Don Brown

The Wall Street Journal
By Mary Kissel
December 15, 2011

As speaker of the Florida House of Representatives, he ignored warnings that expanding the two taxpayer-backed funds would expose Floridians to fiscal risks when a big storm hit.

When former Florida Gov. Charlie Crist pushed to expand his state’s catastrophic insurance funds in 2007, one of his strongest backers was Marco Rubio, who at the time was a state legislator. Now that the funds are in fiscal trouble and a new governor, Rick Scott, is pushing to reform them, has Mr. Rubio — a well-known fiscal conservative now serving in the U.S. Senate — changed his tune?

It’s a pertinent question given Mr. Rubio’s prominent involvement in the expansion of the Florida Hurricane Catastrophe Fund, a reinsurer, and Citizens Property Insurance Corp. As speaker of the Florida House of Representatives, he ignored warnings that expanding the two taxpayer-backed funds would expose Floridians to fiscal risks when a big storm (or a series of small storms) hit. He also allowed state Senate Democrats considerable influence over the legislative process and then demoted the two Republican committee heads, Don Brown and Dennis Ross, who voted against the measure.

Mr. Rubio was probably acting out of political expediency. In 2007, Mr. Crist was newly elected and very popular. Insurance companies hiked rates after two active hurricane seasons in 2004 and 2005, and Floridians were calling for relief. Mr. Rubio was a young House speaker and felt pressure from Democrats and fellow Republicans to “do something.” After the 2007 law boosted the Catastrophe Fund and Citizens, private insurers promptly curtailed their business in the Sunshine State or left altogether. Then the financial crisis happened and the two insurance funds realized they had potentially large funding gaps.

Earlier this month, Boca Raton state Rep. Bill Hager proposed a bill that would shrink the Cat Fund, as the reinsurer is known. Gov. Scott recently asked the board of Citizens to work on reforms for that fund, too. Sen. Rubio’s office declined to comment specifically on Mr. Hager’s bill Wednesday, but spokesman Alex Conant said that Mr. Rubio “does agree that the system needs to be reformed” and added that the 2007 reforms “were never supposed to be permanent.”

A temporary measure may be what Mr. Rubio intended, but nothing in the bill said it was anything but permanent. Better for the senator to acknowledge a bad decision and throw his considerable political weight behind Gov. Scott’s reform efforts.

http://online.wsj.com/article/SB10001424052970204026804577100502969224024.html

TheLedger.com
Editorial
December 15, 2011

Florida’s property-insurance crisis can be summed up in two words: Underfunded. Overexposed.

“The current insurance system puts taxpayers on the hook for potentially billions in assessments, while providing little assurance that their claims will be paid in the event of a catastrophic hurricane or series of hurricanes,” Dominic M. Calabro, CEO of the independent think tank Florida TaxWatch said this month.

He did so when releasing a new analysis of the weaknesses of the state’s Citizens Property Insurance Corp. and its Hurricane Catastrophe Fund.

Originally intended as the “insurer of last resort” Citizens now holds nearly 1.5 million policies with a risk liability of nearly $513 billion.

In order to keep rates artificially low — lest voters be offended — the risk is spread out to all insurance holders.

RISK COVERED INLAND

Thus, residents of inland Polk County — insulated from the coastal brunt of hurricanes — are on the hook for any damages done to beachside condos in Miami.

There are several proposals floating around this upcoming session to “fix” Florida’s underfunded, overexposed storm risk. Three issues in particular must be addressed.

“Any proposals to fix this situation should aim to have CPIC [Citizens] set market-oriented rates, restore CPIC to truly being the ‘insurer of last resort’ as it was intended, and include a quantitative analysis to ensure the proper protection of Florida taxpayers,” said Calabro.

Otherwise, Florida will remain one hurricane away from a fiscal tempest.

http://www.theledger.com/article/20111215/EDIT01/111219577

The Wall Street Journal
Editorial
December 13, 2011

Politicians are finally making plans to protect taxpayers.

Florida marked the end of its sixth straight season without a hurricane landfall last month, and the U.S. marked the longest stretch without a major storm since the beginning of reliable records in 1851. Even more remarkably, state politicians and Republican Governor Rick Scott are starting to reform two taxpayer-backed catastrophic insurance funds in advance of the next big wind.

