Don Brown

Finance, Insurance & Real Estate News
by Matthew Glans
January 28, 2011

Windstorm insurance is a never-ending problem for states along the Atlantic and Gulf Coasts.

In many coastal states, lawmakers have set up state-run windstorm insurers (or “wind pools”) to act as insurers of last resort. They write wind policies when the private market will not.

Unfortunately, in some states over the last decade, these residual markets have grown to eclipse the private market, largely because insurance rates were held below actuarially sound rates. This forced major insurers to withdraw from the market.

Growing in Florida
In recent years the residual markets have been shrinking. This is not true across the board however. In Florida, the state with the greatest level of windstorm risk, its state-run insurer, Citizens Property Insurance Corporation, has continued to grow. Efforts to depopulate the residual market by placing policies into smaller subsidized private companies have seen mixed results.

Robert F. Sanchez, policy director at the James Madison Institute in Tallahassee, Florida, argues many of Florida’s windstorm insurance problems arise from poor political decisions by insurance regulators and former Governor Charlie Crist.

“When Florida’s insurance regulators evidently yielded to political pressure and disallowed reasonable rate adjustments, some major insurers prudently decided to decrease their exposure in Florida,” Sanchez said. “Several initially declined to renew a percentage of their policies, especially in high-risk coastal counties, and announced plans to withdraw from Florida altogether.”

“Unfortunately, the Legislature’s 2007 attempt at reform had the unintended consequence of making the situation worse. Subsequent attempts to rectify those problems were discouraged by Gov. Charlie Crist, an avowed populist who famously celebrated State Farm’s announcement that it planned to withdraw from Florida’s property insurance market. The inaction prolonged a situation in which private insurers’ rates were suppressed, Citizens grew, and Floridians in low-risk inland areas were essentially forced to subsidize lower-than-market rates for property owners in high-risk coastal areas,” Sanchez said.

Shrinking in Louisiana
In stark contrast to the growth of Citizens in Florida is the success Louisiana has had in depopulating its version of Citizens. Since its all-time high of 170,000 policies in the years immediately following Hurricane Katrina in 2005, Louisiana Citizens has successfully shed thousands of policies back to the private market. Louisiana Citizens now has approximately 129,000 policies, and the number continues to shrink, according to Louisiana Insurance Commissioner James Donelon.

Donelon attributes Louisiana’s successes in depopulating Citizens to keeping rates in line with those in the private market. Donelon suggested that one of the problems with Florida Citizens was the decision to force rates down.

“Louisiana copied the law that created Florida Citizens when we launched our state-run insurer,” Donelon said. “We have seen success in bringing down the number of policies in Citizens because we simply stuck with the original model and annually adjusted rates to keep Citizens competitive with the private market.”

He said this keeps the residual market from interfering with the private market, making Louisiana Citizens “a true insurer of last resort.”

Using Sound Rates
Donelon also said using actuarially sound rates has prepared Louisiana Citizens to withstand a financial hit from a storm as strong as Hurricane Gustav, which hit in 2008 and did more than $6.6 billion of damage in the Caribbean Sea, Gulf of Mexico, and United States, including $4 billion of damage in Alabama, Florida, Louisiana, and Mississippi.

Kevin Kane, president of the Louisiana-based Pelican Institute for Public Policy, a public policy think tank, says Citizen’s efforts to shrink its residual market “seems to be bearing fruit and we hope the state will continue to move in this direction. A state-run residual insurer can distort the market and crowd out competition. This harms consumers and taxpayers. It appears that the state is committed to continuing in this direction. Louisiana is facing large deficits and is not in a position to expand state-run programs, insurance or otherwise.”

Back in Florida, Sanchez says the election Republican Rick Scott as governor last November could lead to a change in how Citizens is run.

Changing Politics in Florida
“As for trends, fortunately, now that Governor Crist has left office, there may be a better chance for Florida’s private property insurance market to recover. Both the new governor, Rick Scott, and the legislative leadership are generally supportive of free-market principles. They know that a robust private property insurance market akin to Florida’s robust competition in auto insurance would serve property owners and taxpayers much better in the long run than the overreliance on a state-run insurer,” said Sanchez.

Sanchez added, however, that the political realities of windstorm insurance in Florida would likely force any changes to Florida insurance regulation to be gradual.

