a false statement. In fact, the bill specifically states that an insurer is prohibited from requiring the policyholder to advance payment to replace property. For dwelling repairs, the insurer is required to pay the full cash value of the loss up front, and pay the remaining amounts necessary to perform the repairs as the work is completed. This is a conventional process for performing home repairs since a homeowner would not pay a contractor the full contract amount up front anyway. This also insures that the property will be repaired rather than leaving it in disrepair and trashing the neighborhood.

The bill gives consumers two options. The first option, current law remains, policyholders could continue to pay a higher premium and receive full replacement cost value up front, regardless of whether the policyholder replaces the lost or damaged property. The second option, the consumer pays a lower premium, and in the event of a loss, the policyholder receives a check for the actual cash value for their contents up front, and after they begin to replace contents, they provide receipts to the company and are guaranteed to receive subsequent payments for the remaining amount of the full replacement costs. This second option is how the rest of the country handles replacing items after a loss. Neither option requires the policyholder to pay upfront. The bill lets the consumer have the choice of which option and corresponding rate they prefer, thus enabling the policyholder to receive a lower premium if they chose the second option.

Finally, when an insurance company provides hundreds of pages of documents in a rate-setting case, the CEO and Chief Actuary of the company certify the documents as accurate and “complete,” with a penalty of perjury. Typically, during the review process by OIR, additional information may be requested from a particular document or topic. When the company provides the additional information at OIR’s request, it does not mean the CEO committed perjury by the filing not being “complete.” SB 408 adds some sanity to the process and allows the company actuary who supplies the additional information to certify it on behalf of the company, for which the CEO and Chief Actuary of the company are still on the hook.

I believe my constituents sent me to Tallahassee to use my business background to take on tough issues. Florida is far from having a healthy property insurance market, but bills like SB 408 will help create a competitive market with solvent companies that are able to pay claims. We arrived at the current situation and need for reform due to career politicians looking for sound bites and poll numbers instead of trying to understand the complex issues necessary to make truly sound decisions about insurance reform. I expect Governor Scott to sign this good bill, which was passed with bi-partisan support in both the Senate and the House, into law so we can stop relying on crossed fingers every hurricane season.

http://saintpetersblog.com/2011/05/senator-garrett-richter-attacks-mike-fasano-re-prop-insurance-calls-fasano-a-career-politician/

Radey|Thomas|Yon|Clark
by Travis Miller
May13, 2011

In the property insurance arena, the legislative process is a delicate balancing act as the House and Senate attempt to make adjustments that will lead to insurance coverage that is both available and affordable while also ensuring that consumers are protected. SB 408, which recently passed in the legislature and is awaiting action by Governor Scott, reflects this balancing act. Some may be disappointed that the bill does not do enough to address the so-called cost drivers behind rate increases, while others may believe the bill went too far. In the end, though, the bill represents a reasonable balance between these views.

One provision that has been portrayed unfavorably is the reinsurance cost recovery clause. Current Florida law allows insurers to make reinsurance cost recovery filings with a 45-day review window instead of the 90 days that applies to base rate filings. The legislature made adjustments to this filing process in SB 408 that are designed to make the provision more useful. These efforts have been labeled by opponents of the bill as virtually assuring that Floridians will receive 15% rate increases, and allowing rate increases on top of other rate increases insurers receive. Neither of these criticisms is correct.

Reinsurance costs are one of the factors included in insurers’ rate filings. Section 627.062(2)(b) specifically includes reinsurance costs among the factors the Office of Insurance Regulation must consider in reviewing an insurer’s rates. The only questions then are when, and how, insurers recover those costs. One possibility is to include the reinsurance costs in their annual base rate filings. Insurers are required to submit base rate filings each year, or certify the appropriateness of their existing filings, under Section 627.0645. This helps ensure that insurers’ rates keep pace with the needed changes, both upward and downward. Thus, whether they are increasing or decreasing, insurers’ reinsurances cost can be one of the many factors included in base rate filings.

Another alternative is to separate the reinsurance costs into their own filings. Base rate filings have a review period of 90 days because the Office of Insurance Regulation must review many factors, including reinsurance costs, investment income, non-catastrophe losses, and others. Reinsurance cost filings can be reviewed under a 45-day calendar because they deal only with the single subject of reinsurance costs. However, those costs do not change by virtue of being included in their own filing, and an insurer cannot recover its current year’s reinsurance costs in a segregated reinsurance cost filing only to then seek a further increase for those costs in a base rate filing. Simply put, an insurer’s rates must take its reinsurance costs into account, and those costs will contribute to its overall rates only once in each annual filing cycle.

