Insurance Band-Aids

Graphic courtesy of The Excuse.com

"This has a lot of good stuff, a lot of bad stuff and a lot of 'I don't know stuff," one ... lobbyist says of the package."

-- Insurance Journal, May 8, 2006

The Florida legislative session ended late last week with passage of a 141-page insurance bill that slaps a few band-aids on what at least one legislator calls a cancerous tumor. Paige St. John, writing for the Florida flagship of Gannett Corp., offers an overview:

"The Legislature ended 60 days of session near midnight Friday agreeing to pick up $715 million of a $1.7 billion deficit brewing at Citizens Property Insurance, while requiring steep rate hikes from the state-run pool and partly lifting rate controls on other insurers.

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"What we're doing here is just damage control right now," said Rep. Stan Mayfield, voicing a common sentiment among frustrated legislators. "We're just stopping the bleeding," the Vero Beach Republican said. "Then we have to cure the cancer."

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The bill contains $250 million in loans to private insurance companies willing to expand in Florida and consumer-backed catastrophe coverage for the small companies that make up a third of the market.

Both are considered emergency measures.

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Citizens Property Insurance estimates it would take a 60 percent increase, on top of the 45 percent rate hike it already seeks on those homes, to meet a proposed mandate to set its coastal rates high enough to cover the cost of a 100-year storm.

"It is tough," said Sen. J.D. Alexander, a lead insurance negotiator, but "it essentially represents the subsidies that have been in place for these coastal homes, for years and year and years. * * *

Repeatedly, lawmakers were told they have no choice but to open the door to dramatic rate increases.

"We're in a hurricane cycle for the next 10 to 20 years. It's not going to get any better," said Senate Banking and Insurance Chairman Rudy Garcia, R-Hialeah.

For a more detailed -- although admittedly preliminary -- analysis, you should wade through the Insurance Journal article. In a second editorial posted mid-day Monday, IJ also summarizes what it sees as the bill's highlights:

"The bill provides $715 million in tax dollars to help cover part of Citizens' deficit of $1.7 billion, increased rates for Citizen's policyholders, lower emergency assessments by spreading them out over 10 years, and the elimination of homes valued at over $1 million from Citizens after 2008.

Other provisions in the bill will include grants for homeowner disaster mitigation, the implementation of a flex-rating system that will allow insurers to adjust rates 5 percent statewide and 10 percent within specific region, and a provision that allows limited apportionment companies to purchase reinsurance from the Florida Hurricane Catastrophe Fund. There is also a rapid cash buildup of 25 percent for the Florida Hurricane Catastrophe Fund. Along with the positive developments some adverse provisions passed including one that will require insurers to adjust Citizens' hurricane claims beginning July 1, 2007."

If there are any winners, they would be insurance customers with a primary residence in Florida, "not vacation and seasonal homes."

Losers include "owners of $1 million-plus dwellings" who will no longer be insured by the state-owned Citizens Property Insurance. They'll have to turn to the "voluntary market" (if there is one) or "surplus lines market at unsubsidized rates."