“An abrupt soaring of rates could cause a political backlash and a shock to a weak economy,” said Sanchez. “Therefore, we would expect legislation to pass this year or next to rectify some of the problems attributed to the 2007 legislation and allow a phased-in migration back to a robust private property insurance marketplace in which the rates reflect the risk.”

Matthew Glans (mglans@heartland.org) is a legislative specialist in financial services for The Heartland Institute.

http://www.heartland.org/firepolicy-news.org/article/29261/Residual_Markets_Changing_on_the_Coasts_A_Tale_of_Two_States.html

Saint Petersblog
by Peter Schorsch
January 25, 2011

With Florida only one major hurricane away from a fiscal crisis, the Florida Chamber of Commerce today urges the Florida Senate Banking and Insurance Committee to pass SB 408 and help right the ship on Florida’s property insurance market.

SB 408 by Sen. Garrett Richter (R-Naples) would:

Require an increase in minimum capital and surplus from $5 million to $15 million for new insurers, institute a three year claims filing deadline for new and reopened claims from the date of a hurricane or windstorm, allow an insurer to pay actual cash value, and holdback replacement cash value until there is a written contract for repairs, and establish substantial sinkhole reforms.

“This important legislation not only addresses the primary cost-drivers within Florida’s insurance market, it will bring security and market predictability, and go a long way toward establishing much needed financial stability,” said Adam Babington, Vice President of Government Affairs for the Florida Chamber of Commerce.

Currently, cost-drivers force rate increases onto Floridians and prevent insurers from building policyholder reserves during hurricane-free years. The Florida Chamber believes SB 408 will result in strengthening existing insurers while also attracting new insurance capital to the state.

SB 408 closely mirrors SB 2044 which passed the Florida Senate and House of Representatives during the 2010 Legislative Session, but was vetoed by then-Governor Charlie Crist.

Important insurance-related issues like those found within SB 408 will be among the topics of discussion during the Florida Chamber of Commerce Insurance Summit taking place this Thursday and Friday, January 27-28, at the Walt Disney World Contemporary Resort in Orlando. Insurance Summit panelist and guest speakers including Chief Financial Officer Jeff Atwater, Congressman Dennis Ross, Florida Insurance Commissioner Kevin McCarty, numerous lawmakers, and industry experts will provide attendees with:

Updates on Florida’s insurance market
Discussions on Florida’s economic reliance on property insurance,
Effects of market failures on consumers and the industry,
Status reports on the property insurance market,
Insurance assessments,
Updates on the health of residual markets and Citizen Property Insurance Corporation,
Florida’s attempt to attract capital while balancing affordability, and
Impacts of sinkhole claims on the insurance market.

http://saintpetersblog.com/2011/01/25/florida-chamber-urges-passage-of-the-insurance-bill-sb-408/

Tallahassee Democrat
By Michael Bennett
23 January 2011

Floridians spoke decisively in November of their desire to reform government. The election results were not only a rejection of the status quo and business as usual in Tallahassee, but also a strong affirmation of new ideas, new leadership and new faces.
Since arriving in Tallahassee, our new Gov. Rick Scott and the statewide-elected Cabinet members have set Florida on a course to solve big problems with a bold set of new private-sector, job-creating solutions.

One of the most important steps Florida can take to improve the economy and stabilize the insurance market — and open up more choice for homeowners — would be for Gov. Scott and Chief Financial Officer Jeff Atwater to change leadership in the Office of Insurance Regulation. Just as new leadership is coming to most state agencies, it is arguably overdue for such change to come to the priority position of insurance commissioner.

The overregulation of Florida’s insurance market has created a climate in which companies such as State Farm are dropping policyholders and others have stopped writing new insurance policies altogether. Recently, State Farm notified as many as 125,000 Floridians that they have been dropped and will no longer receive coverage.

For many Floridians, the only viable option is to turn to the state-run Citizens Property Insurance Corp., and the number of Floridians opting for Florida’s insurer of last resort is dramatically on the rise. The state-run insurance company has added more than 200,000 policyholders since last year and 100,000 in the last four months. At a time when Florida is facing a nearly $3 billion budget shortfall, adding policyholders to state rolls is simply not the answer. If Florida were to experience a natural disaster on the scale of a Category 5 hurricane, taxpayers would likely be forced to shoulder a bill in the hundreds of millions — or even billions — of dollars.