The Office of Insurance Regulation will review the reinsurance costs in the filings to make sure they are appropriate and accurately reflected in any proposed rate adjustments. The 15% limitation in SB 408 ensures that reinsurance cost recovery filings cannot exceed 15%, but does not provide that the filings must or will reach 15%. If an insurer makes a reinsurance cost recovery filing and justifies only a 4% change or 8%, or even zero or downward adjustments, then the Office of Insurance Regulation will approve only those amounts.

In this manner, the process can be viewed as allowing either one comprehensive rate filing during a year with a 90-day review period, or consideration of the same factors over the course of two filings. The logic behind segregating the reinsurance costs into their own filing is that the reinsurance costs can be readily identified, reviewed within the shorter 45-day window, and implemented in a manner designed to protect the solvency of insurers. Reinsurance costs make up a significant percentage of insurers’ expenses, and being able to better align the receipt of revenues with the outlay of expenses is an important part of making sure insurers are able to pay claims when due.

One can review SB 408 and wonder whether the legislature should have done more in some areas or less in others. However, it is unfair to characterize provisions of the bill as doing things they simply do not do. In the case of the reinsurance cost recovery provision, SB 408 does not assure that policyholders will receive 15% rate increases, and any adjustments made in reinsurance cost filing will not be “on top of” other rate changes in the sense that reinsurance costs recovered under one filing option cannot then be recovered again in another filing.

http://www.radeylaw.com/blog/a-look-at-sb-408s-reinsurance-cost-recovery/

The SunSentinel
by Julie Patel
May 12, 2011

State-backed Citizens Property Insurance will spend more than half a billion dollars this year on public and private reinsurance, or catastrophe insurance for insurers.

That’s more than 11 percent of the roughly $5 billion it has in claims-paying reserves. A small portion of that would be recouped from policyholders’ rates in 2012 because premium increases are capped at 10 percent a year, according to Citizens Spokeswoman Christine Ashburn.

Citizens is required to buy coverage from the state’s Florida Hurricane Catastrophe Fund, and this year, it will plans to spend $460 million for $6.5 billion worth of coverage.

It could spend three to six times more per dollar of coverage for private reinsurance this year. Citizens board on Wednesday approved spending up to $125 million to buy $300 million to $580 million worth of coverage. Part of that coverage would only kick in if after a major hurricane, if Citizens’ losses exceeded $6.3 billion.

If a major hurricane strikes, private reinsurance can help pay claims – reducing fees that would be charged to all automobile and property insurance policyholders in the state to help offset Citizens’ deficits. Sharon Binnun, chief financial officer of Citizens, noted shifting risk to private reinsurers would help address goals expressed by some state leaders, including Gov. Rick Scott, to reduce the financial risk posed by Citizens.

Citizens’ reinsurance purchases paid off in 2005 when three hurricanes hit the state: It paid $53 million in premiums to private reinsurers that year, and received $134 million in claims payouts.

But if there isn’t a hurricane, Citizens doesn’t get a dime. What’s more, most private reinsurance companies are offshore and their rates are not regulated by the state.

“Buy reinsurance and the wind doesn’t blow, then we blew it; Don’t buy reinsurance and the wind blows, then we blew it,” former Citizens board member Jay Odom said in 2008, the last time Citizens bought private reinsurance. It spent $105 million.

The wind did not blow that year.

An insurance expert and consumer advocate said Wednesday they support Citizens’ decision.

“Citizens seems to be making a wise decision here,” said John Rollins, an insurance consultant who is a former vice president of AIR Worldwide, which provides risk modeling services to hundreds of insurance and reinsurance companies. Rollins, who is a former Citizens actuary, added in a statement that the private reinsurance portion would only increase rates next year by “at most a couple of percentage points” for policyholders with windstorm coverage.

Bill Newton, executive director of the Florida Consumer Action Network, said private reinsurance would allow Citizens to “spread the risk” to investors around the world. “Reinsurance also puts Citizens in a position to assess its exposure based on the cold, calculating opinion of the marketplace. This is far more realistic than heated rhetoric about financial disasters, and will allow decision makers to make data driven choices,” he wrote.

http://weblogs.sun-sentinel.com/business/realestate/housekeys/blog/2011/05/citizens_insurance_to_spend_58.html

Florida Tribune
by Gary Fineout
May 12, 2011

A sweeping property insurance bill landed on the desk of Gov. Rick Scott this week.

And it took little time for those opposed to the bill — SB 408 — to make a longshot pitch to the governor that he veto the legislation.

