Politics

State's risky gamble pays off for now

But no hurricanes this year does not mean our problems are solved.

By JENNIFER LIBERTO and TOM ZUCCO, Times Staff Writers
Published November 30, 2007

The state won a bet today.

Back in January, the Florida Legislature wagered against the 2007 hurricane season, taking on more risk than ever before in hopes of a big payoff - drastic property insurance rate cuts.

With the close of the hurricane season today, that sound you hear is state leaders sighing in relief that hurricanes steered clear of the state, meaning Florida didn't lose any money on its gamble. In fact, reserves in the state catastrophe fund and state-backed Citizens Property Insurance had time to reach record levels.

But this is just a lull.

-Citizens board chairman Bruce Douglas warns that his company still needs to raise its rates to account for all the added risk that has piled up.

-Chief Financial Officer Alex Sink insists the state's catastrophe fund needs to be reduced, for the same reason.

-Private insurers continue to threaten cutbacks on new business if they can't get the rates they need.

-And, the intended payoff for homeowners is still a work in progress.

While insurance premiums haven't gone up, the predicted savings of 24 percent turned out to be closer to 13. Many smaller insurers dropped rates, but some of the bigger companies, like Allstate and USAA, have balked.

That has some government leaders scratching their heads and wondering aloud if the gamble is worth it. Under the current system, taxpayers are on the hook for nearly three of every four property insurance risk dollars. That's because the state allowed Citizens to expand, and it also expanded by $12-billion the state catastrophe fund, which provides low-cost reinsurance to insurance companies.

"It's our first successful faith-based initiative," said House Democratic leader Dan Gelber. "The fact that we got lucky shouldn't take us off the hook. We need to look at ways to reduce premiums and jettison some of that risk. We're a bad storm away from being in trouble."

Republicans and Democrats agree that they're uncomfortable about all the risk. Yet, there's no consensus about the best way to get rid of it, or if it's even worth tackling again.

Sen. Bill Posey, who chairs the Senate's insurance committee, says the state has done as much as it can, legislatively. And getting rid of risk also has a downside, he said.

Currently, if a hurricane hits, the state would assess policyholders to pay it off. If private industry had all the risk and the hurricane hits, the private insurance companies basically assess policyholders to pay for it by hiking rates.

"The big difference is, with the state catastrophe fund, if you never get hit with a catastrophe, you never have to pay for it," Posey said.

He advocates better enforcement of new laws that say insurers can't collect excessive profits.

Chief Financial Officer Sink has a long list of initiatives she has been touting for months that she says could help the state lower its risk.

Sink would like to reduce the CAT Fund by shifting some of the reinsurance business from the state to private companies, which she says have begun to lower their rates in recent months.

"There's a huge amount of work to be done," Sink said. That includes taking a hard look at what Citizens insures, she said. "How many more condos do we need to be insuring?"

On a recent visit to Fort Lauderdale, Sink said, she saw rows of new condos going up along the beach.

"We are going to be insuring every one of these condos. I don't agree with that," she said. "We can't leave those folks out to dry, but at some point, we have to say no mas."

Many private insurers have already reached that point.

"Our outlook is negative," said Chris Neal, a spokesman for State Farm, the state's largest private insurer. "That's why we're reducing exposure in 2008. If you don't have the rate, you can't handle the exposure. I'm not sure you can charge enough."

Neal argues that the amount of reinsurance his and other companies were forced to buy "is so high it doesn't give us the opportunity to build surplus."

And even though State Farm is cutting 50,000 policies next year, the cost to replace a home keeps rising. "If we don't write another thing next year," he said, "our exposure goes up $175-million."

Like Sink, Douglas, the Citzens Board chairman, wants to see the CAT Fund reduced, "because the larger insurers are not utilizing it, and larger reinsurers offshore are probably going to be reducing rates somewhat in 2008."

He also expects Citizens to grow far more slowly next year than earlier predicted - a few hundred thousand more than the 1.4-million policies it has now. But what concerns him most is the ability to pay claims if the state isn't as lucky as it was this year.

By June, Citizens will have about $14-billion to pay claims.

Losses would now have to reach $5.6-billion before an assessment is triggered. By comparison, Citizens paid a total of $5.2-billion in claims for the eight storms that hit the state in 2004-05.

"I get a little concerned with the doomsayers because they create a lot of unrest," Douglas said. "But Florida has every right to have concerns about the considerable amount of risk it has taken on.

"We are, to a large degree, a self-insured state."

Jennifer Liberto can be reached at jliberto@sptimes.com or (850)224-7263.

Fast facts

Florida's top 5

Property insurers with the largest market shares, as of Oct. 3:

Citizens 20% State Farm Florida 16.5% Universal Property and CasualtyInsurance 5.4% Allstate Floridian 4.7% Nationwide 3.5%

Source: Orlando Sentinel

By the numbers

$2-trillion Property insurance riskin Florida

90,000Lapsed flood insurance policies in Florida, one-third of policies written since July 2005

$3.4-billion Insurance industry profit in Florida in 2007

Source: Associated Press

[Last modified November 30, 2007, 01:22:24]