Floridians are looking for more affordable options to insure their homes and businesses instead of suffering the negative distinction of being forced to pay some of the highest insurance rates in the nation. According to a 2009 report by the National Association of Insurance Commissioners, Florida has the second-highest homeowner’s insurance rates in the nation, with policies costing an average of $1,386. And, of course, for residents on or near our 1,000-miles coastline, the premiums are even more staggering. At a time when jobs are scarce and budgets are tight, expecting families to pay more for home insurance is simply unacceptable.

In Tallahassee, the buck stops with the Florida Office of Insurance Regulation, which has played politics with property insurance for too long. Since 2007, Florida’s property insurance rates have been driven by government requirements, not market forces. The result has been a depleted insurance industry, fewer companies, higher rates and fewer choices for homeowners.

Florida’s newly elected officials have promised more accountability — and that must extend to those who regulate Florida’s insurance industry. It has been more than five years since a major hurricane has made landfall over Florida, and yet our insurance market is still struggling. Despite all of the rhetoric in Tallahassee and promises for change, Floridians yearn for more affordable home insurance options that do not increase the burden on taxpayers.

Gov. Scott and Chief Financial Officer Atwater should take swift action by forcing a change in leadership at the Office of Insurance Regulation. The state’s insurance office should protect the public interest better by being an active partner in economic development — not one of its obstacles. Indeed, when bureaucrats dig in deep and make holding onto power a higher priority than serving the people, taxpayers suffer.

The time has come for a change in the leadership at Florida’s top insurance office. In the spirit of the change Floridians brought to Tallahassee in this new year, homeowners deserve better: new ideas, new faces and a break from the status quo to make Florida’s insurance market competitive once again.

ABOUT THE AUTHOR: Michael S. “Mike” Bennett, a Republican from Bradenton, represents District 21 (including parts of Charlotte, DeSoto, Lee, Manatee and Sarasota counties) in the Florida Senate and is the president pro tempore. Contact him at bennett.mike.web@flsenate.gov.

http://www.tallahassee.com/article/20110123/OPINION05/101230306/Michael-Bennett-It-s-time-for-a-new-insurance-commissioner

St. Petersburg Times
By Robert Trigaux, Times Business Columnist
In Print: Thursday, January 20, 2011

Through these tough economic times, we’ve kept some hefty bills artificially low. The day to pay up is coming soon.

Big hikes in long-suppressed property insurance and electric rates, as well as in business taxes to replenish benefits for the state’s unemployed, are just around the corner.

Florida’s predicament reminds me of the Popeye comic strip character Wimpy, best known for his give-me-now, pay-you-later line: “I’ll gladly pay you Tuesday for a hamburger today.”

We’re all Wimpys. And our timing is onerous. Florida’s economy, harder hit than the nation’s, already will take years longer to revive. The coming spikes in insurance and electric bills, plus increases in business taxes, will further slow — but hopefully not derail — the rebound.

Politicians kept homeowners insurance premiums and electricity rates low on purpose in recent years to appease consumers hard hit by the severe economic downturn. But caps placed on these consumer expenses could soon be lifted.

A similar scenario looms for Florida businesses. Overwhelmed by a million-plus jobless Floridians, the state quickly drained its trust fund used to pay unemployment benefits. That forced the state to borrow more than $2 billion from the federal government to cover those benefits while promising to repay that loan and rebuild its trust fund. How? By increasing the taxes on more than 450,000 Florida businesses.

Had the state shortfall been replenished all at once, the minimum annual tax rate levied against businesses would have risen a staggering 12-fold last year. Instead, the state Legislature raised taxes slowly, postponing the day of reckoning for a few more years.

Still, Florida businesses face a 188 percent tax increase this year just to start refilling the unemployment trust fund. And interest charged by the feds on billions that Florida has already borrowed starts coming due this fall.

Insurance rates also have been kept lower than they might otherwise be. State-run Citizens Property Insurance, the largest insurer in the state, remains under restrictions that lawmakers imposed in the aftermath of the busy 2004 and 2005 hurricane seasons. Citizens cannot raise its average rates more than 10 percent a year.

Now comes new Florida Gov. Rick Scott. Scott insists that Citizens must charge rates that are actuarially sound.

That’s business lingo for saying that rates, in this case, must go way up to make sure Citizens can cover claims in the event of a major storm. That would also allow private insurance companies to raise rates and remain competitive.

