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Insurance reform? Report hits back

Democrats suggest that a state regulator's draft report criticizing candidate Rod Smith's plan has surfaced now to unfairly discredit the party.

By JONI JAMES
Published August 18, 2006


TALLAHASSEE - As a candidate for governor, Democrat Rod Smith has no real power to influence the state's insurance market. But that hasn't kept government regulators from criticizing an insurance reform plan that is part of his campaign.

The regulator's report was sought by staff of the Republican-controlled Legislature, and Democrats suggest it might be circulating now to discredit Smith and other party candidates in an election year.

The report was prepared by Florida's Office of Insurance Regulation, and it is highly critical of the Democrats' plan to convert the state's retail insurer, Citizens Property, and the state's reinsurance fund, into a new fund that would cover the first $100,000 in wind damage on any Florida home.

Under the plan, first offered last spring by Democrats including Smith, a state senator from Alachua, private insurers would be required to cover all other perils for homeowners, such as fire, liability and windstorm damage in excess of $100,000.

The government analysis, dated Aug. 2 and labeled "draft," contends the Democrats' plan would have led to a deficit of at least a $16.4-billion after the 2004 and 2005 hurricane seasons. The money would have been recouped from all Florida property insurance policyholders or the state's budget.

The report goes on to note that figure is nearly three times the $5.9-billion deficit created under the current system. The 2006 Legislature dedicated $715-million in state revenue toward that debt earlier this year, but all property insurance policyholders will have to pay off the rest through assessments over the next few years.

Just last week, Senate President Tom Lee of Valrico, a Republican candidate for chief financial officer, cited the report as evidence that the Democrats' proposal won't work and could bankrupt the state.

But Democratic leaders are calling the analysis highly flawed and question if it's being circulated now to discredit their chances in November elections for governor and other state offices.

The Democrats say the regulators misunderstood the proposal, made dubious assumptions about its structure - including assigning high overhead costs - and purposely limited their analysis to the two worst storm years in Florida history, when any insurance plan would run a deficit.

"It's just absurd," said state Rep. Dan Gelber, D-Miami Beach, the House's incoming minority leader. "It's an analysis intended to scrap the plan, not to honestly evaluate it."

Said David Kochman, communications director for the Smith campaign: "The way the plan is designed to work is it's meant to be a long-term solution. To look at two worst years on the books in a vacuum is unfair and an inaccurate analysis."

Bob Lotane, spokesman for Insurance Commissioner Kevin McCarty, said politics played no role in the study. Legislative staff charged with vetting insurance reform ideas asked for the analysis in June, Lotane said. The regulator delivered copies of the five-page report earlier this month to the legislators' insurance committees and the governor's office.

"It was a serious proposal and it needed to be seriously looked at," Lotane said. "That has to include these two years. Now, we could have added 7 to 10 years of nonhurricane years to make it balance, but based on what we're being told about hurricane activity over that time, that would not have been prudent."

McCarty is appointed by Gov. Jeb Bush and the state's three other Cabinet officers, all jobs held by Republicans.

The competing views highlight a recurring theme in this year's most hotly debated campaign issue, property insurance: While all gubernatorial candidates have offered plans for making property insurance more available, and each says he will find a way to bring down its costs, specifics are scarce.

That leaves a lot of opportunity for criticism.

Republican Attorney General Charlie Crist, for example, has proposed forcing all auto insurers who sell property insurance in other states to write policies here. But he has yet to produce actuarial studies to show that would increase private insurance coverage and not just drive auto insurers from the market, as critics have said. Others have questioned whether the policy would be legal.

As a result, Crist's primary opponent, Chief Financial Officer Tom Gallagher, frequently says on the campaign trail, "If it was that easy, we'd already have done it."

Similarly, Smith's primary opponent, U.S. Rep. Jim Davis, D-Tampa, has criticized Smith's idea, saying he feared it would leave the state with unlimited liability for hurricane damage.

Supporters of the statewide windstorm pool acknowledge they lack specific data when it comes to proving their plan would offer rate relief long-term.

A full actuarial study would cost roughly $50,000, Gelber said.

"We always anticipated when we introduced the plan that the state would do it. We don't have the money for that," he said.

But Democrats and their consultants, including J. Robert Hunter, insurance director for the Consumer Federation of America, contend spreading a basic level of windstorm coverage across the entire state would lead to lower rates in part because all the coverage would be tax-free. Citizens enjoys tax-free status, as an instrument of the state; private insurers do not.

"We are at a tipping point where the private insurers in effect have abdicated their responsibility," Hunter said. "Whatever the state does, it needs to be bold. What we've done for 10 years is failing."

Key to the report is the finding that nearly 9 out of every 10 dollars in wind damage in 2004 and 2005 involved homes suffering less than $100,000 damage.

To reach that conclusion, however, analysts had to rely largely on Citizens' data because they had no access to claims data from private insurers, the report notes.

The state also assumed the windstorm pool would operate like Citizens, with individual policies. The Democrats have said the coverage would be fully integrated into the traditional homeowners policy bought through a private insurer.

Another key part of the Democrat's plan would be dedicating at least half of any additional sales tax revenue generated from hurricane rebuilding efforts to the windstorm pool's fund to offset claims.

The Democratic plan is still evolving. Smith, for example, says he's not wedded to the fund covering the first $100,000 in damage. The amount could be lower or higher, depending on what actuaries say will work. He also has suggested the coverage might kick in only after major hurricanes or multiple storms in a single year.

"It may be that when we go through all the numbers that there may need to be some threshold before it kicks in," said Kochman, Smith's communications director.

Lotane said state regulators did the best analysis they could with a plan that is still evolving.

"We can't take the rosiest scenario."