Don Brown

Sun-Sentinel.com
February 26, 2011
by Don Brown

There’s a rising tide of media reports covering the sinkhole threat facing Florida’s homeowners. Don’t believe the rhetoric that we have a sinkhole crisis in Florida, because we don’t. The more accurate assessment is we have a sinkhole claims crisis that has created a cottage industry that now threatens Florida consumers.

The Office of Insurance Regulation, recently reported to the Senate Banking & Insurance Committee that annual sinkhole claims increased from 2,360 in 2006 to 7,245 in 2009, totaling 24,671 claims throughout that period.

What’s more troubling is OIR discovered sinkhole claims have surfaced in areas not historically wrought with sinkholes, like Miami-Dade and Broward counties. The number of claims from these two counties in 2009 was seven times what it was in 2006.

There is no geological cause behind these significant increases in claims, especially in areas that are not generally subject to sinkhole activity like South Florida. Yet, more than $1.4 billion in sinkhole losses were incurred over this four-year period beginning in 2006.

OIR has estimated that when the remaining sinkhole claims still pending are settled, losses will reach the realm of $2.4 billion. This reaches the financial impact of a hurricane.

The reason why there’s a huge increase in sinkhole claims is not the sudden swallowing up of thousands of homes by giant sinkholes, but trial lawyers and public adjusters who are “gaming” the system. When a sinkhole claim is paid, about 20 percent of the settlement goes to the trial lawyer or public adjuster. That’s a huge financial incentive.

OIR reported that fees paid to trial lawyers and public adjusters exceeded $21 million between 2006 and 2009. This cottage industry is driving the costs of insurance higher and higher. And it’s only going to get worse. The number of licensed public adjusters in Florida increased 330 percent, growing from 678 to 2,914 from 2003 to 2009.

The state-run insurer, Citizens Property Insurance Corp., reports that for every dollar it collected in sinkhole premiums, it has paid out approximately $6.30 in sinkhole claims. Evidence suggests that these claims usually covered minor cracks and damage to the appearance of a home, with an extremely low percentage covering catastrophic collapse. In fact, catastrophic collapses accounted for only 1 percent of sinkhole claims.

We haven’t had a hurricane in over five years, so trial lawyers and public adjusters have latched onto a new cash cow. We must curb this unsustainable cycle before the system completely collapses, which is teetering on the brink.

The 2011 Legislature is addressing the sinkhole claims crisis with SB 408. It begins the process of breaking this cottage industry and restoring longer-term stability to the property insurance market.

Don Brown is a former chairman of the Florida House Insurance Committee, a Senior Fellow with The Heartland Institute and a transition adviser to Gov. Rick Scott on insurance and legal matters.

http://articles.sun-sentinel.com/2011-02-26/news/fl-dbcol-sinkhole-claims-forum-20110226_1_sinkhole-premiums-public-adjusters-sinkhole-activity

The Wall Street Journal
REVIEW & OUTLOOK
FEBRUARY 23, 2011

All Americans will pay if Florida doesn’t reform its insurance market.

Florida has been hit by some of the most damaging and costliest hurricanes in history, and we’re not talking small numbers. Andrew, Wilma, Charley and Ivan inflicted tens of billions of dollars of damage on homes and businesses over the past few decades. Now the Sunshine State awaits the really big one: Hurricane Charlie (Crist).

When that storm hits, Floridians can thank the former Governor. In a mere four years, he crippled the private insurance market and socialized taxpayer risk into two public institutions: Citizens Property Insurance Corp., an insurer, and the Florida Hurricane Catastrophe Fund, a reinsurer. They are structured to fail under pressure. This is a Category Five fiscal problem that would ultimately mean demands for a Washington bailout, so the sooner Florida’s policy makers fix it the better.

Start with Citizens, created in 2002 to consolidate various entities into a single insurer of last resort. Other states have these funds, but they set the prices high enough that consumers rely on the private market. Not in post-Crist Florida. In 2007, Mr. Crist championed legislation that froze Citizens’s rates at 2006 rates, undercutting the private market. The law also gave Citizens the right to sell insurance to any Floridian who was quoted a rate more than 15% above Citizen’s rates.