Earlier this month, Boca Raton Representative Bill Hager unveiled HB 833, which would shape up the Florida Hurricane Catastrophe Fund, a state-run reinsurer. It’s a courageous step given that any reform of the Cat Fund, as it’s known, will mean higher premiums. And no one hates higher insurance costs than Floridians, who have the “tendency,” as former representative Don Brown quips, to “build in very dangerous places and expect someone else to pay the bill.” That “someone else” are other Floridians and national taxpayers.

In 2007, the Charlie Crist Administration expanded the Cat Fund from an emergency reinsurer of last resort to a major player in the market. Today, the Cat Fund has $7.2 billion cash on hand and expects it could raise $8 billion in bond markets in an emergency, but a Category 5 hurricane or a series of small storms could do far more damage.

In that event the Cat Fund can levy a special tax on property and casualty insurers (excluding medical malpractice and workers’ compensation schemes) that will pass that cost to policy holders, assuming those insurers are still in business. If the shortfall gets too big, expect Tallahassee to go cap in hand to Washington.

Mr. Hager’s plan would reduce the Cat Fund’s overall size, boost its capital buffer and limit its ability to levy emergency taxes to cover unexpected fiscal shortfalls. Mr. Hager is a particularly notable sponsor, given his experience as a former Iowa insurance commissioner and assistant attorney general.

Governor Scott is also pushing to reform Florida’s other taxpayer-backed fiscal basket case, Citizens Property Insurance Corp., an insurer that was also expanded beyond its means in 2007. On current projections, Citizens would have to tap policy holders for billions of dollars in the event of a big storm. Citizens also depends on—wait for it—the Cat Fund for its reinsurance. Mr. Scott asked Citizens’s executives last month to figure out ways to shore up the company’s finances, and they presented their ideas to the Governor last week.

Mr. Scott and his allies may get little immediate political benefit from backing such forward-thinking reforms. If anything, it’s a political negative to promote higher insurance costs without the cover of a big natural disaster to justify them, which is why Representatives like New Port Richey’s Mike Fasano have so vociferously blocked past reform efforts. To which the response should be: Political leaders worth the name try to prevent problems before they become crises.

http://online.wsj.com/article/SB10001424052970204770404577080253874246924.html?KEYWORDS=%22florida%27s+hurricane+reform%22

Citrus County Chronicle Online
Editorial
December 11, 2011

Citizens Property Insurance Corp., commonly called Citizens, is a not-for-profit, tax-exempt state government corporation. Created as the insurer of last resort for Florida property owners, it is an important safety net for those property owners abandoned by private insurers.

In fulfilling its public purpose, however, the number of property owners insured by Citizens has ballooned to close to 1.5 million. This has significantly increased the total fiscal exposure of Citizens to over half a trillion dollars. As a consequence of this staggering exposure, a catastrophic hurricane or series of destructive storms would make it necessary to place emergency assessments on the premiums of all Florida property owners.

Given the fiscal risk to Floridians, Citizens’ underwriting committee, comprised of a majority of Citizens’ Board of Governors, has prepared about two-dozen initiatives that don’t require changes to state statutes to return it to being an insurer of last resort.

The first initiatives to reduce exposure filed this month include cuts in coverage with the most significant being a $1 million cap on coastal homes instead of the current $2 million cap. This initiative, which would eliminate about 7,500 high-risk policies, supports Gov. Scott’s view that it doesn’t make sense for Florida homeowners to subsidize the property insurance of those who choose to own a home in a high-risk coastal area if its not impossible for them to obtain property insurance.

In addition to the initiatives being considered by the underwriting committee to limit Citizens’ size and exposure, Citizens is now relying more heavily on a new computerized estimation tool called the “360” than the expertise of real estate appraisers to estimate replacement costs. This is resulting in skyrocketing insurance premiums for Citizens’ customers.

While the proposed coverage cuts can be reasonably argued, consumer advocates view the use of the computer model to increase replacement values as a back-door means for Citizens to raise rates without state approval. Further, industry watchdogs fear that if Citizens is successful in collecting money on larger insurance policies, it’s only a matter of time before private insurers start relying more heavily on computer models to justify de facto rate increases.

