Don Brown

OPINION
December 14, 2010
Tallahassee Democrat

The 2010 hurricane season has ended and the Gulf and Atlantic are calm, with winter coming in and ocean waters cooling. Florida has been spared a hurricane landfall for the fifth straight year.

We are defying the odds — historically, a hurricane strikes this state at least every other year — and the 2011 legislative session must implement reforms so the property insurance system can once again handle something like the 2004/2005 hurricane seasons.

Five years without a hurricane have caused memories of our eight-storm, two-year nightmare to become distant, while nonhurricane pressures have weakened the property insurance market. Many insurers are losing money and not building the surplus they should build during calm storm seasons — surplus to pay claims when the inevitable big one does strike again. We are in a crisis comparable to Hurricane Andrew in 1992 and the four-storm seasons of 2004 and 2005, Insurance Commissioner Kevin McCarty noted in a recent report to the governor and Cabinet.

During the first six months of this year, 74 of 199 property insurance companies posted surplus losses (nearly 40 percent), with 125 companies seeing at least some surplus growth, McCarty reported. Fifty-eight percent of insurers posted underwriting losses, blocking or limiting surplus growth, with 42 percent reporting underwriting gains.

“We have a new set of challenges that include cost-drivers and an unfavorable economic environment,” McCarty said. “I am confident we can continue to work together to create a better regulatory framework and a better Florida insurance marketplace.”

There is general agreement on how to restore a strong and growing property insurance system.
Solutions include a reasonable cutoff period on hurricane claims, which already exists in Alabama, Texas and other neighboring states — two or three years instead of the five years allowed in Florida.

They include stronger regulation of public adjusters and restrictions on the cash available up front under a property insurance policy until a contract for repairs has been signed or the homeowner has begun to replace lost personal contents, the law in every state except Florida.

The comprehensive fix must address dozens of other issues, including promoting insurance company solvency and consumer protection regulation, halting the continued growth of Citizens Property Insurance Corp. and reducing the reliance of Citizens and the Florida Hurricane Catastrophe Fund on bonding and statewide assessments.

One of the major “cost drivers” does not involve hurricanes — it is questionable sinkhole insurance claims. Citizens and private insurers will pay out $2 billion from 2006 to 2010 in sinkhole losses, according to the Office of Insurance Regulation. Most of these claims do not involve sinkholes — the traditional hole in the ground that swallows a home. The signs are minor cracks in a garage wall or driveway, and the problem is normal settling, not sinkholes.

Still, insurers end up paying tens of thousands of dollars, even the full value of the home (policy limits). At a minimum, the Legislature must enact an appropriate definition of structural damage from sinkholes, defining what is and what is not covered by an insurance policy.

We came close to righting the ship last spring when the Legislature passed SB 2044. This package was supported by McCarty, Chief Financial Officer Alex Sink, then-Insurance Consumer Advocate Sean Shaw, Citizens Property Insurance Corp., the Florida Hurricane Catastrophe Fund, and many others. One official did not support SB 2044, though, and his was the support that would have counted the most. Gov. Charlie Crist vetoed SB 2044.

The broad, strong coalition behind that plan is reforming, and major property insurance packages will be released by the end of the year. It appeared highly unlikely our four-year run of good luck would extend through the 2010 hurricane season, but it has and we have more time. Six months separate the end of this hurricane season and the beginning of the 2011 hurricane season. We will need every day of it to pass and implement the necessary revisions and allow them time to begin to produce positive results. We must take advantage of this year’s reprieve.

About the author: Cecil Pearce became president of the Florida Insurance Council in October, after being Southeastern director of governmental affairs for the American Insurance Association in Atlanta for eight years. Contact him by at cpearce@flains.org or go to http://www.flains.org.

December 11, 2010
Tom Knox
Daytona Beach News Journal

ORMOND BEACH — The hurricanes that rolled through Florida five years ago left in their wake a pile of fallen houses and a chorus of angry homeowners. Millions of hurricane-related property insurance claims were filed, and there weren’t enough adjusters to handle the claims quickly.

Some roofers were demanding all of the money before starting repairs, but insurance companies only paid some costs before repairs were made. After work was completed, they paid the rest.

In 2005, legislation was changed to get help to homeowners quicker by switching the insurer payback method to replacement costs instead of depreciation. Instead of paying the depreciated value of insured property up front and the rest when it’s fixed, homeowners got money with no-strings attached.

That change, insurance executives say, helped turn what was previously a small sinkhole problem in a specific area of the state into what the Hernando County property appraiser called “an epidemic in the making.”

The sinkholes at issue aren’t the mammoth holes that suddenly open and swallow a house. Insurers are required to issue catastrophic ground cover collapse for those. In 2007 the definition of a sinkhole was changed and optional coverage, which is for more minor damages like foundation cracks, was added for an additional premium charge.

Homeowners eager to get tens of thousands of dollars for such cracks have used the change in payback method to file more sinkhole claims than ever.

Werner Kruck, senior vice president of Ormond Beach-based insurance company Security First, said homeowners in the area, who don’t have sinkhole coverage, still pay about $10 a month to cover the costs for everyone else.

