Is state help the insurers' answer?
A lot of ideas were kicked around at the Insurance Crisis Town Hall Meeting. Most of them involved a new tax or a state subsidy.
By TOM ZUCCO
Published October 15, 2006
Like a seasoned attorney, Bruce Douglas knew the answer before he asked the question. He had done the same thing a few weeks earlier at a meeting of Broward County condo owners.
This time, he was a panelist in front of about 400 people at the Insurance Crisis Town Hall Meeting on Thursday at the Hilton Carillon in St. Petersburg.
"By a show of hands, how many of you would support a state income tax to help reduce your property insurance?" Douglas, the chairman of Citizens Property Insurance Corp.'s board of governors, asked the audience.
Groans 400, Hands 0.
Then Douglas asked how many would support a 1-cent increase in the state sales tax, from 6 to 7 cents, for the same purpose.
Nearly every hand shot up.
Here's the theory: The money raised by a 1-cent increase, about $3-billion a year, would be placed in the Florida Hurricane Catastrophe Fund, or CAT Fund, the state's reinsurance pool that makes money available to insurance companies in times of natural disaster. (Reinsurance refers to any added layer of insurance that insurance companies buy to hedge against paying claims for catastrophic losses).
The insurance companies could then buy large chunks of reinsurance from the CAT Fund, which sells it at a lower rate than the private market.
Allowing the insurance companies to have more money to work with would lead to lower rates and more availability.
The plan is gaining momentum among the public, something politicians notice. When insurance experts such as Douglas, who helped clean up Citizens, add their support, the dreaded "t" word - taxes - suddenly loses some of its negative connotation.
But there are potential flaws. The first is the assumption that insurance companies want to write more business in Florida. They have risk models that warn them we're in store for a lot of hurricane activity in the coming years and that adding more exposure in Florida is not a good business decision.
The second, and most important reason, is profits. The insurance industry as a whole made at least $40-billion in profits last year, despite losses from hurricanes Katrina and Wilma.
Add in the profits from all the years when no major storms hit the country, plus the highly lucrative auto business they write, and it's hard to think of Allstate, State Farm, Nationwide and the others as poverty-stricken.
Another panelist, Insurance Commissioner Kevin McCarty, stressed hardening our homes. Commendable, but remember that 85 percent of the 4.3-million homesteaded properties in Florida were built before the 2003 building code changes, and a large percentage of those homeowners don't have an extra $5,000 to $10,000 to buy shutters and retrofit their roofs.
That's going to take time that we don't have.
State grant money covers only a fraction of those homeowners and won't be available until next year, and there is no guarantee what, if any, discount homeowners will receive on their premiums.
But let's pull back and look at the big picture. Much of the focus Thursday centered on the bizarre soup that is the mix of public and private insurance.
It's clearly not working.
That's because of two things we don't know: how much (or little) the private market will respond to any inducement, and when (not if) a densely populated part of the state will take a direct hit from a major hurricane and turn the insurance industry inside out.
There is another plan, one that was mentioned briefly by a questioner Thursday and that has been floated for months in and out of the insurance industry.
The plan: Allow Citizens, which already insures one in three Florida homes, to write all the windstorm policies in the state. And in high-risk areas, which the private market has largely abandoned, let Citizens also write all the perils, including the lucrative fire and theft policies.
This plan would unburden the private market of the worst risk, while rewarding Citizens by allowing it to stockpile capital for future storms.
In the event of a Katrina-like disaster, the state would be on the hook anyway, through assessments by Citizens, the CAT Fund and Florida Insurance Guaranty Association.
But most importantly, the plan would allow every homeowner in the state to do something they can't do now - find windstorm coverage, hopefully at affordable, predictable rates.
Turning the plan into reality would be tough. The insurance lobby in Florida is a considerable force, and too many legislators are diametrically opposed to the idea of the state jumping into the insurance business with both feet.
But that doesn't mean it's impossible, especially if the next governor is willing to try surgery instead of a Band-Aid to heal the patient.
"We're all in this together," McCarty said as the meeting drew to a close.
He couldn't have been more right.
To watch the entire Insurance Crisis Town Hall Meeting, go to Bay News 9 On Demand, Channel 342, on Bright House Networks digital cable.
What to do?
Possible solutions to the insurance crisis:
- Increase state sales tax from 6 to 7 cents and use the funds to make reinsurance more available.
- Encourage more expansive mitigation efforts and strictly enforce building codes.
- Create a nationwide catastrophe program, similar to the National Flood Insurance Program, that insures all natural disasters.
- Allow the state-run Citizens Property Insurance to write all windstorm policies in Florida, and all perils in high risk areas.
Drawn from the recent town hall discussion in St. Petersburg