Session strikes a deal

Published January 22, 2007

TALLAHASSEE - Florida lawmakers emerged from weekend negotiations with an insurance reform plan that promises double-digit rate relief by shifting hurricane risk to the state.

But the deal, which lawmakers are expected to approve today, has a downside: It will be at least six weeks before homeowners know how much they'll save, with estimates running from 10 percent to 35 percent. And it could be months before homeowners see the savings.

The plan, written during a special legislative session that opened last Tuesday, isn't nearly as tough on the industry as some politicians had promised. But it sets the stage for the state-backed Citizens Property Insurance Corp. to compete directly with private insurers, potentially shedding its role as the "insurer of last resort."

The plan removes requirements that Citizens charge the highest rates and will allow the company to sell traditional homeowners policies, including fire and theft, statewide.

Weary lawmakers hope the measures will be enough to appease an electorate enraged by skyrocketing insurance bills following the 2004 and 2005 hurricanes. Legislators pledged to revisit insurance reform during the annual 60-day legislative session that begins in March.

"You have stopped the hemorrhaging; you have stabilized the patient," Senate President Ken Pruitt, R-Port St. Lucie, told legislators who completed negotiations Sunday night. "But we know there is still more care to give before the patient is well."

From the start, this session was unique. Thousands of residents rode buses and planes into Tallahassee and protested against high premiums in any venue they could find. New Gov. Charlie Crist cheered them on and kept his own rhetoric hot, pressuring lawmakers to produce legislation guaranteeing significant cuts in rates.

But the result doesn't match some of the early ambitions.


The legislation won't ban national insurers from having Florida-only subsidiaries, and rate requests in Florida won't take into account the profits of the insurance company's parent.

And it doesn't ban insurance companies from dropping policies, as Crist proposed last week.

Crist declined to comment Sunday on whether he'll sign the final product. But his comments were noticeably muted compared to Friday, when he suggested he might veto a bill.

"There must be meaningful lower rates across the board, and I'm encouraged that's what we're going to see," Crist said. "But again, we don't have the language yet."

Still, private industry players weren't happy, saying they viewed much of the bill as anti-competitive, particularly the empowerment of Citizens, which now insures one out of three Florida homes and isn't required to have nearly the reserves a private insurer is. When it has deficits, all state policyholders are assessed.

"You're allowing Citizens to grow based on price, not on sound market principles," said Justin Glover, spokesman for State Farm Florida, the state's largest private insurer.

But lawmakers said the changes were necessary in a market where private insurers have abandoned large portions of homeowners.

"Well, right now they're probably going to be competing for policies the private industry doesn't want to write," said House Speaker Marco Rubio, R-Miami. "Hopefully, that will change and if it does, we'll be looking to depopulate Citizens."

In the end, nearly all the savings anticipated by the Legislature come from a radical decision to have taxpayers for the next three years assume up to twice as much liability as they currently do in the event of a mega-hurricane season.

Savings to vary

The additional liability means every Florida insurance company will be able to buy below-market reinsurance or backstop insurance to cover damages totaling between $6-billion and $34-billion and possibly even as high as $38-billion.

The cheaper backstop insurance for insurance companies is expected to translate into lower premiums for homeowners, but exactly how much will vary widely. But lawmakers believe it will reduce the windstorm portion of a private insurance premium an average of 25 percent.

State regulators have been tasked with setting a mandatory savings rate per rating territory by March. But should a storm strike before the Florida Hurricane Catastrophe Fund has enough reserves, every property insurance policyholder will be assessed to cover any deficits.

Other key rate relief measures in the plan:

- Repeals for 2007 a state-mandated 3 percent assessment on all property policyholders to increase reserves in the CAT fund.

- Freezes rates for Citizens customers at 2006 rates. The plan repeals an average 21 percent rate hike that went into effect Jan. 1 and another 56 percent one planned for March 1. Lawmakers said they expect Citizens customers will also see as much as 10 percent more in rate relief due to the expanded catastrophe fund and changes in how Citizens collects assessments.

- Authorizes the governor and state Cabinet, in cooperation with a joint legislative committee, to allow Citizens to sell traditional homeowners policies to 350,000 customers who currently buy only windstorm coverage from Citizens - if the business plan shows that it will save those customers an average of 10 percent on their premium.

- Allows Citizens to accept customers whose private insurance policies are 25 percent higher than a Citizens policy would be.