Private companies couldn’t compete. State Farm, Allstate, USAA, Nationwide and others either left Florida entirely, slimmed down or stopped writing policies on the coast—where almost 80% of Florida’s insured properties are located, according to AIR Worldwide, a risk modeling firm. Many Floridians had no choice but to turn to Citizens, which now controls 25% of the market, measured by revenue. It is the insurer of first resort.

Citizens assured the state legislature last month that it is in “its best financial position ever,” with “pre-event liquidity” of over $14.6 billion. That may sound hefty. But some of that money is borrowed, and the insurer itself estimates a once-in-a-100-year storm could cost upward of $22 billion. Its total liabilities are $451 billion. No storm would hit every insured house, but the possibility of a more than $22 billion event is there.

So how would Citizens pay its claims? It has three sources of primary income: premiums from policy holders, coverage from its reinsurer (more on that later) and the ability to levy “assessments,” or taxes, on policy holders and every other Floridian. It’s the latter ability that Citizens counts on to top up its coffers, and that’s what makes it different from a private insurer, which lives and dies by its actuarial estimates before the storm hits.

Floridians are already paying for this structure. In 2004 and 2005, eight storms hit the state. Only one private insurer went bust—and that was arguably due to poor management, not the storms. Citizens nonetheless found itself in a deficit that it is still trying to pay off. Meanwhile, Floridians now pay some of the highest insurance rates in the nation to get Citizens out of the red. And this is after five quiet storm seasons.

Then there’s the state reinsurer, known as the Cat Fund. It was created in 1993 after Hurricane Andrew and was intended to be a stable source of liquidity for insurers. Private insurers and Citizens are required to buy reinsurance from the Cat Fund, and they have the option to buy more if they like, although many don’t.

The Cat Fund collects premiums but these aren’t nearly enough to cover its liabilities. Instead, the fund relies mostly on its ability to sell bonds to raise capital after a big event. This was always a risky strategy, but it wasn’t clear how risky until the 2008 financial panic. The fund’s executives slashed the estimated amount of capital they thought they could cover to $13 billion from $28 billion in 2007. A private insurer, Tower Hill, petitioned to get its premium lowered. The state denied the request.

Last October, the Cat Fund said there’s still “significant uncertainty” about how much money it can raise after a hurricane. The fund has about $6 billion of cash on hand. Anything above that would have to be raised in the bond markets. Imagine if the Cat Fund had to go cap in hand for $20 billion or $30 billion, all at once. Citizens, by the way, counts on the Cat Fund for $6.4 billion worth of coverage.

Mr. Crist’s unstated answer to all this was that when the big one does hit again, Washington will ride to the rescue. In other words, the real insurers of last resort for Florida beachfront property are taxpayers in Waterloo and Denver. Even today’s House Republicans would find the pleas difficult to resist as TV cameras recorded the damage, especially given Florida’s role as a swing state.

Add this up and it’s clear that reforming Florida’s insurance market is the single biggest challenge facing new Republican Governor Rick Scott. His instincts are good: On the campaign trail last year he pledged to “level the playing field so that solvent insurers are allowed to compete with each other for business, not with the subsidized and financially unsound government-run insurance company.” He has started to sound out advisers about how to move ahead.

But the politics will not be easy to navigate because any reform will have to reinsert price signals into the market—meaning higher premiums for Floridians, at least in the short term, given that Florida is so often hit by hurricanes. Some Republicans may resist spending political capital to fix a problem they may not get credit for tackling if a hurricane doesn’t hit on their watch. Many Democrats will oppose any changes.

Then again, Republicans will surely get blamed for premium and tax increases when a big hurricane hits. Florida voters did the country a favor when they refused to send Mr. Crist to the Senate. Now Republicans have an obligation to clean up the looming fiscal catastrophe his policies have left behind.

http://online.wsj.com/article/SB10001424052748703584804576144030538158192.html?mod=googlenews_wsj

Florida Underwriter February 2011
By LYNNE MCCHRISTIAN

They Say, Hearsay
We have a state-run insurer in Florida that has the largest slice of the property insurance pie. While some think that’s a big problem, I know it’s the best deal in town, so what’s the fuss all about? Other states probably have something just like Citizens Property Insurance Corp., and since it works here, it must work in the other states that get hit by hurricanes.