Although Gov. Scott previously signaled that he would like to see Citizens shuttered, Florida’s vulnerability to hurricanes makes an insurer of last resort necessary. However, in limiting its fiscal exposure and the attendant risk shared by all Florida property owners, Citizens should strive to remain true to its core value of fairness, which espouses that its overriding culture is to always do the right thing.

In doing the right thing for all Florida property owners, Citizens is urged to pursue balanced and reasonable initiatives to return to the market of last resort. Otherwise, absent any major legislative reform, Florida’s property insurance dilemma will remain a lose-lose proposition for both customers and non-customers of Citizens.

http://www.chronicleonline.com/content/state-insurer-seeks-return-insurer-last-resort

SunSentinel.com
By Julie Patel
December 9, 2011

Lawmakers want to shrink a state program that sells cheap catastrophe back up coverage to insurers.

The program allows insurers to pass the savings to consumers so it’s no surprise state officials project rate hikes of about 10 percent under legislation proposed, HB 833.

Key legislators – the leaders of the House and Senate insurance committees – said today that they’re very supportive of the proposals, largely drafted based on recommendations from the state program, called the Florida Hurricane Catastrophe Fund.

All property and automobile insurance policyholders pay fees to offset the fund’s deficits after major hurricanes and Floridians are still paying 1.3 percent of their premiums for deficits from the 2005 hurricane season.

The bill would reduce the coverage amount from $17 billion to $12 billion; increase what amounts to a deductible from about $7 billion to $8 billion; and double what’s considered the co-pay to 20 percent.

Florida TaxWatch estimates that would raise premiums by $850 million, or about $173 for an average Florida policyholder who pays a $1,833 premium each year. That premium is double or triple in South Florida, TaxWatch estimates, so the increases would be much higher locally.

The state fund’s projections are similar, with a 10 percent rate hike, according to Jack Nicholson, who runs the program. But he said rates and fees Floridians pay could increase even without the legislation if it can’t pay what it owes.

“It’s easy to say we don’t want to raise rates but the worse [your insurer] can say is, ‘Great, you’ve paid your rates the last five years and we can’t pay to have your roof fixed,'” said Rep. Bryan Nelson, R-Apopka, chairman of the House insurance panel.

Nicholson projects six or seven insurers could fold if there was a rare storm, the kind that is projected to strike once every 100 years, and the cat fund has a 20 percent shortfall.

More than half of Floridians polled recently said they would be willing to pay $180 more a year in premiums to make the state program financially sound and 35 percent would not, according to the American Consumer Institute’s survey of 805 Floridians. ACI is a non-profit that supports less regulation consumers having a choice in matters instead being told what to do.

Nelson said other legislative priorities this year may mean it’s more likely lawmakers would approve one or two recommendations but not all: “Maybe we take bite out of apple and not take the whole apple.”

Don Brown, an insurance agent who is a former legislator, said he’s “optimistic” the legislation will get a hearing but he’s not counting on it: “Hopefully for the sake of stability in Florida that it will be taken up, but it’s still a long shot.”

Private reinsurers’ strategy of spreading catastrophe risk around the world has paid off. Florida has been hurricane-free the past six years, making it a good investment for the reinsurance industry, said Jim Massie, a lobbyist for the Reinsurance Association of America. Reinsurers “like Florida. It has catastrophe exposure. That’s the business they’re in,” he added.

The catastrophe fund sold more than $18 billion in coverage for the hurricane season that ended recently. In a worst-case scenario that required the fund to pay out all that coverage at once, the fund may not have been able to borrow most of the money needed because of the European debt crisis and the turmoil in the financial market, according to Nicholson.

Massie said the cat fund is inherently unfair to government agencies, businesses and non-profits because they would be subject to paying more overall to bail out the fund if it’s wiped out than residential customers. Meanwhile, they can’t benefit from the savings the fund has to offer because it doesn’t sell reinsurance for commercial property insurance coverage.

http://weblogs.sun-sentinel.com/business/realestate/housekeys/blog/2011/12/mind_if_your_hurricane_insuran.html

The Gainesville Sun
Editorial
December 7, 2011

Florida’s property insurance crisis can be summed up in two words: Underfunded. Overexposed.

“The current insurance system puts taxpayers on the hook for potentially billions in assessments, while providing little assurance that their claims will be paid in the event of a catastrophic hurricane or series of hurricanes,” Dominic M. Calabro, CEO of the independent think tank Florida TaxWatch said this week in releasing a new analysis of the weaknesses of the state’s Citizens Property Insurance Corporation and its Hurricane Catastrophe Fund.