Up how much? Citizens’ rates need to rise 55 percent. That means that for policyholders who currently pay $2,000 (that’s modest these days) for Citizens coverage, the new bill would climb to $3,100.

Electric rates are also due to rise. Progress Energy Florida CEO Vinny Dolan last week said that the utility had agreed to freeze electric rates through 2012, in part because Floridians were suffering through tough financial times.

But those rates have been kept artificially low and, Dolan points out, must be made up over time. Progress Energy Florida, which provides electricity to most of west central Florida, already plans next spring to request higher rates that would take effect in 2013.

Financially stressed Floridians have long sworn they would gladly pay up Tuesday for lower bills today. Well, my fellow Wimpys, guess what day it is?

Robert Trigaux can be reached at trigaux@sptimes.com.

http://www.tampabay.com/news/business/personalfinance/time-bomb-of-rising-bills-awaits-floridians/1146386

PolitiFact Florida
Tuesday, January 18th, 2011 |
By John Bartosek, Laura Figueroa

On Jan. 12, 2011, officials with Citizens Property Insurance Corp. delivered a presentation to the Florida House Banking and Insurance Subcommittee on the challenges facing the state-run program.

The main problems are well-reported: Citizens, now Florida’s largest insurance company with nearly 1.3 million policy holders, may not have enough money on hand to pay all the anticipated claims if a large storm hits. But its ability to raise rates is limited by state statutes. And if Citizens comes up short, it can assess extra fees to everybody’s home, car and business policies – even those who aren’t Citizens customers.

That has Gov. Rick Scott worried because it could slow his drive for more jobs. In his “Blueprint to Secure Our Economic Future: Insurance and Tort Reform,” he said the insurance uncertainty hurts the state’s business climate and discourages companies from making new investments here.

Scott pledged during the campaign that he would “work with the Florida Legislature to eventually eliminate the government-run program’s reliance on assessments following a major disaster and ensure that Citizens consistently operates on actuarially sound rates.”

The House subcommittee meeting gives us a chance to measure the governor’s progress on the Scott-O-Meter.

Among the challenges noted in Citizens’ report to the lawmakers:

• Citizens’ non-catastrophe loss ratio has escalated in the last two years.

• Though Citizens currently has a $4.6 billion surplus, should a 1-in-100-year storm hit it would cost a projected $22.2 billion, wiping out Citizens’ coffers and would require Floridians to foot the rest of the bill through assessments.

• Because Citizens is an alternative insurer, it does not have the same ability as private insurance companies to turn away property owners in riskier areas such as coastal zones more prone to hurricane damage.

By raising rates only 10 percent each year (the legal limit), it would take several years before Citizens reaches the rates required to be actuarially sound, Deputy Insurance Commissioner Belinda Miller told the committee, according to the Sun-Sentinel.

Generally, an “actuarially sound” insurance program will set rates at a level where the premium payments and the interest income earned from them will cover the projected claims and other costs of business — without additional assessments.

Several factors — from previous weather patterns to building codes in a particular area — are used to create computer models that formulate a sound rate, said Citizens Chief Financial Officer Sharon Binnun.

Binnun told the panel that in order to catch up to an actuarially sound rate, Citizens would have to hike its premiums dramatically — 55 percent more for homeowners, 20 percent more for condominium associations, and roughly 118 percent more for businesses.

If rates are not raised, Binnun told subcommittee members, should a 1-in-50-year storm hit (like the Category 5 Hurricane Andrew that ripped through South Florida in 1992), Citizens would not have enough money to compensate claims. It would have to pass the cost on to private insurance customers through increased assessments.

The early discussion between Citizens and the House insurance subcommittee signals to us that Scott’s pledge is a work in progress. We rate this In the Works.

http://www.politifact.com/florida/promises/scott-o-meter/promise/624/reform-citizens-insurance-to-consistently-operate/

South Florida Sun-Sentinel
Editorial
January 10, 2011

THE ISSUE: Sinkhole damage claims rise.

Just wonderful. If Florida didn’t have enough of an insurance bullseye during hurricane season, we now seem to have to worry about the ground below our feet, and homes.

Or better said, the ground not there due to sinkholes.

We’ll skip the geology session, and just point out data reported by the state Office of Insurance Regulation. An OIR survey found a sharp increase in the number of sinkhole-related damage claims over a four-year period — from 2,360 in 2006 to 6,694 last year — filed with 211 private insurers.