Sen. Mike Fasano, R-New Port Richey and an ardent critic of private insurers, on Thursday called on his constituents to contact Scott’s office in opposition to the bill. Scott has until May 26 to act on it.

Those backing the bill contend it will help the state’s volatile insurance market by making it easier for insurers to raise rates to cover reinsurance costs, while also placing limits on sinkhole coverage and limiting the time that homeowners can file claims for both sinkholes and hurricanes. Homeowners would have just two years for sinkhole claims and three years for windstorm claims.

Fasano asserts that the legislation contains a “backdoor tax and fee increase that will hurt most homeowners, consumers and small business owners at a time with very high foreclosure and unemployment rates, and a fragile economic recovery underway.” Fasano is referring to the fact that the legislation allows insurers to raise rates by 15 percent in order to cover costs such as reinsurance, which is backup coverage for insurers that itself is not regulated.

The senator is also critical of the time limits on filing claims, as well as a provision in the bill that allows insurers to turn in supplemental information to state regulators without having to get it certified by top officials in insurance companies.

“I don’t know about you but I want to see insurance companies raise their right hand and swear to tell the truth before I’ll believe their claims,” Fasano stated.

SB 408 was the only major property insurance bill passed during the 2011 session. Other measures dealing with Citizens Property Insurance Corp. floundered and did not pass.

Those backing the legislation anticipate that Scott will sign the bill into law. Former Gov. Charlie Crist vetoed property insurance measures in both 2009 and 2010. Scott on the campaign trail said he wanted to fix Citizens and has generally been more supportive of making changes to help the state’s property insurance market.

Don Brown, a former lawmaker who now lobbies for the insurance industry including reinsurers, sent out a response to Fasano where he contended that the senator “does not have a working knowledge” of how the legislation would function. Brown contends that the bill just allows for rate hikes tied to reinsurance to get reviewed faster by state regulators. Brown also cited an oft-quoted industry talking point that the change in how homeowners are compensated for repairs mirrors the way it works in other states

“After all his public service regarding insurance matters, it is embarrassing to see Sen. Fasano lose his expert credibility by displaying such a poor understanding of the property insurance package passed by his colleagues,” Brown wrote.

Those who support SB 408 — which includes Insurance Commissioner Kevin McCarty — say the bill is needed to remove some of the “cost drivers” affecting insurers, despite the fact that a hurricane has not hit the state in five years.

Fasano takes a different position, arguing that changes that lawmakers made in 2007 to make Citizens more competitive and expand the state-backed reinsurance fund have helped consumers.Some provisions in would be changed by SB 408.

“The fact is the current law, passed just four years ago, has provided accountability of the insurance industry,” Fasano said. “It has kept rates affordable and ensured that insurance company financial information is truthful and complete allows consumers to determine that premium rate increases are justified.”

http://fltrib.com/senator-starts-veto-campaign-against-insurance-bill

The Heartland Institute
May 11, 2011

TALLAHASSEE – The Heartland Institute, a free-market think tank, today praised the Florida Citizens Property Insurance Corporation’s plans to purchase approximately $500 million in private reinsurance. (Reinsurance is insurance for insurance companies.) .

The purchase of reinsurance for Citizens High Risk Account will reduce–but not eliminate–the severity of enormous special taxes called “assessments” following a major storm. Citizens, an agency of state government that sells more property insurance in Florida than any private company, currently charges rates that nearly all analysts believe are below the “actuarial” levels necessary to pay claims. .

As a result, it will have to impose these assessments following a storm. In a worst-case scenario, they could come to more than $20 billion and raise each household’s effective taxes by more than $1,500 a year. .

The following statements by Florida-based insurance experts at The Heartland Institute may be used for attribution. For more comments, see the contact information below. .

“Though Citizens Property Insurance Corporation poses an enormous liability on Florida taxpayers, every dollar in risk that it takes off the CAT Fund will decrease the severity of massive hurricane taxes on every Floridian. The Citizens Board made the right decision today in opting to export some of its enormous risk outside Florida by purchasing reinsurance.” .

Christian Cámara
Florida Director
The Heartland Institute
ccamara@heartland.org
305/608-4300.

“Serious observers know we can’t continue to rely on our children and burden Florida’s future economic growth to finance subsidized windstorm insurance for coastal property owners. The bill will come due when we are least prepared for it, after a major storm. .

“We also know that this burden can be phased out over time without validating the irresponsible rhetoric and scare tactics of those who say rates for everyone will spike to unaffordable levels. The risk experts should be allowed to manage risk, and Citizens’ leadership on the issue today is a great start.” .