Originally intended as the “insurer of last resort” Citizens now holds nearly 1.5 million policies with a risk liability of nearly $513 billion. In order to keep rates artificially low — lest voters be offended — the risk is spread out to all insurance holders. Thus, residents of inland Alachua County — largely insulated from the brunt of hurricanes — are on the hook for any damages done to beachside condos in Miami.

There are several proposals floating around this upcoming session to “fix” Florida’s underfunded, overexposed storm risk. Three issues in particular must be addressed.

“Any proposals to fix this situation should aim to have CPIC (Citizens) set market-oriented rates, restore CPIC to truly being the ‘insurer of last resort’ as it was intended, and include a quantitative analysis to ensure the proper protection of Florida taxpayers,” said Calabro.

Otherwise, Florida will remain one hurricane away from a fiscal tempest.

http://www.gainesville.com/article/20111207/OPINION01/111209748

The Miami Herald
By Brent Kallestad
December 6, 2011

TALLAHASSEE, Fla. — Gov. Rick Scott said Tuesday he is concerned about Florida’s state-backed property insurer providing discounted coverage on new construction projects in high-risk areas.

Scott questioned Citizens Property Insurance Corp. board chairman Carlos Lacasa for its reasoning in providing that insurance, especially when the company is growing at a rate of some 30,000 policyholders a month and expanding the financial risk to all Florida property owners.

“If someone is going to build a new home, it doesn’t make sense for the existing citizens of the state to subsidize their property insurance,” Scott said after a Cabinet meeting. “If someone wants to build a home in an area that is difficult, if not impossible to get property insurance, should (Citizens) be subsidizing that?”

Lacasa said the state’s construction industry creates thousands of jobs and depends on Citizens for coverage in the costly, high-risk coastal areas where a lot of the new development takes place.

“If you can’t insure a property, you can’t even get bank financing for it,” he said.

A working majority of the board recently proposed eliminating coverage on homes valued at $2 million or more, which would remove about 7,600 expensive homes from its book of business.

There is no disagreement in most political circles about the need for Citizens to downsize and reduce its total exposure of $507 billion, which far exceeds its ability to pay claims in the aftermath of a catastrophic hurricane or series of storms.

Scott doesn’t like the way Citizens is gambling with its policyholders, providing a pay-later policy if there’s a bad storm instead of customers paying actuarially sound premiums.

“If their claim can’t be paid because Citizens doesn’t have money, that’s not insurance,” Scott said. “Let’s get this fixed.”

Any resulting shortage would leave Citizens’ customers on the hook for a 15 percent surcharge. Floridians whose business or home is covered by another company would be levied a 6 percent surcharge to make up the difference.

“We have a huge crisis if we’re hit with a severe storm,” said Lacasa, who spent his 48th birthday before the governor and Cabinet. “The risk on the individual policyholder is huge.”

And one that Scott believes is not only unnecessary, but most likely not financially viable. He wants to see Citizens reduced in size if not eventually sold to a private company.

Lacasa noted that in order to shrink the company, rates would have to be increased and coverage reduced. “You can squeeze the bubble on one end, it will pop out on the other end,” said Lacasa, adding that he concerned about the amount of commissions being earned by agents placing business with Citizens.

The number of Citizens policyholders has increased nearly 50 percent in the last two years to nearly 1.5 million. Scott asked Citizens several weeks ago to provide recommendations that it is considering for a recalcitrant Legislature that is not anxious to tackle the issue again, especially in an election year.

Lacasa said any major reductions in Citizens’ size would require legislative action and that the internal changes that could be achieved without lawmakers’ approval would have little bearing on the company’s business practices.

A former state representative, Lacasa said he’s ready to press lawmakers when they convene next month.

Citizens was created by the Legislature in 2002 to provide insurance to homeowners in high-risk areas and those who cannot find coverage in the private market. It was largely an offshoot of an underwriting association formed by the state in the aftermath of Hurricane Andrew in August 1992.