We Say
With apologies to the fine folks who work at Citizens, their large piece of the pie may one day hit us all in the face with a plate full of assessments. Citizens’ premiums are inadequate to cover losses from a major storm, which makes nearly everyone with a property and casualty insurance policy vulnerable to “hurricane taxes” that last for years. Other states may have recognized the dangers of that earlier because no other state has anything like the behemoth Citizens. Leaders from neighboring coastal states call it Florida’s folly to grow what is, essentially, socialized property insurance.

At a recent meeting, insurance commissioners from several other Southern states participated in a panel discussion on their state initiatives. The consensus was that no state needs to be in the insurance business. Florida, however, is into it deeply — up to its eyeballs with both Citizens and the Florida Hurricane Catastrophe Fund — and absent measures to curb the growth of what was intended to be the “insurer of last resort” and a less-costly reinsurance facility, we may wind up submerged.

Some may say we shouldn’t care that insurance regulators in other states use Florida as an example of what not to do. Yes, Florida is different, with a coastline that is unmatched by any other state. Creative minds have originated some innovative ideas that other states have unabashedly copied, and that is certainly worth noting. However, creativity sometimes makes things mutate into forms that are counter to rational practices, which is the best way I can think of to explain how we find ourselves with a great idea gone wild.

Take a look at how the residual markets stack up to one another. Florida’s residual market, aka Citizens, has about three-and-a-half times more exposure to loss than the combined residual markets in seven other hurricane-prone states. It is a combination of political pressure and geography. Of Florida’s 67 counties, 61 are considered coastal, according to the National Oceanic and Atmospheric Administration (NOAA). These are defined as counties with at least 15 percent of total land area located within a coastal watershed or a portion of the county that is at least 15 percent of NOAA’s coastal cataloging unit. In other words, these are the most desirable places to build and live, which residual markets make it easier to do. Maybe too easy.

Residual market plans include beach/windstorm plans, Fair Access to Insurance Requirements (FAIR) plans, and hybrids of the two, such as what we have with Citizens. They exist to insure against the windstorm peril for people unable to buy coverage in the voluntary market. Granted, residual markets are rarely self-sufficient, which is why states make every effort to shrink them. Yet residual markets nationally have surged from a total exposure to loss of $54.7 billion in 1990 to $693 billion in 2009. The number of policies in force over this 20-year time period went from 931,550 in 1990, to almost 2.5 million in 2009. These figures are down slightly from 2008, as states strive to reduce their potential losses by encouraging the private sector to take on more coastal polices. However, this reversal is not occurring in Florida.

A way to appreciate the differences between Florida and other Southern states is to compare exposure of residual market plans as a percentage of a state’s total exposure. In Florida, Citizens’ exposure represents 15.5 percent of the total state exposure to risk. That puts us in first place. Second place goes to Louisiana, with less than 7 percent of the state’s total exposure in the residual property market.

North Carolina’s beach plan is not run by the state government, although it is subject to a review by the state insurance commissioner. It offers homeowners’ policies only for owner-occupied primary residences. If the property is a second home, coverage is less comprehensive. The state also capped insurers’ financial liability for residual market claims at $1 billion, providing private insurers will some degree of certainty about what their financial obligation would be if a major storm hit. Insurers pay the $1 billion in addition to their own claims, of course, and a surcharge kicks in after that to handle any wind pool deficit.

South Carolina created a “catastrophe savings account” for homeowners to set aside money, free from state income tax, to pay storm-related expenses such as insurance deductibles or other uninsured risk. The state also requires wind pool policyholders to purchase flood insurance as a way to solve dilemmas over wind versus water damage. Without flood coverage, policyholders may receive coverage at actual cash value rather than full replacement cost. In Mississippi, the wind pool offers discounts of up to 25 percent to policyholders who make their homes more hurricane resistant. This is one way the state encourages coastal development while lessening economic damages.

Clearly, there are some new ideas being tried in coastal states. We are learning what works and what doesn’t — and there is hope that all the lessons do not have to be learned the hard way.