Florida is more likely to have sinkhole problems than any other state because of underground limestone that dissolves here. They’re most prevalent in the west-central part of the state. About 68 percent of claims filed so far this year were from Hernando, Pasco and Hillsborough counties.

Volusia and Flagler counties did not have enough claims to be listed on a sinkhole-data review issued last month by the state Office of Insurance Regulation.

Citizens Property Insurance, the largest insurer of Florida homes, gets 210 sinkhole claims a month. Almost 21 percent of sinkhole claims at Citizens have entered into some sort of litigation since 2005.

Inspecting a sinkhole is costly.

When someone files a sinkhole claim, it costs the insurer about $8,000 to determine if the claim is actually a sinkhole, according to a state report, which measured claims since 2006. If a policyholder disputes an insurer’s ruling, they can hire a public adjuster or attorney to fight the claim, which costs much more.

People who file claims don’t need to prove they made the fixes, so they can spend the money as they see fit. In many cases confirmed sinkholes lay in disrepair because the homeowner spent the repair money on their mortgage, according to a letter written by Alvin Mazourek, the Hernando property appraiser.

Since 2006, the average optional sinkhole payout to the 9,000 Florida homeowners with already-settled claims is more than $140,000.

David Beasley, president of the Florida Association of Public Insurance Adjusters, said insurers don’t point out the financial catastrophe involved with a sinkhole.

“A lot of the time people try to make it sound like homeowners are profiting from that, but it’s not the case,” Beasley said.

If someone has a $300,00 home with a sinkhole, for example, the home “just became worth $100,000 to $150,000 at best,” he said. “If you’ve got a $300,000 mortgage, why would you put more money on it before you sell the property?”

A state law took effect in January that allows insurers to non-renew optional sinkhole policies in Hernando and Pasco. Tim Meenan, a lobbyist for the National Association of Insurance and Financial Advisors, said he’s trying to make that a statewide policy by summer 2011.

“Does everyone in Volusia County want to pay for those 10 out of 5,000 people that actually have a problem?” he said.

If insurers statewide aren’t required to offer optional sinkhole coverage, though, few if any insurers will offer it, meaning those 10 people with an actual problem could be stuck with a sinkhole. Meenan said he doesn’t know what to do about that.

Insurers often accuse public adjusters of encouraging fraudulent or embellished claims because it’s so expensive to fight the claims. But the state insurance-regulation report shows fewer than 1 percent of more than 24,000 total sinkhole claims were reported since 2006.

Public adjusters represented 25 percent of Citizens’ sinkhole claims in 2009, up from 3 percent in 2005.
It’s clear there is a problem, but what can be done about it? The state senate’s Banking and Insurance Committee plans to release a sinkhole study next month.

“The question is very simple,” said Locke Burt, president of Security First. “Who pays, and when?”

http://www.news-journalonline.com/business/real-estate/2010/12/11/sinkhole-changes-leave-insurers-feeling-sunk.html

By BARNEY T. BISHOP III
Special correspondent
Tampa Tribune
Published: December 4, 2010

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 legislative leadership 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, and 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.

As the president of Associated Industries of Florida (AIF), I was present during Scott’s recent speech to the Florida Council of 100 where 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 Corporation and the Florida Hurricane Catastrophe Fund (Cat Fund). The instability of these entities and the taxes they generate affect all Floridians – not just 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 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 – in order to service the bonds that would be issued by Citizens and the Cat Fund, assuming a financing of that scale can even be achieved.

Prior to 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.

Under the last administration, the exposures in Citizens have increased astronomically, and the Cat Fund has nearly doubled in size, posing a painful 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 governor undercut reforms championed by former Gov. Jeb Bush with bipartisan support that would have fostered the evolution of Citizens and the Cat Fund back to their original roles.

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.

We look forward to working with Scott throughout his tenure in an effort to eliminate the hurricane tax, which will ultimately benefit both the business community and our state’s most vulnerable citizens.

Barney Bishop is the president and CEO of Associated Industries of Florida, a statewide organization of businesses.

http://www2.tbo.com/content/2010/dec/04/MEOPINO1-gov-scotts-first-order-of-business/

Heartland Senior Fellow Appointed to
Florida Gov’s Tort Reform Transition Team

TALLAHASSEE – Don Brown, former Florida state representative and currently a senior fellow of The Heartland Institute, has been named to Gov. Rick Scott’s Tort Reform Transition Team. Between now and the new governor’s swearing-in early in 2011, Brown will advise the new governor on tort reform issues in the state.

“Governor-elect Rick Scott has been very clear about his plan to grow the Florida economy and create jobs,” said Brown. “One important part of that plan is lawsuit reform.

“It is an honor to have been selected by Governor-elect Scott to serve on his Tort Reform Transition Advisory Team.” Brown continued. “I look forward to working with the governor-elect to improve Florida’s economic future. I am confident that with his leadership we can all ‘get back to work.’”

Brown can be reached at 850/865-9280 or dbrown@heartland.org.