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Storm steps, but no strides

After a flurry of legislative  moves, we are left with this as the hurricane season approaches: Pray.

By JONI JAMES
Published May 14, 2006

TALLAHASSEE —Homeowners could qualify for up to a $5,000 grant to install hurricane shutters. Medium-sized insurance companies can request $25-million loans. And all insurance companies, including the state-run Citizens Property Insurance Corp., will have more leeway to raise premiums.

Dubbed the most sweeping property insurance reform since Hurricane Andrew, Senate Bill 1980 promised something for everyone touched by Florida’s beleaguered insurance system. And that’s nearly everyone. But for all the changes packed into the 156-page overhaul passed by lawmakers in the last hour of the 2006 legislative session, a significant fact remains unchanged: If Florida is hit by hurricanes again this summer, the state’s insurance market could still collapse.

As the hurricane season opens June 1, the state’s problems remain significant after back-to-back summers delivered a total of eight hurricanes. Nearly one out of four homeowners are covered not by private insurers but by the deficit-ridden, state-run insurer of last resort, Citizens.

Despite a $715-million bailout by lawmakers, Citizens still has a $1-billion debt from 2005 that must be covered by all the state’s property insurance policyholders. The Legislature voted to spread that repayment over the next 10 years.

Plus, Citizens’ exposure continues to swell. Last week, the state announced it was liquidating all three lines of the state’s third largest private insurer, Poe Financial Group of Tampa, because the company was in such poor financial health.

“Florida’s primary consideration had to be to stop the deterioration of the homeowners market which is currently in a freefall,” said Robert Hartwig, chief economist for the Insurance Information Institute.He called lawmakers’ recent bill “a first step … but it’s unrealistic to expect that after one legislative session that all of Florida’s problems would be solved.”

And on Friday, the state’s two biggest private insurers, State Farm and Allstate Floridian, announced significant retreats from the market, even as State Farm announced it was seeking an average 71.5 percent rate hike from state regulators due to rising costs of reinsurance. Part of the reason Senate Bill 1980, which Gov. Jeb Bush could sign this week, won’t affect Florida’s market quickly is simple logistics. Since insurance policies are written once a year, any changes to laws governing rates or the companies that write them take a while to implement.Plus, many provisions designed to encourage more private companies to offer additional policies won’t take effect until 2007, mainly because those provisions also could mean higher premiums:

A new rate-setting plan for Citizens’ windstorm policies, which will allow higher rates, will phase in starting in March 2007 and won’t fully kick in until 2009. This will significantly limit the state-run insurers’ assets in the near future. Private insurers in competitive markets will be able to raise or lower premiums 5 percent annually without regulatory review, but not until July 2007. To limit its exposure to losses, Citizens will stop writing policies for non-homesteaded property and homes worth more than $1-million. But those bans don’t take effect until March 2007 and July 2008, respectively. Even then, those properties could come back to Citizens if property owners can’t find coverage even among unregulated insurers.

“You crawl before you walk, you walk before you run,” Lt. Gov. Toni Jennings, who helped negotiate the final compromise, said the day the measure passed. “This is a good start.”

Also delayed is the impact of a new, $250-million grant program to encourage owners of homes worth less than $500,000 to harden their homes against hurricanes. The new program will include a free inspection and could take months to implement. Homeowners’ upgrades would still have to be completed after that.

There also is uncertainty about the effect of two new state programs for direct aid to private insurance companies:
Mid sized insurers who bring up to $25-million in new capital to cover new policies written in Florida before July 1 can apply for a matching amount, in the form of a 30-year loan, from the state. The hope is the program will attract more private insurers to write policies in Florida, alleviating the need for Citizens.

Originally suggested by Poe Financial, the company isn’t expected to be able to take advantage of the loan plan now that its three insurance lines have been taken over by the state. It’s unclear what other companies can or would take advantage of the program.

Lawmakers agreed to allow small insurers, who write about 30 percent of Florida’s property policies, to buy up to $10-million more reinsurance coverage from the state-run Florida Hurricane Catastrophe Fund. Reinsurance is fallback insurance for insurance companies. The price, at 50 percent the level of coverage, is still significantly lower than what is available from private reinsurers.

Had that not passed, some small companies would have been closing their doors in Florida, said William Stander, assistant vice president for Property Casualty Insurers Association of America.

But Stander made no predictions whether the plan will actually increase policywriting in the Florida market. Plus, giving private companies faster access to the state’s CAT Fund also means all property insurance policyholders are at greater risk because they are the ones who supply the money when payouts exceed premiums. If it’s easier to use, the fund will be depleted faster.

At least one key lawmaker worries the reinsurance change won’t be enough for the small insurers, even if Florida’s season is hurricane-free.

“This is just a shadow of what we should have done,” said Republican Rep. Don Brown, an insurance agent from DeFuniak Springs and a key House negotiator who had pushed for greater deregulation of insurance rate setting in hopes of encouraging more companies to write policies here.
“If the wind blows, there is going to be a crisis this summer,” he said. “But even if the wind don’t blow, there could be one.”

If there is good news for some Floridians under Senate Bill 1980, it’s this: The odds that all property insurance policyholders will be hit by assessments to cover deficits for Citizens in the event of a 2006 storm have been reduced.

Effective this year, lawmakers changed the system to a three-step approach that taxes Citizens policyholders up to two times before ordering assessments on all property insurance policyholders, as is current law.

“The hardest part about this is that it is difficult for people to understand that all the things we were proposing in this bill would reduce the prospect that there would ever be deficits again (in Citizens),” said Senate President Tom Lee, R-Valrico.

“But there are a lot of aspects of this that are beyond our control,” Lee said. “Most of all, the meteorological. We can’t build an insurance model that sustains us through four storms a year.”

Joni James can be reached at (850)224-7263 or jjames@sptimes.com

[Last modified May 14, 2006, 22:03:13]