ABOUT THE AUTHOR
Lynne McChristian is the Florida representative for the Insurance Information Institute. She may be contacted at 813-480-6446, lynnem@iii.org. See her blog at www.InsuringFlorida.org.

http://www.propertycasualty360.com/2011/02/03/how-not-to-handle-property-coverage

Radey | Thomas | Yon | Clark
February 22nd, 2011 | Travis Miller | Posted In: Insurance

The Florida Office of Insurance Regulation (OIR) has released its Annual Report of Aggregate Net Probable Maximum Losses, Financing Options and Potential Assessments. The report describes the potential impact of 50-year, 100-year and 250-year events on the Florida Hurricane Catastrophe Fund (FHCF) and Citizens Property Insurance Corporation (Citizens).

Events ranging from a 50-year storm to a 250-year storm would have the same impact on the FHCF. The FHCF issues a fixed amount of coverage, and the limits of its reimbursement obligations would be reached in a 50-year event. The magnitude of the FHCF’s exposure therefore does not increase with larger storms. In any of the scenarios, the FHCF would have an assessable shortfall of $12.8 billion. This would equate to a 3.11% assessment on premiums in most lines of property and casualty insurance.

Unlike the FHCF, the magnitude of Citizens’ potential losses increases with more severe hurricanes. A 50-year event is projected to result in an assessable shortfall of $3.5 billion. The 100-year and 250-year events are said to produce assessable shortfalls of $11.2 billion and $25.1 billion, respectively. As a result, the assessments levied on Citizens’ policyholders and policyholders through the state vary. Following a 50-year event, Citizens’ policyholders would see a 15% assessment and the regular assessment to the industry would be approximately 6%. The amount of any emergency assessment would be neglible. However, for 100-year and 250-year events, Citizens’ own policyholders would be assessed up to 45% of premiums. The industry then could expect regular assessments of between 11-18%, and emergency assessments of 1.5-4.4%. The duration of bonds issued to allow Citizens to meet its obligations could be as long as 30 years, resulting in long term assessments on Florida policyholders.

See the full report at: http://www.radeylaw.com/wp-content/blogs.dir/1/files/2011/02/PML-Summary-2011.pdf

See this article at: http://www.radeylaw.com/blog/office-of-insurance-regulation-releases-pml-report/

Sinkholes a new frontier of fraud
Miami Herald, 2/15/11
By Fred Grimm

We think small. Mostly, we’re content to fake car wrecks.

Not that South Florida, led by Miami and Hialeah, doesn’t do a bang-up job staging bang-ups. According to the National Insurance Crime Bureau, South Florida ranks second in the nation among metropolitan regions prone to collecting insurance claims for phantom injuries in auto accidents that never occurred. The report speaks to a certain theatrical flair endemic to South Florida’s brand of insurance fraud. (Lending new relevance to the old stage expression, “break a leg.”)

But for sheer audacity, we’ve got nothing on those nice folks up in central Florida, whose insurance claims suggest the whole damn region is being sucked, homes and all, down into the very bowels of the earth.

Geologists insist they’ve noticed no particular increase in geological activity. No sudden burst of chasms, fissures, dents, voids, cavities thereabouts. Yet it was as if homeowners of Hernando, Pasco and Hillsborough counties (affectionately known among insurance adjusters as “sinkhole alley”) were living through some real life disaster movie.

The earth did not move. No more than usual. Yet since 2006, the Citizens Property Insurance Corporation has been beset with sinkhole claims. In Hernando, according to a Florida senate report issued in December, sinkhole claims have risen 375 percent, in Pasco by 187 percent, in Hillsborough by 384 percent.

We wouldn’t mind so much in South Florida (having a rather tenuous perch on the moral high ground when it comes to insurance fraud), except the state-run Citizens has also become our flimsy provider-of-last-resort for windstorm insurance. It comes as something of a shock to discover that although we’ve been bypassed by major hurricanes since 2005, our pricey public-run catastrophic insurance company has become engulfed in a financial sinkhole. Citizens now pays out about four times more in sinkhole claims than it receives in premiums.

The Senate report suggests that fraud accounts for the sinkhole epidemic. As proof of unseemliness afoot, the Senate report noted that sinkhole claims have arisen in an area with not much history of sinkholes but with plenty of history of insurance fraud. “Sinkhole claims have also increased in areas generally not subject to sinkhole activity, like Miami-Dade and Broward counties . . . The number of claims from these two counties in 2009 was seven times what it was in 2006.”