What gives? It’s not clear. Geologists who met with the Senate Banking and Insurance Committee said they found no scientific reason behind the increase in claims.

That’s comforting, but not that the dollar figures involved are rising. The cost for sinkhole claims paid out by private insurers totaled $1.4 billion. And state-run Citizens Property Insurance Corp. paid out $84 million in claims in 2009, while taking in just $19.6 million in sinkhole claims.

Not extraordinary year-to-year numbers, but enough to warrant attention, especially if scientists can’t point their finger at some geological factors at work.

So lawmakers would be wise to consider a series of recommendations issued by the Senate committee. Those include:

Establishing a sinkhole repair program to fix damaged properties instead of issuing checks to homeowners, who insurers say often don’t use money paid in claims to make repairs.

Set guidelines on what constitutes damage from sinkoles. Many claims don’t involve headline-grabbing sinkholes that swallow property, but rather just cracks in walls and other maladies that are difficult to link to sinkholes.

Revise Florida’s building codes to require soil testing and foundation construction to reduce the risk of sinkhole-type damage to homes.

Floridians should learn a lesson here from the post-hurricane experience with insurance chaos. Namely, that it’s better to make reforms and take preventive measures before costs and damages spiral out of control.

Again, geologists say nothing has changed underground. So lawmakers have time to tweak laws and institute better policies. They should use that time wisely.

BOTTOM LINE: Tweak laws and codes now.

http://www.sun-sentinel.com/news/opinion/editorials/fl-sinkholes-insurance-editorial-af-20110110,0,4222770.story

By Ian Love – Saturday, Jan 08, 2011 01:06 PM
Vero News

INDIAN RIVER COUNTY — Newly sworn in Governor Rick Scott has said Florida’s property insurance system is broken and in the 7-7-7 plan on which he ran as the “Blueprint to Secure Our Economic Future,” he outlined what he would do to fix it.

What he didn’t say in that document was that the fix will very likely mean the property insurance premiums we all pay will be going up.

The trade-off, he says, is that the insurance industry under his reforms will return to a solvent, market-based system where those with the most risk would not be subsidized through assessments paid by all of us.
The key culprits in our current state of affairs, Scott said, are Citizens Property Insurance Corporation and the Florida Hurricane Catastrophe Fund (Cat Fund), which are underfunded and could lead to hundreds of millions of dollars in after-the-fact assessments when the next major storm hits Florida.

“Florida’s current property insurance system is broken and is putting us all at risk,” he wrote in the blueprint. “Driving out solvent private insurers from our state and forcing homeowners into a government run company that is not financially sound is a huge gamble that has put homeowners and taxpayers at risk. … I want to open the property insurance market back up in Florida so that financially solvent private insurers can compete, allowing consumers to choose what they want from a free market.”

Local insurers agreed with the new governor’s assessment and that rates will most likely have to rise if we are to honestly manage the risk and attract national companies back to our market.

“There may be some short-term premium paying pains, but shortly the marketplace will reach parity and then the competitive nature of the marketplace will take over and competition will truly begin,” said Gene Waddell of Waddell Insurance Group.

Many people in the industry point the finger for the current state of affairs at former Gov. Charlie Crist.
Under Crist’s tenure, they say, he turned Citizens as the insurer of last resort into a competitor in the marketplace with the full backing of the state government.

“I think Charlie Crist took a populist approach and made Citizens competitive with the marketplace to provide cheaper insurance rates to Florida consumers,” said Brad Emmons of Vero Insurance. “Short term that works great, especially when you don’t have any storms, but what that means is right now the state of Florida is not in a position to handle a big claim.”

Waddell said Floridians have been living on borrowed time and the regulatory reforms Scott is considering need to be enacted.

“The industry has been warning since the ill-conceived market monkeying that the process was not going to work,” he said.

With the competitive rise of Citizens in the marketplace an unintended consequence was the departure of national carriers, who claimed they could not compete in the new regulatory landscape.

“Because of the reforms put in place by Gov. Crist, we no longer have national carriers willing to write, we have to look at our regulatory environment and the statutes we have on the books so national carriers have the desire to come back to Florida,” said Kyle Ulrich, Senior Vice President of Public Affairs for Florida Association of Independent Agents.

