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Insurance ties may be liability

Problems at Citizens Insurance may challenge Tom Gallagher as he runs for governor.

By JONI JAMES
Published September 23, 2005

TALLAHASSEE - Countless times on television as hurricanes came and went last year, Tom Gallagher appeared. In a navy golf shirt with the state seal embroidered on the chest, Gallagher talked not about escape routes or home provisions or safe havens.

Instead, Florida's chief financial officer gave advice on the issue where he carries his greatest credibility: filing insurance claims or making complaints about insurance companies.

A two-time state insurance commissioner, Gallagher made his name in the wake of Hurricane Andrew in 1992, when he is credited with helping rebuild Florida's shattered insurance market.

But as Florida anxiously awaits the end of a second straight hellish hurricane season, a question is settling in over the Republican primary in the governor's race: Is Gallagher's long association with insurance, the source of so much of his political strength, becoming a liability?

Insurance premiums are skyrocketing. Frustration with Citizens Property Insurance Corp., the state-run insurer of last resort that Gallagher helped create, is at an all-time high since the company announced plans to collect a 7 percent surcharge on every policy holder in the state.

And now, making matters worse, Citizens may be sinking into scandal. The St. Petersburg Times reported last week that a former Citizens top executive resigned amid allegations he was taking kickbacks in awarding contracts to claims adjusters.

Gallagher has launched a criminal investigation into the matter.

"It is certainly an awkward situation," said Cory Tilley, a former aide to Gov. Jeb Bush who now runs a Tallahassee public relations firm. He is remaining neutral on the Republican primary. "It's an issue that affects a lot of people personally and creates a lot of emotion. And it's not something you can explain in a sound bite."

Bob Buckhorn, a Democratic political consultant and former Tampa City Council member, said he expects insurance costs to play a role in the 2006 election. "Any time you serve in office for a long period of time and are associated with one issue, it's fair game," Buckhorn said. "He's clearly done some good, but he's also going to have to deal with the other things he doesn't want to take credit for."

It wasn't always this way. In 1992, after Hurricane Andrew ravaged southern Miami-Dade County, then-Insurance Commissioner Gallagher won raves for his get-tough stance with private insurers and his push to establish a state-backed insurer of last resort.

He also supported a state-sponsored reinsurance fund that was credited with keeping Florida's insurance market intact following last year's unprecedented four-hurricane summer.

Along the way, Gallagher, once considered a playboy Miami state legislator, grew into a formidable leader and policy heavyweight. Even today, Gov. Bush, himself a policy wonk, defers to Gallagher on insurance issues.

After last summer and fall and hurricanes Charley, Frances, Jeanne and Ivan, Gallagher again assumed the mantle of insurance chief: He successfully pushed through the Legislature a single deductible for each hurricane season, to help homeowners hit by more than one storm.

He later held town hall meetings across the state to gather information about the insurance companies, which his office can investigate on consumers' behalf. One meeting in Pensacola lasted six hours. Gallagher never left his stool.

"I don't get to pick which issues have come to me in my career," Gallagher said. "They come to me and I have to deal with them, like Hurricane Andrew. I work hard and I'm there."

But for each positive Gallagher points to, he also faces some political liability. And supporters for his Republican opponent, Florida Attorney General Charlie Crist, say they won't sit well with voters.

"Politically, he's doing everything he can to keep his head above water," said Tallahassee lobbyist Brian Ballard, an aide to former Gov. Bob Martinez who now backs Crist.

"But his fingerprints are all over Citizens and the entire regulatory environment of the industry, and he's been the biggest benefactor of its political largess," he said. "I think it's going to be a challenge for him."

Gallagher isn't the first politician to navigate the double-edged sword of insurance oversight. U.S. Sen. Bill Nelson, the Democrat who succeeded Gallagher as insurance commissioner in 1994, faced similar questions in his 2000 Senate race. Gallagher returned to the insurance commissioner job that same year. He became chief financial officer in 2002.

But Nelson wasn't a candidate the year after last summer's stunning hurricane season set off a torrent of double-digit rate increases in homeowner insurance policies. Nelson wasn't running the year the finances at Citizens got so bad the state-run insurer had to use an authority it has had all along: assessing all state policyholders a one-time surcharge to replenish company accounts. For a homeowner with a $1,300 annual insurance premium, the surcharge will cost $90.

Gallagher no longer has direct oversight over insurance rates since the Cabinet was restructured in 2002. He shares the authority to appoint the state's insurance regulator with Bush, Crist and Agriculture Commissioner Charles Bronson.

"We all are equally responsible for the rates, all four of us - not that that makes rates acceptable to anybody," Gallagher said Wednesday. "But (insurance regulator) Kevin McCarty has to balance two conflicting areas, affordability and accessibility. If government mandates affordability, suddenly there will be no availability."

Perhaps Gallagher's biggest challenge may be in the inquiries that have just begun at Citizens. He appointed the board that oversaw Citizens last spring, when the former chief operating officer, R. Paul Hulsebusch, is accused of taking kickbacks.

Earlier this week, the Times reported that Citizens conducted far fewer background checks on Hulsebusch before he won his $150,000-a-year job than state regulators require of private insurance executives. Gallagher said this week the lack of a similar requirement for Citizens executives was an oversight and should be changed.

In addition, several board members and two top executives have donated $500, the maximum allowed under law, to his gubernatorial campaign. One of the executives, Jessica Buss, resigned last month after Citizens' general counsel discovered she had a conflict of interest because she was working on a business plan to form a start-up insurance company that would assume some Citizens policies.

Gallagher said he wasn't aware of the contributions Wednesday and said they would play no role in the investigation. "As far as I know there is only one employee under scrutiny and to the best of my knowledge I don't have a contribution from him," Gallagher said.

Gallagher's criminal investigation also comes with high stakes: He risks further political fallout if his investigation reveals deeper problems at Citizens or if there's any evidence his investigators aren't digging deeply enough.

And the timing presents its own challenges. The investigations into Citizens are ramping up just as state lawmakers have begun meeting in Tallahassee in preparation for the 2006 session. Lawmakers hoping to gain points with their own constituents are likely to keep talking about the issue.

Crist pledged this week he won't make an issue of Citizens: "There are other issues that are important to the people of Florida that they're going to hear about from our campaign, like education, the economy and safety." For years, Gallagher's political fundraising has drawn heavily on the insurance industry for support. Just a quick search of more than $3-million in campaign collections for his gubernatorial bid through June 30 nets more than $75,000 from contributors that have the word "insurance" attached to their names. The total contributions from the industry and its personnel is likely many times that.

Gallagher counters those contributions don't influence his efforts for consumers.

"Over the past 14 months I have personally called out companies and demanded they come to Tallahassee and answer for their conduct," Gallagher said. "I have pushed for rate freezes. My office has helped 60,000 citizens with their problems with insurance companies."

When Republican primary voters go to the polls in September 2006, will that be enough?

"I have faith in the voters; they are pretty smart, and I think if some special interest or candidate wants to lie to voters and twist the truth for cheap political points, I think people will recognize that for what it is," Gallagher said.

Times staff writer Adam C. Smith contributed to this report. Joni James can be reached at 850 224-7263 or jjames@sptimes.com

[Last modified September 23, 2005, 10:11:34]