South Floridians may be expert at faking fender-bender neck injuries, but sinkholes would seem a logistical challenge of another magnitude. We’ve all seen those photographs of homes collapsed into a gaping hole in the ground.

Turns out, only one percent of 200 or so sinkhole claims paid out by Citizens each month are based on “catastrophic” hole-in-the-earth occurrences. Most are for mere cracks in the walls and floors, more likely to have come from lousy construction, back when Florida was in a slap-’em-together home-building frenzy, than sinkholes.

But insurance companies have found it easier and less expensive to pay off claimants than make a fuss. The average settlement comes to about $130,000.

The state senate report cast further suspicion on the sinkhole epidemic, noting that 79 percent of the homeowners receiving a settlement check fail to spend their insurance windfall on repairs. (Last month, the Hernando County Sheriff’s Office arrested two men who collected sinkhole settlements then re-sold the unrepaired homes to unsuspecting homeowners.)

The state legislature is considering a number of changes to state law to fix before the Citizens Property Insurance Corporation disappears into one of these yawning chasms. And before South Floridians claim phantom injuries incurred when their cars are suddenly sucked into one of these mysterious sinkholes.

American Consumer Institute
Press Release
ACI Study: Are Florida Homeowners Paying More for Less?
Study Cites Price Regulation as the Major Reason
February 9, 2011

WASHINGTON, DC–(Marketwire – February 9, 2011) – Price regulation of property and casualty insurance in Florida has been a failure, according to a new study released by the American Consumer Institute. The study shows that Florida insurance prices were 30% above the national average just 10-15 years ago, but today they stand at 90% above the national average, despite the state having the strictest price regulation policies in the country. How can this be?

The study, The Regulatory Death Spiral — Why Price Regulation of Homeowners Insurance Means Consumers Pay More, details how price regulation in Florida has resulted in unintended consequences that have created shortages for homeowners looking for insurance, as artificially low prices have pushed the healthiest and most stable insurers out of state, particularly away from the coast, while leaving somewhat smaller, generally undercapitalized and riskier firms to shoulder major catastrophic storms. In Florida, this policy failure has led to the creation of a government-run insurer and reinsurer that has grown to become the largest insurer in the state, but its operations are financed not by capital reserves, but by debt.

In short, price regulation has led to a high cost market, where policyholder surplus has dwindled and insolvencies have become increasingly prevalent. If consumers are not paid for their claims, then what is the purpose of insurance; and if price regulation contributes to increased insolvency, then what is the purpose of regulation?

The study finds that, by regulating price, state regulators have altered the mix of firms that serve these markets, increasing risks and costs, eventually leaving consumers to pay more for insurance, but getting less in return — exactly the opposite of what policymakers intended.

The paper calls for ending price regulation, encouraging price flexibility and attracting capital back into the state, including sharp reductions in Citizens and the state reinsurance fund. The paper also suggests steps to reform related policies to reduce fraud and curb industry costs — all of which would help reduce consumer prices.

About The American Consumer Institute Center for Citizen Research
The American Consumer Institute Center for Citizen Research is a 501(c)(3) nonprofit educational and research institute. The Institute focuses on economic policy issues that affect society as a whole, and seeks to be a better and more reasoned voice for consumers, by using economic tools and principles to show that markets work best for the benefit for consumers. For a copy of the Florida study, please visit our Florida website at www.aciflorida.org; and for more information about the institute and our other research issues, please visit www.theamericanconsumer.org.

Source: http://www.marketwire.com/press-release/ACI-Study-Are-Florida-Homeowners-Paying-More-for-Less-1393052.htm

Download report: http://www.aciflorida.org/florida-surplus-final.pdf

Florida Underwriter
by Lynne McChristian
February 2011

They Say, Hearsay
We have a state-run insurer in Florida that has the largest slice of the property insurance pie. While some think that’s a big problem, I know it’s the best deal in town, so what’s the fuss all about? Other states probably have something just like Citizens Property Insurance Corp., and since it works here, it must work in the other states that get hit by hurricanes.

We Say
With apologies to the fine folks who work at Citizens, their large piece of the pie may one day hit us all in the face with a plate full of assessments. Citizens’ premiums are inadequate to cover losses from a major storm, which makes nearly everyone with a property and casualty insurance policy vulnerable to “hurricane taxes” that last for years. Other states may have recognized the dangers of that earlier because no other state has anything like the behemoth Citizens. Leaders from neighboring coastal states call it Florida’s folly to grow what is, essentially, socialized property insurance.