That void has been filled by regional carriers, some of which have questionable balance sheets for paying clients’ claims should a hurricane hit our shores.

“I hope that Mr. Scott succeeds in reducing Citizens’ policy population, allowing the private market to take some of those policies on and make it where consumers, especially beachside consumers, have more choices,” Emmons said. “There are options out there, I am just hoping there are more in the future that are sustainable businesses where agents don’t have to worry after a storm about a company going under.”
The Legislature has already recognized that Citizens is, in insurance vernacular, not actuarially sound and has begun raising its rates at 10 percent a year.

The problem with that is it could still take years to properly fund the quasi-government agency and that may be too late.

Don Brown is a former member of the state House of Representatives from DeFuniak Springs and former chairman of the House Insurance Committee who is part of a transition team advising Scott.

He is squarely in the camp to return Citizens to its original mandate as the insurance company used when no other policy could be acquired.

“We are taking a gamble as long as (Citizens) premiums are below actuarially sound,” he said. “If there is a storm and if there is a deficit, the Citizens insurance customers will not only have to pay, but everybody else in the state as well.

Our recommendation to the governor was to do everything he could to minimize the likelihood that Citizens would incur a deficit that would require an assessment, which means the people that didn’t take the risk end up contributing to those that did.”

Brown said they did not advise Scott on how fast or how far he needed to raise the rates.

Although all rate increases must be approved by the state, if Citizens rates go up it will most likely mean other insurers will seek increases as well.

The Florida Office of Insurance Regulation has begun to allow premium increases to go through recently and that is expected to continue.

Critics of the rate increases say insurance companies are crying poverty on the one hand and raking in huge profits through sister affiliates with the other.

The Sarasota Herald-Tribune recently reported on this and found $1.9 billion in payments in 2008 for, in effect, such in-house services as claims adjusting, management services and other tasks.

And, since those payments are determined as a percentage of the premium, an increase to a policy means an increase in those ancillary charges.

The other part to the insurance mess is the state-run Cat Fund which insurers use to buy re-insurance. Insurers use this fund to spread their risk and that allows them to write more policies.

The Cat Fund is underfunded as well and could mean huge assessments paid buy us all should a catastrophic storm hit Florida.

“Our recommendation to the governor is to seriously look at the Cat Fund and consider ways that it can be restructured so that it can come closer to meeting its originally intended purpose,” Brown said.

“As with Citizens, the Cat Fund has an extensive assessment base, it can assess homeowners’ premiums, it can assess liability insurance premiums, it can assess every policy holder in the state except for worker’s compensation and medical mal practice.”

Brown said he has not had any one-on-one conversations with Gov. Scott. His only contact has been as a member of the transition team. However, from his days as chairman of the Insurance Committee his position on the recent changes to the insurance industry are well known.

“The promise we made was this,” he said of the transition team’s recommendations to Scott. “It’s always better to finance risk with capital than it is to finance risk with debt. Right now we depend heavily on debt when it would be far better for the people of Florida if we used capital to finance our risk.”

http://www.veronews.com/index.php?option=com_content&view=article&id=13333:insurance-rates-top-gov-scotts-list-likely-to-rise&catid=61&Itemid=53

By Julie Patel January 7, 2011 10:25 AM
South Florida Sun-Sentinel

A sweeping property insurance package vetoed last year due to concerns about costs to consumers will be resurrected this year.

State lawmakers drafting insurance measures are encouraged by Gov. Rick Scott’s push to eliminate regulations that aren’t needed and to create a business-friendly environment in the state.

Sen. Mike Bennett, R-Bradenton, who proposed a measure to effectively deregulate insurance rates last year, said he’d also like to see insurance deregulation included in the larger insurance proposal. “Now is the time,” he said. If insurers charge too much “you’ll go shopping. Too little and that insurance company” folds, said Bennett, who is Senate President Pro Tempore this year. He added that he’s been hit with rate hikes in recent years like many policyholders across the state: “I own quite a bit of real estate. It kills me. At the same time, if a storm hits I want to make sure that company is going to” pay claims.

The House insurance committee on Wednesday will discuss two state insurance programs, Citizens Property Insurance and the Florida Hurricane Catastrophe Fund, as well as problems facing insurance companies in Florida.

The Senate insurance committee on Tuesday will discuss the idea of creating a fourth state insurance program to deal with sinkhole claims, which insurers say are driving rate hikes. The Senate staff issued a report this week recommending the state handle claims and repair homes damaged by sinkholes.