“They are going to be the expert, they need to be aggressive at making sure they get the right things done,” Scott said.

http://www.miamiherald.com/2011/12/06/2534174/scott-asks-about-not-insuring.html

MarketWire
Press Release: American Consumer Institute
December 4, 2011

WASHINGTON, DC–(Marketwire -12/05/11)- A statewide consumer survey conducted by the American Consumer Institute (ACI) finds that 70% of Floridians fear being assessed hundreds or thousands of dollars in hurricane taxes, because the state’s Catastrophe (CAT) Fund may run out of money to pay insurance claims. The telephone survey of 805 consumers found 80% of Floridians did not want the state to sell more insurance coverage than it could pay in claims. Nearly half of consumers were willing to pay more, if it were to avoid insolvencies and taxes. When specifically asked if they would be willing to pay $15 a month more in premiums to make the CAT fund financially sound, 55% agreed, with 35% opposing. Support for paying somewhat higher premiums to make the CAT fund financially sound were the greatest among Democrats (62%), those using Citizens homeowners insurance (65%) and those with incomes between $50,000 and $100,000 per year (63%).

The survey was conducted after the state CAT fund’s chief operating officer, Dr. Jack Nicholson, reported that the fund was “dangerously exposed” and billions of dollars short of meeting its insurance obligations, if the state suffered major hurricane damage. Recently, Rep. Bill Hager filed HB 833, which seeks to put the Cat Fund into financial order, consistent with Dr. Nicholson’s proposal. The survey results provide empirical evidence supporting the need and approach to fix the state CAT fund.

The American Consumer Institute Center for Citizen Research is a 501c3 educational and research institute. For more information about ACI or the survey’s details, please visit the Institute’s website at www.theamericanconsumer.org.

http://finance.yahoo.com/news/aci-survey-finds-floridians-support-184800143.html

Oyster Radio News
Chris Barry
December 5, 2011

TALLAHASSEE — An analysis of Florida’s hurricane insurance system clearly shows that reforms are needed to better protect those who reside in Florida from risk of severe financial pressure from hurricane losses, according to Reducing the Concentration of Risk in Florida’s Property Insurance System, a report released today by Florida TaxWatch, the nonpartisan, nonprofit, research institute and government watchdog. According to this analysis, combined with the report Risk & Reform, released by Florida TaxWatch in November, the two state-backed components of the system, Citizens Property Insurance Corporation (CPIC) and the Florida Hurricane Catastrophe Fund (FHCF), are underfunded and overexposed.

“The current insurance system puts taxpayers on the hook for potentially billions in assessments, while providing little assurance that their claims will be paid in the event of a catastrophic hurricane or series of hurricanes,” said Dominic M. Calabro, Florida TaxWatch President and CEO. “This independent analysis highlights some of the problems with CPIC as the largest component of the system, recommends needed reforms, and analyzes proposed solutions.

One of the tenets of insurance is to diversify risk so that losses are not correlated with each other; however, the financial risk of damage from a hurricane hitting Florida is largely concentrated within CPIC rather than being spread around the country and the globe. As of November 2011, CPIC had 1.47 million policies extending approximately $512.8 billion of property coverage to Floridians. This is a substantial number of policies, a large percentage of Florida’s total residential exposure, and 99.9 percent of the $512.8 billion in exposure is held within the state, compounding the instability within CPIC.

In addition to the concern created by CPIC concentrating financial exposure within Florida’s borders, this Florida TaxWatch analysis identifies several other problems originating from CPIC that adversely affect the rest of Florida’s property insurance system and taxpayers: the eligibility requirements to obtain a CPIC policy have been lowered enabling significant growth in policy numbers, making CPIC no longer the “insurer of last resort”; the concentration of exposure in high-risk areas of the state places financial liability on the remainder of the state’s policyholders to pay for hurricane damages; CPIC’s artificially low rates and ratio of the amount of exposure held within CPIC to cash-on-hand to pay claims being nearly 100 to 1; and the Glide Path implemented in January 2010, intended to gradually make CPIC rates actuarially sound, is insufficient to do so in a reasonable period of time.

CPIC influences the Florida economy even in years without hurricanes, because of the potential of assessments which likely dampens capital investment in the state. Furthermore, this dissuades insurance companies from entering the Florida insurance market, making the market even less competitive.

“Any proposals to fix this situation should aim to have CPIC set market-oriented rates, restore CPIC to truly being the “insurer of last resort” as it was intended, and include a quantitative analysis to ensure the proper protection of Florida taxpayers,” said Calabro.