At a recent meeting, insurance commissioners from several other Southern states participated in a panel discussion on their state initiatives. The consensus was that no state needs to be in the insurance business. Florida, however, is into it deeply — up to its eyeballs with both Citizens and the Florida Hurricane Catastrophe Fund — and absent measures to curb the growth of what was intended to be the “insurer of last resort” and a less-costly reinsurance facility, we may wind up submerged.

Some may say we shouldn’t care that insurance regulators in other states use Florida as an example of what not to do. Yes, Florida is different, with a coastline that is unmatched by any other state. Creative minds have originated some innovative ideas that other states have unabashedly copied, and that is certainly worth noting. However, creativity sometimes makes things mutate into forms that are counter to rational practices, which is the best way I can think of to explain how we find ourselves with a great idea gone wild.

Take a look at how the residual markets stack up to one another. Florida’s residual market, aka Citizens, has about three-and-a-half times more exposure to loss than the combined residual markets in seven other hurricane-prone states. It is a combination of political pressure and geography. Of Florida’s 67 counties, 61 are considered coastal, according to the National Oceanic and Atmospheric Administration (NOAA). These are defined as counties with at least 15 percent of total land area located within a coastal watershed or a portion of the county that is at least 15 percent of NOAA’s coastal cataloging unit. In other words, these are the most desirable places to build and live, which residual markets make it easier to do. Maybe too easy.

Residual market plans include beach/windstorm plans, Fair Access to Insurance Requirements (FAIR) plans, and hybrids of the two, such as what we have with Citizens. They exist to insure against the windstorm peril for people unable to buy coverage in the voluntary market. Granted, residual markets are rarely self-sufficient, which is why states make every effort to shrink them. Yet residual markets nationally have surged from a total exposure to loss of $54.7 billion in 1990 to $693 billion in 2009. The number of policies in force over this 20-year time period went from 931,550 in 1990, to almost 2.5 million in 2009. These figures are down slightly from 2008, as states strive to reduce their potential losses by encouraging the private sector to take on more coastal polices. However, this reversal is not occurring in Florida.

A way to appreciate the differences between Florida and other Southern states is to compare exposure of residual market plans as a percentage of a state’s total exposure. In Florida, Citizens’ exposure represents 15.5 percent of the total state exposure to risk. That puts us in first place. Second place goes to Louisiana, with less than 7 percent of the state’s total exposure in the residual property market.

North Carolina’s beach plan is not run by the state government, although it is subject to a review by the state insurance commissioner. It offers homeowners’ policies only for owner-occupied primary residences. If the property is a second home, coverage is less comprehensive. The state also capped insurers’ financial liability for residual market claims at $1 billion, providing private insurers will some degree of certainty about what their financial obligation would be if a major storm hit. Insurers pay the $1 billion in addition to their own claims, of course, and a surcharge kicks in after that to handle any wind pool deficit.

South Carolina created a “catastrophe savings account” for homeowners to set aside money, free from state income tax, to pay storm-related expenses such as insurance deductibles or other uninsured risk. The state also requires wind pool policyholders to purchase flood insurance as a way to solve dilemmas over wind versus water damage. Without flood coverage, policyholders may receive coverage at actual cash value rather than full replacement cost. In Mississippi, the wind pool offers discounts of up to 25 percent to policyholders who make their homes more hurricane resistant. This is one way the state encourages coastal development while lessening economic damages.

Clearly, there are some new ideas being tried in coastal states. We are learning what works and what doesn’t — and there is hope that all the lessons do not have to be learned the hard way.

Lynne McChristian is the Florida representative for the Insurance Information Institute. She may be contacted at 813-480-6446, lynnem@iii.org. See her blog at www.InsuringFlorida.org.

http://www.propertycasualty360.com/2011/02/03/how-not-to-handle-property-coverage

The Washington County News
February 4, 2011

Former Florida state legislator and chairman of the House insurance committee, Don Brown, will speak to the Republican Club of West Florida on Tuesday, February 8.

