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State to help insure businesses

The Florida Cabinet decides that the state either must help make commercial insurance more affordable, or provide it.

Published August 2, 2006

TALLAHASSEE - Kevin McCarty has a month to create an insurance company aimed at rescuing a burgeoning number of Florida businesses struggling to pay for, or even find, commercial property insurance.

The Florida Cabinet on Tuesday unanimously approved a plan to reactivate a statewide reinsurance pool to help businesses that can't find or afford commercial property insurance. But it's up to McCarty, the state's insurance commissioner, to come up with specifics.

The new plan developed by McCarty and the Office of Insurance Regulation could take two forms: either directly written commercial property insurance or a reinsurance program funded initially by letters of credit, followed by bonds, premiums and assessments, similar to the way the Florida Hurricane Catastrophe Fund, or CAT Fund, provides reinsurance in the residential market. Insurers buy reinsurance as an extra layer of coverage in the event of catastrophic losses.

McCarty, Gov. Jeb Bush and Cabinet members Attorney General Charlie Crist, Chief Financial Officer Tom Gallagher and Agriculture Commissioner Charles Bronson all expressed a strong preference for a reinsurance solution.

Creating a state-run organization that directly sells insurance "gives me the heebie-jeebies," Bush said.

"We should focus our efforts on reinsurance, and try to get out of the business of directly writing insurance," Bush added in a nod to Citizens Property Insurance Corp. The state-run insurer of last resort is now the state's largest property insurer with more than 1.2-million policyholders.

Citizens is largely reserved for homeowners insurance. Only businesses in coastal areas can buy coverage from Citizens, and that coverage is capped at $1-million.

Insurance regulators will begin hearings on the proposal and report to the Cabinet at its next meeting on Aug. 15. The hope is to have a plan finalized by early September.

McCarty said his office has been besieged with phone calls and e-mails, asking that something be done about the lack of available and affordable commercial insurance. And not just from coastal counties.

Under existing law, the state can form an association to help provide commercial property coverage if enough businesses request it.

Citing the results of a survey of 1,914 Florida business owners, McCarty said more than 50 percent of respondents either found no coverage, or the rates were too high, while 13 percent couldn't find insurance at any price.

McCarty's plan uses a statute that was put into law in 1986 that created a Joint Underwriting Association. A forerunner of Citizens, the JUA was eventually deactivated.

Bush and the Cabinet oversee insurance regulation and would have to approve any new rules.

"It's going to be tremendously difficult to do," McCarty said. "The goal is to make the least intrusion into the private market, but the faster we do this, the more chance there is of doing that."

The response from the private market was guarded.

"Any commercial joint underwriting authority must be carefully targeted to address the real problems that exist in the market, while not unintentionally creating additional problems," said Cecil Pearce, vice president of the American Insurance Association's southeast region.

"To that end, we urge the OIR Office of Insurance Regulation to clearly define the scope and extent of the current market difficulties and to design the commercial property-casualty JUA to resolve those specific difficulties."

Democrats were quick to paint the plan as little more than a quick fix.

"Truth be told, my colleagues and I ought to be marched back to Tallahassee and locked up in the Capitol chambers until we come up with a solution that enhances availability and controls affordability," said Rep. Dan Gelber, D-Miami Beach, who is expected to be the House Minority Leader after the November elections. "Our effort during the legislative session was embarrassing, and our constituents deserve better."

Whatever the course, those outside of politics want something to happen soon.

Case Fessler, a commercial property insurance agent at the Fessler Agency in Clearwater, knew something was wrong when he looked at how his clients are paying for their insurance.

"Five years ago, 10 percent of our clients bought property insurance through surplus lines," Fessler said Tuesday, referring to insurance companies, many of them based overseas, that are not subject to state regulation. "Today, over 50 percent of them do, and about 75 percent of those are paying for it through finance companies that charge up to 20 percent.

"And over the last five months, it has gotten progressively worse," he said. "One client was quoted a premium of $485,000 for $2.5-million in coverage, which is a joke. I'm praying I can find him something better."

Fessler said he can usually find at least some coverage through surplus lines companies such as Lloyd's of London.

"It's just, can we find enough of it?" he said, "and can people afford the premium?"

The governor and Cabinet on Tuesday also created a work group to consider how to make it easier for insurance companies to tap into the CAT fund. Currently, insurance companies can start using the CAT Fund to pay claims after a combined $5.2-billion in losses from a disaster. Gallagher suggested lowering that threshold to $3-billion.

And less than two weeks after Citizens agreed to continue to write builder's risk policies for structures in coastal areas that are under construction or being renovated, the state-run insurer has asked regulators to increase rates for those policies by 150 percent.

If approved, the rate would affect single-family homes, condos and apartments in the high-risk area. Commercial property rates would not be affected.

Citizens has about 6,000 builder's risk policies statewide, including about 150 in the Tampa Bay area, with a total liability of about $4.5-billion.

Tom Zucco can be reached at or (727) 893-8247.

[Last modified August 2, 2006, 01:23:05]

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