Seven days to fix insurance

A special session starting today may not be enough to settle on substantive reforms.

Published January 16, 2007

In his inaugural address Jan. 2, Gov. Charlie Crist promised no "Band-Aid or finger in the dike" solutions to Florida's property insurance crisis.

This wasn't a voice in the wilderness. In recent weeks, nearly every senator and representative in the state has weighed in with some version of the "people need rate relief" message, all part of an extraordinary shift in the mind-set of Florida lawmakers.

Now it's time to see whether Crist and the Legislature can deliver.

As lawmakers begin a weeklong special session on insurance today, the central issue is pain and who will feel it: policyholders, the insurance industry, or most likely, a combination of both.

Unlike previous years, the state isn't just at a crossroads; it's at a major four-way intersection with on-ramps, off-ramps and access roads. Not only have rates gone where they've never gone before, but state-run Citizens Property Insurance is on a pace to insure half the homes in Florida as the private market packs up its tents and leaves.

What role the state continues to play in making sure Floridians have affordable and available property insurance, lawmakers say, is at the heart of the issue.

"A year ago, when we mentioned the state should be involved, they called it socialism," House Minority Leader Dan Gelber, D-Miami Beach, said recently. "Now there's no question about involvement. It's now a question about how much."

Legislators will have to figure out fixes that work without chasing the private insurers completely out of the market, and without reneging on the promise to provide relief.

In short, lawmakers are under enormous pressure to come up with something substantive in just seven days.

It's a minefield out there. Consider some of the main proposals under consideration:

- Allow insurance companies to buy cheaper reinsurance from the state's Hurricane Catastrophe Fund known as the CAT Fund or tap into a "super pool" of state money, both of which could lead to lower premiums. For that to happen, the state would have to insist on corresponding reductions in insurance bills. What's more, all policyholders would still be on the hook if major storms caused a deficit in the fund.

- Pump more money into the My Safe Florida Homes program, which has received $250-million from the state to help people harden their homes. But months after it was started, the program has yet to issue a single grant or harden even one home. And there are no specific ties to premium discounts.

- Prevent national insurers from creating new Florida-only subsidiaries, or "pup" companies. The key word is "new." Many of the major companies, including State Farm and Allstate, have had their subsidiaries in place since the late 1990s. Tied to this is a proposal by Crist to require insurers to return excessive profits to policyholders, something the industry says it already does.

- Roll back Citizens rates to 2006 levels. That would ease the pain of Citizens' 1.3-million policyholders, but leave the company and the state vulnerable in the event of major storms. And because Citizens' 25 percent January rate increase was approved by the state, it would violate the statute that says Citizens must have actuarially sound rates.

Lawmakers have also suggested something the insurance industry strongly opposes: allowing Citizens to write other policies, including lucrative fire and theft lines, in its high-risk account, an area where it is currently allowed to write only the wind policy.

Because Citizens has more than 400,000 policies in that account, the move would cut into private insurers' profits. But it could also allow Citizens to build its reserves and lower its premiums.

When Citizens can't pay its claims, all Florida policyholders foot the bill. Citizens' losses after the 2004-05 storm seasons exceeded its capital base by more than $2-billion, setting in motion assessments that will be in effect for the next 10 years.

Another proposal involves allowing policyholders to raise their deductibles, or tie their insurance to the remaining balance of their mortgage. But like expanding the CAT Fund, it's the homeowners who would shoulder the greatest risk, and mortgage companies have told lawmakers that some of the deductible ideas "would create a mortgage crisis."

House Speaker Marco Rubio pushed aside concerns about what extraordinary liability Floridians may face due to an expanded reinsurance fund and higher deductibles.

"What's certain is our economy is in peril now, our entire economy is grinding to a halt now," Rubio said. "We're picking between what could happen and what is happening."

For just that reason, the dynamics of the debate have dramatically changed. What was unthinkable last spring, such as expanding Citizens' role, is now being talked about by both parties.

Still, if history is a guide, the odds are against sweeping changes in a seven-day special session due to the dynamics of lawmaking. Rather, what happens this week is expected to set the stage for further discussions when legislators return in March for their annual 60-day session.

Besides Crist, which legislators emerge as leaders in the debate could go a long way in determining the next step. Certainly Rubio and Senate President Ken Pruitt will be central figures. But there are others worth watching.

In the House, Don Brown, R- De Funiak Springs, is council chairman over the House Insurance Committee. He is also an independent insurance agent.

The chairman of the House Committee on Insurance is Rep. Ron Reagan, R-Bradenton, also an insurance agent.

Another House member, Dennis Ross, R-Lakeland, was a central force in crafting last year's insurance legislation. Ross is a partner in a law firm whose clients include Publix and State Farm.

In the Senate, J.D. Alexander, R-Lake Wales, serves on the Banking and Insurance Committee. Alexander also played a pivotal role in passing last year's legislation, and like Brown and Ross, served on Gov. Jeb Bush's Property and Casualty Insurance Reform Committee.

Brown, Ross and others have said that their insurance backgrounds give them added expertise and that they are no more beholden to the industry than those in the health care field would be on medical issues.

Gelber, the House minority leader, Senate Minority Leader Steve Geller, D-Hallandale Beach, and Senate Insurance Committee Chairman Bill Posey, R-Rockledge, should also play key roles.

Then there are the insurance industry lobbyists, who remain a formidable force in the Legislature. But even they concede, to a point, that a change is needed.

"There has to be an increasing presence on the part of government to relieve the pressure on premiums and the lack of availability," said Allstate spokesman Adam Shores.

"But not as an insurer. Expansion of the CAT Fund is a strong step that needs to be taken because the government has the financial wherewithal to produce greater claims-paying capacity."

Add to this mix an army of consumer advocates and disgruntled homeowners groups who plan to lobby for real relief.

One of those advocates is Bill Newton, executive director of the Florida Consumer Action Network. He likes the idea of expanding the CAT Fund, but with a caveat.

"The trick," Newton said, "is guaranteeing a rate decrease gets to consumers."

Many lawmakers think major reforms - the big fixes like expanding the state's role as an insurer - will be made in March, when the regular session begins and they have had more time to build consensus.

Either way, Brown hinted recently that the House was ready for a sea change. An opponent of more government intervention in the past, Brown acknowledged politics have changed Tallahassee's dynamic.

"We're standing at a crossroads," he said, "where we decide if we're capitalists or socialists."

Tom Zucco can be reached at zucco@sptimes.com or (727) 893-8247.