Don Brown is a transition adviser to Gov. Rick Scott on insurance and legal matters. Brown has been a successful insurance agent in North Florida for over 25 years. Since leaving the Florida House of Representatives in 2008, due to term limits, Don has established himself as an authoritative voice in Florida’s insurance debate.

In the back-to-back years of 2002 and 2003 he was recognized by both the Florida Association of Insurance Agents and the Florida Association of Insurance and Financial Advisors for his significant contribution to insurance reform. Most notably, in 2007 Don was one of only two legislators to vote “No” on HB1A which significantly expanded the role of government into private markets. Since 2007, many of his objections to HB1A have proven to be correct.

In a recent op-ed in the Orlando Sentinel Brown wrote, “Florida hasn’t felt the fury of hurricane-force winds for five years, yet our state’s property-insurance market remains broken and a real threat to job creation and economic recovery.”

“Why?” For starters, a dramatic shift in state government policy in 2007 — led by former Gov. Charlie Crist — placed state-run Citizens Property Insurance Corp. in competition with the private market.

“That change in course has failed.”

“Today, Citizens is the largest property insurer in the state with 1.2 million policies, and it continues to grow rapidly, partly because it charges rates its own leadership admits are about 55 percent below what it needs to pay its claims.”

“That’s important for all of us, because both Citizens and the state’s other major property-insurance entity — the Florida Hurricane Catastrophe Fund — face billions of dollars in potential exposure that they don’t have the cash or financing in place to pay for.”

“So if a big hurricane hits in 2011, nearly every Floridian with an insurance policy will pay “hidden hurricane taxes” to bail out the state. These taxes apply to your auto, boat, home, business — even church policies.”

The meeting will be held at 12:00 noon on February 8th at Jim’s Buffet & Grill. All are welcome. It is not necessary to be a member or a Republican.

For information call 850-352-4984.

http://www.chipleypaper.com/articles/don-8397-brown-republican.html

Orlando Sentinel
by Mike Thomas
January 31, 2011

We can’t catch a break. If the wind isn’t howling from hurricanes, the ground must be collapsing from sinkholes.

Hence, the latest insurance crisis in Florida, where homeowners, public adjusters and attorneys are clamoring for settlement checks for what often are little more than settlement cracks.

This has sent our already reeling insurance market into a new tailspin.

And you will pay for it.

State Farm wants to raise rates 28 percent, in large part because of sinkhole losses.

The state-owned Citizens Property Insurance takes in more than 200 sinkhole claims a month, paying out about four times as much as in claims as it takes in from premiums. We all know what happens when Citizens runs out of money and can’t pay. We pay.

Florida is renowned for its insurance scams, and this one is a doozy.

It is centered in an area known as Sinkhole Alley in western Central Florida. Almost 70 percent of claims come from Hillsborough, Pasco and Hernando counties.

You would think from the escalating claims — they have tripled from 2006 to 2010 — that homes are being swallowed like rats in a python cage.

In fact, that rarely happens. Catastrophic collapse is only involved in about 1 percent of sinkhole claims.

Most claims involve cracks.

We all have cracks in our house.

The question becomes when is a crack just a crack, and when is it “structural damage” caused by sinkhole activity?

Finding that answer can kick off engineering and geological assessments that cost around $10,000. And even then, experts disagree, usually depending on who is paying them.

The end result often is a spat with the insurance company. Denial of claim. Threat of lawsuit. Settlement negotiations to avoid a trial.

There is a lot at stake. Fixing sinkhole damage is expensive because it often involves stabilizing the ground under the house, which can involve pumping grout into any cavities down there.

Going back five years, the average sinkhole payout, including expenses, is $130,000.

Now, here is the rub. When claims are paid, much of the money is never spent on the house or pumping grout in the ground.

About 20 percent, or more, goes to the insurance adjuster or attorney. The homeowner gets what is left. And investigations by insurance companies have found most simply pocket the money.

HomeWise Preferred Insurance Co. examined 55 claims and found that 79 percent of owners represented by an attorney or adjuster did not repair their homes. Almost 60 percent paid off their mortgage or sold the house.

One insurance company examined 53 sinkhole claims and found only five homeowners completed repairs. Seven of the nonrepaired homes were sold, meaning if there were problems, they simply were passed on.

