Future Unsure for FL Insurance Industry

By Rachel Witkowski
Jacksonville Business Journal

The property insurance reform legislation that state legislators just passed could help Florida homeowners now, but predicting its long-term effects on policyholders and insurance companies is about as easy as forecasting storms during hurricane season.

Homeowners could save an average of 22 percent in premiums this year through changes to policies and incentives for insurance companies, including for the state-run Citizens Property Insurance Corp. But many representatives and senators are concerned that the fight to bring stability to the property insurance market is not over.

Several legislators wanted to give more attention to small businesses and tightening
requirements for "pup" companies, wholly owned subsidiaries of insurance companies, during the regular session beginning March 6.

Others were concerned about property insurance relief for nursing homes, condominium associations and manufactured homes.

The bill provides guidelines for local governments, hospital groups and alli-ances of community associations to borrow state funds for self-insurance. Some representatives worry that not all associations have enough assets to self-insure.

The bill also requires insurers to give policyholders the option to exclude wind storm coverage under certain documentation approval. But representatives said they are still working with the banking industry on windstorm coverage requirements for mortgages and liens.

Sen. Jim King, R-Jacksonville, said though there are some items that need to be addressed, the bill will be very positive for Northeast Florida.

Jacksonville will bene-fit from a requirement in which insurance companies cannot use a home's age as the reason for rejecting an applicant, said King, whose insurance policy was recently canceled. The bill also allows homeowners to insure their second home, which is important for many area residents.

Restructuring Citizens' business operations and rate methodology was one of the main changes in the bill and will bring up to an 18.7 percent average saving for policyholders in Citizens, legislators said.

"I will vote for this bill because it repeals the other bill [S.B. 1980]," said Rep. Susan Bucher, D-West Palm Beach. "But it doesn't do very much more than that."

Senate Bill 1980, signed by former Gov. Jeb Bush in May 2006, included increasing Citizens' rates by March 1. Citizens, the largest insurer in Florida, would have increased rates by an average of 55.8 percent for homeowners and 615 percent for commercial policyholders. The new bill eliminates the March 1 increases and rolls back the Jan. 1 increase of a statewide average of about 22 percent.

The new bill was awaiting Gov. Charlie Crist's signature at press time. If he were to sign it, Citizens expects to lose $350 million in premiums in 2007, said Rocky Scott, a spokesman for the insurer.

Jacksonville homeowners who have windstorm policies with Citizens had a 40 percent increase Jan. 1 and would have had an additional 118.2 percent hike on March 1. Under Bill 1980, Citizens was to set rates based on what it would cost to purchase reinsurance in the private market for high-risk accounts at a probable maximum loss in a one-in-70-year hurricane and its commercial lines at a one-in-100-year storm for 2007. The new bill eliminates that requirement and the requirement for Citizens' rates to be no lower than those of the 20 largest private insurers.

Rates would be based on actuarially sound rates approved by regulators on an annual basis beginning Jan. 1, 2008.

All homeowners pay a 2 percent Citizens assessment for the 2004 and 2005 hurricane season damages and the assessment should decrease to 1.5 percent June 1, depending on the Office of Insurance Regulation's approval.

Scott said Citizens has not yet deter-mined how much will be paid back to policyholders whose renewal dates came on or after Jan. 1. Commercial account policyholders will pay less, but the amount depends on how much extra reinsurance is available through the Florida Hurricane Catastrophe Fund changes in the new bill.

Two temporary insurance coverage options were set up within the Cat Fund. Both programs offer state reinsurance because of the private market reinsurance crisis last year. The lack of affordable and available reinsurance in 2006 was part of the reason for higher premiums.
One program increases the Cat Fund's claims-paying capacity up to $12 billion and allows the state to increase it by an additional $4 billion during the next three hurricane seasons.

The second program is to help insurance companies seek state-provided relief based on industry retention levels of $3 billion, $4 billion or $5 billion for the 2007, 2008 and 2009 hurricane seasons.

The Insurance Capital Build-up Incentive Program that was established last year will be extended through May 31, 2008. It provides up to an additional $10 million in reimbursement for insurers who met approval in 2006 or 2007. Premium charges must be 50 percent of the additional reimbursement and the insurer must retain 30 percent of its surplus as of Dec. 31.
Some insurers are wondering how to set rates, said Jeff Grady, president and CEO of the Florida Association of Insurance Agents. "A lot of companies are scratching their heads right now wondering how they're going to insure in Florida."

Though lowering rates is going to improve the situation, Grady said, insurance companies worry about competing with Citizens and a requirement that makes automobile insurers now write homeowners policies if they do so in other states.

"They're rearranging deck chairs on the Titanic," he said. "There's a large liability looming out there someday."

From: Jacksonville Business Journal (www.bizjournals.com)