Property & Casualty
Insurance
Legislators made it quite clear
that they are willing to risk the
state’s financial future, for
immediate rate relief. |
Why Does it Matter? |
The state’s insistence on paying
for hurricane losses after the
fact requires that storm losses be
paid back in the form of assessments
(taxes) on virtually all lines
of insurance. This includes auto,
personal and professional liability,
etc. There are four funding mechanisms
created by the state for
paying insurance losses. In a worst
case scenario, each of these funds
would be subject to post-hurricane
assessments, totaling as much as
84% in additional taxes on an
employer’s insurance policy.
Florida’s property owners (residential
and commercial) will become
responsible for paying off the
state’s enormous debt in the event
a bad storm or series of storms hits
our state.
Also unclear is how passage of
the recent property insurance
reform will affect Florida’s excellent
bond rating. Increasing the
state’s exposure to hurricane losses
could end up hurting all Floridians
in the long run. |
Record 2004-2005 insurance losses and a dire 2006 storm forecast prompted AIF to raise a warning flag as to a property insurance meltdown. The 2006 Legislature responded with many
new measures, which given time would have stabilized the market. However,
a quiet 2006 hurricane season in conjunction with a fall election created
just the right mix of conditions for Floridians to demand reforms to the
property insurance system.
During an extraordinary January 2007 Special Session, Florida’s Legislature
approved a bill that shifts much of the state’s escalating hurricane risk
from homeowners to the state and businesses. There are many provisions
in the complex and comprehensive bill (HB 1A) that was passed during the
recent Special Session, but three themes emerged.
First, the state made several changes to its governmental insurance programs
(Citizens and the Florida Hurricane Catastrophe Fund) that ultimately
could result in a state takeover of property insurance. It also reverses persistent
efforts that had been made over the past to shift hurricane risk away
from Citizens and onto private sector insurers.
Second, the bill transfers the cost of hurricane risk from pre-event funding
through insurance premiums to post-event funding through policyholder
assessments after a hurricane hits. Legislators made it quite clear that they
are willing to risk the state’s financial future, and to possibly trigger substantial
assessments against businesses’ insurance premiums, in exchange
for immediate rate relief.
Third, the bill imposes onerous, unprecedented new conditions on private
insurers. Rather than reducing insurance costs, these restrictions are likely
to discourage companies from writing new or continuing existing policies,
thereby exacerbating the affordability and availability of property insurance
for all citizens and businesses in Florida.
On a positive note, the Legislature enacted a statewide building code and
enacted safeguards to prevent its erosion. Lawmakers adopted AIF’s and
the Florida Hurricane Crisis Coalition’s recommendation to establish a process
to improve the existing mitigation grant program. These are beneficial
changes that, over time, will make Florida’s building stock more resilient
and reduce hurricane losses. But they are not enough to offset the state’s
refusal to get its financial house in order to prepare for future storms. |