Making all this considerably worse is that insurance adjusters and some attorneys aggressively solicit sinkhole business.

Consider this mailer that was sent out in a neighborhood:

TIME IS RUNNING OUT!

***Sinkhole Activity***We have been successful in recovering large claim checks for several of your neighbors in Florida. Do you have cracking in your foundation, walls, floor pavement, or pool deck? If so, you may be entitled to a large insurance settlement …

I am an honest guy. But I’d have to admit that if this wound up in my mailbox, I might view those wall cracks from an entirely different perspective. I mean $130,000 is $130,000. And if everybody else is doing it. …

This is scaring private insurers out of Sinkhole Alley because they can’t pay out more than they take in, or they go out of business.

This means Citizens Property Insurance moves in to fill the void, putting the risk on taxpayers. Citizens Property now covers 61 percent of Hernando homes, where it pays out seven times as much in sinkhole claims as it takes in from sinkhole premiums.

You can bet that the epidemic of sinkhole claims will migrate into other areas of Florida.

This has to stop.

Legislators are looking at several fixes, one of which will effectively do away with standard sinkhole coverage. The law would remove the mandate that insurers provide it, except in cases of catastrophic ground collapse under residences.

I think the option of buying coverage as we know it will cease to exist in Florida. Not even Citizens Property will be required to offer it.

There are only two ways to avoid that. One is to sharply limit claims. The other is to allow insurers to sharply raise sinkhole premiums.

My preference is for the former solution. There are provisions in the bill to limit cracks claims. The trick is designing a law to weed out all the frivolous claims without tossing out the legitimate ones as well.

Here in the land of the scam, it is a familiar problem.

Mike Thomas can be reached at 407-420-5525 or mthomas@orlandosentinel.com.

http://www.orlandosentinel.com/news/os-mike-thomas-sinkholes-020111-20110131,0,5822172.column?

The Orlando Sentinel
by Don Brown
January 30, 2011

Florida hasn’t felt the fury of hurricane-force winds for five years, yet our state’s property-insurance market remains broken and a real threat to job creation and economic recovery.

Why? For starters, a dramatic shift in state government policy in 2007 — led by former Gov. Charlie Crist — placed state-run Citizens Property Insurance Corp. in competition with the private market.

That change in course has failed.

Today, Citizens is the largest property insurer in the state with 1.2 million policies, and it continues to grow rapidly, partly because it charges rates its own leadership admits are about 55 percent below what it needs to pay its claims.

That’s important for all of us, because both Citizens and the state’s other major property-insurance entity — the Florida Hurricane Catastrophe Fund — face billions of dollars in potential exposure that they don’t have the cash or financing in place to pay for.

So if a big hurricane hits in 2011, nearly every Floridian with an insurance policy will pay “hidden hurricane taxes” to bail out the state. These taxes apply to your auto, boat, home, business — even church policies.

Since 2005, Floridians have paid $6 billion in hidden taxes to cover the losses of Citizens and the Cat Fund. Many people don’t even realize they’re paying these taxes. But if the “Big One” makes landfall, you won’t help but notice; former state Chief Financial Officer Alex Sink estimated these taxes could add up to as much as $14,000 on the average Florida family over 30 years.

Clearly, the continued threat of these massive state assessments is an ongoing threat to the wallets of our state’s residents, and acts as an impediment to job creation and growth for our state’s businesses.

Meanwhile, state government’s headlong plunge into the property-insurance market — and its political manipulation of rates — has left consumers with few good choices for insuring their homes in the private market, and chased many financially strong private insurers and their billions of dollars of private capital out of Florida.

Thankfully, Scott believes that true economic solutions are found in the private sector, not in state government. Floridians should encourage our new governor and Legislature to make a fundamental course correction in public policy this spring.

It’s time to give choice back to consumers by reviving the private insurance market in Florida, and reducing the threat of hidden hurricane taxes on Florida’s families and businesses.

We cannot truly set Florida on the path of new job creation and economic recovery without fixing the broken property insurance market.

Don Brown is a former chairman of the Florida House Insurance Committee and a transition adviser to Gov. Rick Scott on insurance and legal matters.

http://www.orlandosentinel.com/news/opinion/os-ed-florida-property-insurance-mywo20110128,0,5489049.story