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Gallagher offers an insurance crisis plan

Florida's chief financial officer proposes a list of changes to hold down property insurance rates.

Published November 8, 2005

TALLAHASSEE - Thirteen years after he helped craft a solution for stabilizing Florida's property insurance market in the wake of Hurricane Andrew, state Chief Financial Officer Tom Gallagher on Monday proposed another major overhaul aimed at curbing Florida's skyrocketing insurance prices.

Gallagher's plan is a grab bag of ideas, from passing tougher building codes in the Florida Panhandle to allowing homeowners and condominium associations to save money tax-free to pay for hurricane-related expenses.

But the odds that the changes would make insurance cheaper for property owners any time soon are slim to none.

Thousands of homeowners, particularly those who buy coverage from Florida's insurer of last resort, have been hit with back-to-back annual increases in the double digits.

"Just like after Hurricane Andrew, some of these ideas are controversial," Gallagher said. "But there is no silver bullet. All solutions have to look long-term at keeping insurance affordable and available in Florida so our economy remains strong."

Gallagher's plan is based on a fundamental theory shared by many in the industry that the only way to reduce pressure on rising insurance premiums is to help insurance companies shield themselves from heavy losses by finding less-costly "reinsurance." Just like homeowners buy insurance, property insurers buy reinsurance as an added layer of coverage to guard against extraordinary losses.

Reinsurance costs have soared, and in some cases doubled, in the wake of the 2004 and 2005 hurricane seasons and the 2004 Asian tsunami, Gallagher said. Insurance companies have paid nearly $75-billion in claims worldwide in the past two years, much of it coming from money they collected from reinsurance policies. Nearly half of the claims paid, $32-billion, were in Florida.

That's greatly impacted the available capital in the world's reinsurance market, increasing costs as investors are leery of the risk. Gallagher said that has prompted many insurers to curtail their policy writing in Florida, increase premiums and push one out of every four homeowners into the state-backed insurer of last resort, Citizens Property Insurance Corp.

The downside: Whenever Citizens' has losses beyond its assets, as it did last year and may again this year due to Hurricane Wilma, all Florida property owners are assessed to pay for it.

Gallagher, who is vying to be the Republican nominee for governor in 2006, wants Congress to create a lower-cost, government-backed catastrophe reinsurance fund similar to the state-backed hurricane reinsurance fund he helped establish after Hurricane Andrew. Government-backed funds, opposed by the private reinsurance market, would add additional capital to the market at a reduced cost.

Supporters argue the additional capital significantly reduces insurance companies' reinsurance costs and lessens the pressure to increase premiums.

Gallagher also backs allowing insurance companies to accumulate millions of dollars tax-free in reserves to pay catastrophe claims, an idea insurance companies have proposed for years as as a way to lower reinsurance costs.

Ideally, he said, all these changes would make it more attractive to write insurance in Florida, expanding coverage by private insurers, increasing competition, stabilizing rates, and shrinking Citizens Property.

At this point, Gallagher's proposal is a formality. None of it can be implemented without the state Legislature's or Congress' approval.

But the proposal is the most comprehensive yet to emerge in the state's Capitol since Hurricane Charley hit in August 2004. And it is expected to shape state lawmakers' debate as they return to Tallahassee in March for the annual session.

"You have to give what he says some credibility for his experience as insurance commissioner," said House Insurance Committee Chairman Dennis Ross, R-Lakeland. "But we'll be looking at everything."

Gallagher's announcement Monday comes weeks after Gov. Jeb Bush and several other state leaders across the country have joined his call for the creation of a national catastrophe fund in the wake of Hurricane Katrina.

Next week in San Francisco, insurance regulators from across the country, including Florida's Insurance Commissioner Kevin McCarty, are scheduled to meet with politicians to discuss how to promote and design such a fund.

"The money is there and it improves the solvency of all companies," said Mark Delegal, a Tallahassee attorney who lobbies for State Farm. "It's a long-term solution."

--Joni James can be reached at 850 224-7263 or

[Last modified November 8, 2005, 02:15:36]

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