Don Brown
Senior Fellow
The Heartland Institute
dbrown@heartland.org
850/865-9280

The Heartland Institute is a 27-year-old national nonprofit organization with offices in Chicago, Tallahassee, Florida, Austin, Texas, and Washington, DC. Its mission is to discover, develop, and promote free-market solutions to social and economic problems. For more information, visit our Web site at http://www.heartland.org or call 312/377-4000.

WFSU Local
Lynn Hatter
May 11, 2011

TALLAHASSEE, FL (wfsu) – The state’s largest property insurer is looking to increase the money on hand in case a hurricane hits Florida this year. Lynn Hatter reports Citizens property insurance company is looking to the private market to raise the money.

Citizens’ wants to get 900-million dollars by taking out bonds on Wall Street. It hopes investors will see the five years of hurricane-free seasons as a good thing and take the risk. Citizen’s Chief Financial Officer Sharon Binnum says the company also wants to purchase up to 500-million dollars of reinsurance in case a storm hits and those primary reserves are exhausted.

“If we have a storm that is in excess of 6.3 billion in losses for the HRA, we would have 4-500-million dollars of private reinsurance that would come into play, that at that layer would have resulted into assessments, would no longer result in assessments.”

Citizens’ is the largest property insurer in the state with more than 1.3 million policy holders. Most of those people are located in coastal areas in the path of hurricanes. The legislature failed to pass a bill to shrink the company, despite growing worry over its ability to pay claims. Critics say the company’s insurance rates are too low and don’t truly reflect the risk of homeowners who live on the coast. One of the critics is Barney Bishop, head of the powerful business lobby, Associated Industries of Florida.

“Frankly there’s talk in the last couple weeks about the governor calling a special session on Citizens, we hope he does because it needs to be fixed. It could actually bring the potential bankruptcy of the state of Florida, because we’re selling reinsurance to insurance companies, and the paper we’re selling isn’t worth that. So we’re in dire straits.”

Artificially low rates for homeowners, has helped drive out other companies, turning Citizens from the insurer of last resort to one of the few insurers willing to write policies in Florida. If a hurricane does it the state and there’s not enough money to cover claims, taxpayers would see it reflected in higher premiums for things like auto insurance.

http://www.publicbroadcasting.net/wfsu/news.newsmain?action=article&ARTICLE_ID=1801634

The Heartland Institute
by Eli Lehrer
May 9, 2011

TALLAHASSEE—The Florida director of The Heartland Institute offered tepid praise for a limited property insurance reform bill that passed Florida’s Senate late Thursday evening and now goes to Gov. Rick Scott’s desk for a signature.

The bill, SB 408, unofficially called the “Cost Drivers Bill,” advances certain free-market goals such as increased insurance rate flexibility and greater solvency requirements. It also cracks down on public adjuster practices that most insurance industry groups said were driving higher costs and allows insurers to withhold claims payments until contracts for repairs to homes are signed. It does not significantly address reforms to the Florida Citizens Property Insurance Corporation, does not bar the state from subsidizing property insurance in environmentally sensitive areas, and does not dedicate the state to investigating human causes of sinkholes.

“The Legislature did the right thing in addressing fraud and other cost drivers that are pushing up insurance rates on consumers. However, it is an epic disappointment that the Legislature failed to even take up legislation to address the enormous liability Floridians face through the Cat Fund and Citizens Property Insurance Corporation,” said Christian Cámara, Florida director of Heartland’s Center on Finance, Insurance, and Real Estate.

“Combined, these two state-run entities could foist on taxpayers the single largest tax increase Floridians have ever experienced should a hurricane strike,” Cámara continued. “If property, auto, renters, and commercial insurance rates are high now, imagine a 40 percent across-the-board tax on those already-high rates for decades to pay off the debt Citizens and the Cat Fund would have to incur after a hurricane. Hopefully House and Senate leadership will heed Governor Scott’s pleas for meaningful, market-freeing reform next year. Unfortunately, however, there’s a long hurricane season between now and then. Next session may be too late.”

Cámara can be reached for further comment at 305-608-4300 or ccamara@heartland.org.

The Heartland Institute is a 27-year-old national nonprofit organization based in Chicago. Its mission is to discover, develop, and promote free-market solutions to social and economic problems. For more information, visit our Web site at http://www.heartland.org or call 312/377-4000.

http://www.heartland.org/full/29906/Heartland_Criticizes_Legislatures_Inaction_on_Meaningful_Property_Insurance_Reform_An_Epic_Disappointment.html