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Gallagher insurance vow has skeptics

He says homeowner rates could drop by 20 percent if the state broadens its reinsurance commitment. The idea is not new - or realistic, some say.

Published August 30, 2006

For months, Florida politicians have been leery of promising to lower property insurance bills.

That is until Monday night, when Florida Chief Financial Officer Tom Gallagher, in an uphill battle to win the Republican gubernatorial primary, pledged to lower property insurance bills an average of 20 percent.

Gallagher declared "solving the state's insurance crisis" his No. 1 priority during a television debate with Attorney General Charlie Crist, and predicted the 20 percent drop would come from a plan he's been pushing for two years.

Though Gallagher's proposal to have the state expand its role of providing inexpensive backup insurance for private insurance companies hasn't gone anywhere in years past, it now is under consideration by Gov. Jeb Bush and other state leaders. Crist also has endorsed the idea.

In fact, even Gallagher acknowledged Monday the plan could be adopted before he, Crist or a Democratic gubernatorial candidate wins office in November.

But it's far from certain what cost savings the plan might bring policyholders. Gallagher's campaign said his 20 percent estimate was based on a preliminary analysis by the state Office of Insurance Regulation. However, the analysis, provided to the St. Petersburg Times, also shows the savings could vary widely depending on multiple variables that would be set by state lawmakers.

Gallagher's idea is to make it easier for retail residential property insurers - such as Allstate and Citizens Property Insurance Corp. - to buy what is called reinsurance from the state's Hurricane Catastrophe Fund. Gallagher said that by getting their reinsurance more cheaply, those companies could lower their premium rates for policyholders.

As early as Sept. 7, a task force on property insurance led by Lt. Gov. Toni Jennings may recommend that lawmakers make the change. And Bush has said he is open to calling a special session in October to consider it.

A key adviser to Florida legislative Democrats, J. Robert Hunter of the Consumer Federation of America, criticized Gallagher's proposal as "another handout for insurance companies." He endorses a Democrat-backed plan to have a state-backed insurer write all the state's windstorm coverage.

Currently, the state catastrophe fund provides reinsurance after residential insurance companies have paid up to $5.3-billion in claims collectively. And it covers losses up to $15-billion, collectively.

Under Gallagher's plan, state-backed reinsurance would be available after $2-billion in claims and cover up to $20-billion collectively, which would sharply reduce insurers' need to buy reinsurance in the private market.

In the global reinsurance market, which isn't regulated by the state, insurance companies can now pay as much as 70 cents annually for each $1 of coverage against a multihurricane season. That cost can be passed on to policyholders.

"Reinsurance is as expensive as it's ever been in history," said Sam Miller of the Florida Insurance Council, whose membership is split on Gallagher's plan.

By contrast, the state has charged less than 10 percent for coverage under the catastrophe fund - though that cost is expected to escalate if the state expands its availability.

The industry split on Gallagher's idea is telling.

Insurers can buy reinsurance from the state only for residential property coverage. But if the catastrophe fund runs into a deficit after a storm, such as happened after the 2005 hurricane season, all insurers except medical malpractice and workers' compensation insurers are assessed to cover the deficit. Those costs are passed on to policyholders, including those buying auto or boat insurance.

Joni James can be reached at


For more political commentary go online at blogs.tampabay .com/buzz.

[Last modified August 30, 2006, 01:34:37]

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