Sen. Garrett Richter, R-Naples, who is chair of the committee, said it’s not “necessarily a bad idea.” But he said he prefers the staff’s alternative recommendation to change provisions in state law to help insurers reduce costs related to sinkhole claims, including some that are frivolous. “I’d like us to pursue [that] before we expand the government,” Richter said. He said he is also supportive of the deregulation concept.

Consumer advocates question the need for the legislation in light of a decrease in the cost of catastrophe back up coverage and higher profit margins for insurers nationally. Bill Newton, executive director of Florida Consumer Action Network, wrote on his blog that the message on sinkholes is: “You’re having too many of them, so you’re going to have to prove, really prove that that’s what is destroying your home. Expect this to be part of a trend toward insurance companies not paying claims without a heck of a fight. No more good neighbor.”

Public insurance adjusters, hired by policyholders to represent them on claims, said they want to see more legislation aimed at helping insurance consumers instead of companies.

http://weblogs.sun-sentinel.com/business/realestate/housekeys/blog/2011/01/legislators_time_is_ripe_for_i.html

December 26, 2010
Tallahassee Democrat

Gov.-elect Rick Scott has been saying for months, “Let’s get to work,” to rally Floridians around proposals to grow our economy, reduce government intervention in the market and create new jobs in the Sunshine State.

One area Scott and our newly elected legislators can start to work on immediately is to eliminate the unfair “hurricane tax” currently levied on Florida’s businesses.

These taxes take the form of assessments levied on the insurance premiums of businesses statewide, as well as on charitable organizations, schools, churches and renters. In effect they subsidize many of our state’s most fortunate — homeowners living on the coast. Eliminating the hurricane tax will free money for business to reinvest in new initiatives and jobs, encourage capital formation in our state and foster a more transparent, competitive and fair environment for businesses and consumers alike.

As the president of Associated Industries of Florida, I was present during Scott’s speech to the Florida Council of 100, in which he discussed his plans for Florida. The governor-elect boldly called for a freer market, more cost-effective regulation, honesty and transparency in our metrics and governing our state along a clear business plan. When Scott assumes his post in Tallahassee, all of these values can be applied to achieve much-needed reforms of the state-sponsored Citizens Property Insurance Corp. and the Florida Hurricane Catastrophe Fund (Cat Fund). The instability of these entities and the taxes they generate affect all Floridians — not just those who are Citizens policyholders.

Today, our businesses are still paying for the storms from 2004 and 2005 because of the debt burden designed into the structure of Citizens and the Cat Fund. Although the 2010 storm season was an active one, Florida was spared from any storms making landfall.

Had our vulnerable shores been hit, Florida’s businesses, churches and families would have experienced an unwelcome “surge” of new hurricane taxes to fund Citizens and the Cat Fund. Potentially, these taxes could exceed 50 percent of the insurance premiums on our businesses — each year for up to 30 years — in order to service the bonds that would be issued by Citizens and the Cat Fund, assuming a financing of that scale could even be achieved.

Before the election, Scott addressed Floridians during a town hall meeting in Miami stating, “I will return Citizens to the insurer of last resort, level the playing field so that solvent private insurers are allowed to compete with each other for business, not with the subsidized and financially unsound government-run insurance company.” AIF both applauds and is prepared to support those initiatives. As we return Citizens to its original role as an insurer of last resort, we must also return the Cat Fund, currently a taxpayer agency of first call, to its own originally conceived role as an emergency buffer for the largest possible catastrophes.

Increased exposure

Under the current administration, the exposures in Citizens have increased astronomically and the Cat Fund has nearly doubled in size, posing a painful current and enormous contingent tax burden on Floridians. But it didn’t have to be this way. The legislation rushed through in 2007, by our now outgoing Gov. Charlie Crist, undercut reforms championed by former Gov. Jeb Bush with bipartisan support that, in hindsight, would have helped take Citizens and the Cat Fund back to their original roles.

Consider also the situation in Louisiana — the state that bore the brunt of Hurricane Katrina’s wrath and that also has a state-run insurer named Citizens. While Florida made our state-sponsored Citizens into one of the largest insurers in the country, Louisiana’s leadership made the harder but wiser decision to keep their Citizens insurance option as a market of last resort. Instead of supplanting and competing with the private market, Louisiana maintained a stable, even-handed environment for insurers and attracted new capital, new competitors and new employers. As a result, the current market share of Louisiana’s Citizens is below its pre-Katrina level.

