The Florida Hurricane Crisis Coalition:  A Forum For Potential Solutions
September 25, 2006

Well, it doesn’t take a rocket scientist to figure out what will be the number one legislative issue for the coming Special Session and the Regular Session in March of 2007:  Property & Casualty Insurance for businesses and Homeowners Insurance for residents. As a consequence, the AIF Board of Directors authorized, at our August 3rd Board meeting at Ponte Vedra Beach, the creation of the Florida Hurricane Crisis Coalition (FHCC). You can go to aif.com and you’ll see the button that will let you directly connect to the website that will provide you with all of the information you will need -- such as agendas, meeting notices, background material for your review, and a link to the Property & Casualty Insurance Reform Committee (PCIRC) -- from this one site!

FHCC:  A Collaborative Effort

The FHCC is co-chaired by Cecil Pearce, Vice President for the American Insurance Association (AIA), William “Bill” J. Phelan, Executive Director of the Florida Health Care Association (FHCA) and John Sebree, Vice President – Public Policy for the Florida Association of Realtors (FAR). These three gentlemen will be leading the charge for all of the companies (both AIF and non-AIF members are permitted to attend and participate) and associations that understand that this is a critically important issue to their firm or their association members. At the first meeting, we had an outstanding briefing from one of the preeminent insurance lobbyists in Florida, a former Deputy Insurance Commissioner, Gerald Wester of Capital Hill Consulting, a lobbyist who follows insurance matters for AIF. Most importantly, Gerald explained in detail the four (4) status quo post-hurricane funding mechanisms set up by the state to handle hurricane catastrophes. Unfortunately, each of the entities [The CAT Fund, the Florida Insurance Guaranty Association (FIGA), Citizens Insurance Company, and the new Commercial Property Insurance Joint Underwriting Association (CPIJUA)] has the ability to levy regular and even emergency assessments on homeowners and commercial insurance policies. In a worst case scenario, these four entities could levy a 54% tax on commercial property and casualty insurance policies in Florida. For example, if you pay $100,000 per year for a commercial policy your hurricane tax (assessment) would be an additional $54,000 on top of your current policy for a total cost of $154,000! As you can imagine, this would put a terrible burden on the competitiveness of Florida businesses and could have a very deleterious impact on our economy. In our subsequent meetings we have had lengthy discussions on various mitigation ideas that will assist Florida policyholders in the future.

PCIRC:  Set Up by the Governor

The PCIRC is chaired by Lt. Governor Toni Jennings and is continuing to meet every couple of weeks in various cities around the state and alternating them with stops in Tallahassee.  AIF and the FHCC will be at every one of these meetings advocating for the general concept of establishing a program to “pre-pay” hurricane damage rather than doing it the way it is being done now – through taxes (assessments on commercial insurance policies) and the issuance of state revenue bonds.  The current scenario of using general revenue dollars to pay some of the hurricane debt and then taxing commercial policyholders and also issuing bonds is dramatically increasing our state’s indebtedness.  In fact, for the first 150 years of this state’s history, our total debt was $22 billion. Now, just as a result of the last two hurricane seasons and the attendant damage, we have added $6 billion of new state debt for a total of $28 billion!

Finding a Better Way to Fund Hurricane Damage

We believe, if we can propose a better way to pay for these catastrophic storms up front, we can incentivize reinsurance companies to take a serious look at doing business in the Florida market, which over time could lead to more competitive pricing. In addition, we need to re-focus our efforts on mitigation, that is “hardening” of homes. Currently, the state estimates that there are about 2.5 million homes in the state that cannot withstand a hurricane. Our best hope then is to harden these homes with better windows, storm shutters, and stronger garage doors. The Governor proposed and the legislature adopted earlier this year a $250 million loan program, but without a more significant annual commitment it will take us 10 years to prepare these homes; and if we have another bad hurricane year or two in the meantime, these homes will end up being damaged or destroyed. We should aspire to cut the length of time in half to just 5 years, but it will take an additional $250 million on top of what we have already committed annually to accomplish this new goal. The sooner that we can display our seriousness to approaching the problem of mitigation, the more likelihood that companies will commit to doing business here.

This also brings us to the topic of regulatory reform or deregulation. Florida Business United (FBU) did a statewide poll the last days of July 2006 just before our annual Educational Conference at Ponte Vedra Beach; and when likely voters (600 calls with a +/- 4.5% margin of error) were asked if they were willing to support deregulation of insurance companies if it led to more competition in the marketplace, 74% agreed!  That’s because consumers understand, just like business people, that enhanced competition is a good thing which can lead to lower prices over time.  While we are not advocating total deregulation, we are talking about reducing or eliminating assessments and taxes on insurance companies as a way to incentivize them to do business in our state. Because if we limit ourselves to only a few companies who can afford to sell insurance here, then we are reducing competition rather than fostering it.

Too Much Legislative Tinkering

Moreover, we must work to educate the legislature about the need to have a stable and predictable regulatory scheme in Florida. Every year, there is a plethora of proposed insurance legislation, much of which would significantly change the regulatory landscape. Sometime it even tries to undo what was just accomplished the year before! This does not encourage insurance companies to be here because they never know what rules they may have to operate under. This year the Mississippi legislature didn’t change their insurance law at all, and as a result the insurers operating there have remained. We not only need to keep the insurance companies that we have, we need more, so long as they are financially stable and have a good track record. Deregulation does not mean that insurance companies will be unregulated, it simply means that we will develop a better regulatory landscape that will keep and hopefully attract other companies who might want to be in the Sunshine State. I worked for then-Insurance Commissioner Bill Gunter from 1983-87; and during that time Florida enjoyed a national reputation of being a tough regulator, and often I heard that insurance companies can’t afford to not do business here. But, in the 21st Century, that is no longer true. Insurance companies have choices about where to put their money at risk; and now smaller states offer reduced risk, a more favorable regulatory environment, and they can still make a profit!  So, why do companies have to do business here?  They don’t; and we need to understand this important nuance if we are to have a good, stable insurance market. There is also the traditional knee-jerk reaction to insurance companies which talk about leaving the state if things do not improve; and invariably some legislator will suggest that if they leave that they be barred from returning for five years, as if by keeping them out of Florida we are hurting them and not ourselves. This is not a logical step to take; and if we are willing to create a place where insurance companies want to do business, then we all win.

No Rush to Judgment:  Let the Private Market Work

It is in our best interest to tackle this tough problem now and fix it. To think, though, that there are some silver bullets that will solve this problem is not reasonable either. We didn’t get into this mess overnight and it will take a while to overcome it; but the sooner we begin the process, the sooner we get to the promised land of a competitive insurance marketplace, with a vibrant reinsurance market, hardened homes, and a regulatory scheme that encourages companies to be in Florida. With respect to a Special Session of the legislature, we support such a move so long as we have sound recommendations to consider and there has been no rush to judgment on how to fix our current situation. After the general election is most suitable, because it will afford us the time necessary to investigate and test some of the ideas that are beginning to be reviewed. While we all want price relief, the reality is that there is very little that government can do on an immediate basis that is going to bring a decrease in our rates, short of a mandatory rollback, which no one is proposing and which would only worsen the problem, not improve it.

So, we encourage you to join the Coalition and work with us to create a place where insurance companies will want to be in business and where a better regulatory scheme will help Florida policyholders.

516 North Adams Street ● Post Office Box 784 ● Tallahassee, Florida 32302-0784 ● Phone: (850) 224-7173 ● Fax: (850) 224-6532 ● www.aif.com