Click here to view this report: Reducing the Concentration of Risk
Click here to view the Florida TaxWatch November report on the hurricane insurance system as a whole: Risk & Reform

This report continues our ongoing look at Florida’s insurance systems. For previous research on this topic, please see the Florida TaxWatch April 2010 Special Report, “Florida’s Financial Exposure from Its ‘Self Insurance’ Programs,” available here.

http://oysterradio.blogspot.com/2011/12/floridas-property-insurance.html

The Daytona Beach News Journal
Editorial
December 2, 2011

As he approaches the end of a turbulent first year in office, Gov. Rick Scott continues to show no reluctance to take on controversial issues.

The governor’s critics are impassioned and his poll numbers are relatively anemic, but he seems unfazed by the criticism and the polls. During a recent meeting with The News-Journal’s editorial board, he outlined an ambitious agenda that likely will put him at odds with some powerful groups and possibly with hundreds of thousands of Florida homeowners.

Scott’s calm demeanor contrasts with the belligerent response some of his fiscally conservative initiatives have inspired. He ignited a firestorm during the 2011 legislative session by successfully pushing for public employees to contribute to their pensions. With redistricting on the Legislature’s plate next year, the 2012 session promises to be less eventful, but Scott will try to stir the pot with proposals to reform auto insurance and higher education. He already is pushing for administrative changes to shrink the financial exposure of Citizens Property Insurance Corp., the state-backed insurer.

It’s not clear whether lawmakers will steel themselves for action on Citizens, which has grown enormously in recent years and now has more than 1.4 million policyholders. But Scott says he is determined to “downsize” Citizens, which was originally designed to serve as the insurer of last resort for property owners in hurricane-threatened areas.

The state’s Personal Injury Protection auto insurance law, known as PIP, is a prime target for reform. Scott should have a good shot at revamping PIP: The law has spawned a major fraud industry that is rapidly driving up insurance premiums.

According to the Insurance Information Institute, Florida drivers are paying a $50-per-vehicle “fraud tax.” Scott told The News-Journal that “PIP is a significant tax on people — especially the poorer people.”

It’s well known that Scott isn’t fond of taxes — in whatever form they may take. He certainly should pursue relief for honest car owners forced to foot the bill for con artists. Some legislators want to repeal PIP, arguing that there is no way to reform the mess caused by this no-fault insurance. Their argument has merit, but PIP so far has resisted many efforts to improve it, so the odds of complete repeal are slim.

Scott will face opposition on PIP reform from lawyers and segments of the health-care industry. Motorists should hope he shows the same determination he displayed during the battles over state pension reform and merit pay for teachers.

Citizens is a tougher nut to crack, because so many Florida homeowners have been getting a better deal through the state-backed plan than they could find in the private market. The trouble is, Citizens has put Floridians on the hook for billions of dollars in losses in the event of a bad hurricane season.

If a 1-in-100-year hurricane — or a series of smaller hurricanes — hit Florida, most Florida policyholders would have to pay large assessments to help cover the losses. This is a hidden, lurking tax that should worry all Florida homeowners.

Scott asked the Citizens board to present recommendations to the Florida Cabinet for reducing the company’s exposure. The proposed changes wouldn’t require the approval of the Legislature, but Scott may look for opportunities to privatize Citizens or make changes in the law governing the company.

The governor is right to question the state’s deep and potentially costly involvement in the property insurance market. But he will have to tread carefully in this area, keeping in mind that the homeowners’ market has not functioned well in coastal areas since the terrible hurricane seasons in 2004 and 2005.

Higher education presents a major challenge for the governor. He believes that the state should gear its funding support to the STEM fields (science, technology, engineering and math). If his reform ideas are perceived as an assault on a traditional liberal arts education, he will run into considerable political difficulty.

College costs are soaring and more and more graduates are having trouble finding well-paying jobs. Scott should focus on controlling college costs, encouraging colleges to emphasize classroom teaching and helping students to align their coursework with their career goals.

Rick Scott is a politician on a mission to streamline government and promote the private sector. He’s generated intense controversy, but he deserves credit for acting on his principles as opposed to purely political calculations.

http://www.news-journalonline.com/opinion/editorials/n-j-editorials/2011/12/02/scott-wont-avoid-controversy-hot-topics.html