Reforming Citizens and the Cat Fund are not the only challenges confronting Florida’s property insurance market. We continue to suffer from abuses from certain public adjusters, mitigation inspectors and the continuing sinkhole crises. We need tort reform and changes in our so-called “bad faith” law.

But there is no better place to start than by reducing the risk associated with these state-run insurance entities and eliminating the risk of future hurricane taxes. With our new legislative leadership in Tallahassee, Gov.-elect Scott has the partners he needs to restore a freer insurance market in Florida and improve our standing as a place where employers want to come and hire new workers. Eliminating the risk of future property insurance assessments — and our current risk of relying on an uncertain and unpredictable bailout from Washington — should be one of the new governor’s top priorities. We look forward to working with Rick Scott throughout his tenure as Florida’s governor in an effort to eliminate the hurricane tax, which will ultimately benefit both the Florida business community and our state’s most vulnerable citizens.

ABOUT THE AUTHOR: Barney T. Bishop III is CEO and president of Associated Industries of Florida. Contact him at bbishop@aif.com.

http://www.tallahassee.com/article/20101226/OPINION05/12260314/Barney-Bishop-Hurricane-tax-should-be-priority-for-Scott

Florida Times Union
December 23, 2010

Gov.-elect Rick Scott has been saying for months, “Let’s get to work,” to grow our economy, reduce government intervention in the market and create jobs.

One area that he and our new legislative leadership can start to work on immediately is to eliminate the unfair “hurricane tax” on businesses.

These taxes take the form of assessments levied on the insurance premiums of businesses statewide, as well as on charitable organizations, schools, churches and renters.

They, in effect, subsidize many of our state’s most fortunate homeowners living on the coast.

Eliminating the hurricane tax will free funds for business to reinvest in new initiatives and jobs, encourage capital formation in our state and foster a more transparent, competitive and fair environment for businesses and consumers alike.

When he takes office, Scott needs to seek reforms of the state-sponsored Citizens Property Insurance Corporation and the Florida Hurricane Catastrophe Fund (CAT Fund).

Today, our businesses are still paying for the storms from 2004 and 2005 because of the debt burden designed in the structure of Citizens and the CAT Fund.

Although 2010 was the most active storm season in 150 years, Florida was spared from any storms making landfall. Had our vulnerable shores been hit, Florida businesses, churches and families would have experienced an unwelcome “surge” of new hurricane taxes to fund Citizens and the CAT Fund.

Potentially, these taxes could exceed 50 percent of the insurance premium on our businesses – each year for up to 30 years – to service the bonds that would be issued.

Prior to the election, Scott said, “I will return Citizens to the insurer of last resort, level the playing field so that solvent private insurers are allowed to compete with each other for business, not with the subsidized and financially unsound government-run insurance company.”

As we return Citizens to its original role as an insurer of last resort, we must also return the CAT Fund, currently a taxpayer agency of first call, to its role as an emergency buffer for the largest possible catastrophes.

Under the last administration, the exposures in Citizens have increased astronomically and the CAT Fund has nearly doubled in size, posing a painful current and enormous contingent tax burden on Floridians.

But it didn’t have to be this way.

Louisiana, which bore the brunt of Hurricane Katrina’s wrath, also has a state-run insurer named Citizens.

While Florida made our state-sponsored Citizens into one of the largest insurers in the country, Louisiana kept its Citizens as a market of last resort.

Instead of supplanting and competing with the private market, Louisiana maintained a stable, even-handed environment for insurers and attracted new capital, new competitors and new employers.

As a result, Louisiana’s Citizens has a market share that is below its pre-Katrina levels.

Reforming Citizens and the CAT Fund are not the only challenges confronting Florida’s property insurance market. We need tort reform and changes in our so-called “bad faith” law.

But there is no better place to start than by reducing the risk associated with these state-run insurance entities and eliminating the risk of future hurricane taxes.

Barney T. Bishop is president and CEO of Associated Industries of Florida, a Tallahassee-based group that promotes free markets.

http://jacksonville.com/opinion/letters-readers/2010-12-23/story/guest-column-property-insurance-reform-should-be-priority