Good morning Chairman Douglas and members of the Task Force.

My name is Barney Bishop, President & CEO of Associated Industries of Florida (AIF).  I am here on behalf of our members who are major stakeholders of the financing of Citizens.  AIF’s members, other Florida businesses, and non-profit charitable entities are responsible for 48% of the post-event funding of Citizens’ losses resulting from hurricanes.  The post-event funding is derived from “hurricane taxes” on our property and casualty insurance premiums which can be very significant in the event of a hurricane or series of hurricanes.  The 2005 hurricane season produced six policyholder hurricane tax enactments (assessments) that will cost Florida residents and businesses over $3.5 billion.

In 2007, in response to our members’ outrage over these taxes, AIF formed a broad coalition of business associations, professional associations, and charitable organizations called the Florida Hurricane Crisis Coalition to make recommendations to the Legislature as to how to better manage Florida’s hurricane exposure.  This Task Force is a result of the coalition’s efforts to address its number one priority, which is to reduce the potential for “hurricane taxes” to fund Citizens and the Cat Fund.

Based on the coalition’s deliberations, AIF recommends the following measures be adopted by the Task Force, approved by the Legislature, and implemented by Citizens as soon as possible. 

1. Remove the freeze on Citizens’ rates and beginning July 1, 2009, phase in Citizens’ rate increases over a 2-year period so that such rates are (1) actuarily sound according to the standards applied to private insurers; (2) are not competitive with private insurers, and (3) are sufficient to provide funding for a “Special Claims Reserve” to substantially reduce the frequency and magnitude of the “hurricane tax.”
2. Repeal the provision which requires Citizens to purchase the Cat Fund’s Temporary Increase in Coverage Limit (TICL) and prohibit Citizens from voluntarily purchasing the TICL coverage. Require the $86 million paid annually to the Cat Fund for TICL coverage be used to either purchase private reinsurance or used to help fund the “Special Claims Reserve” to reduce the frequency and magnitude of the “hurricane tax.”  Given the state of the financial markets, in October the Cat Fund and its senior financial advisors reported to the Governor and Cabinet  that the Cat Fund will be unable to fund the TICL layer for the 2009 hurricane season.  Citizens should not be required to pay for the Cat Fund’s TICL coverage which is not actually there.
3. Prohibit Citizens from offering coverage available from private insurers which would require that Citizens:  (1) discontinue offering a Commercial Non Residential Multi-peril policy statewide; and, (2) discontinue offering a Multiple Peril Residential policy in non-coastal areas.  In our view, it is irresponsible for Citizens to expand types of coverage considering its current financial condition.
4. Enhance incentives for Citizens policyholders to make improvements to their homes to provide safety for their families, to reduce potential hurricane damage, and to provide safe shelter during and after a hurricane.  In our view, mitigation and personal responsibility of homeowners for the safety and wellbeing of their families is among the best strategies in managing Florida’s hurricane exposure.  It is irresponsible for Citizens to continue to offer subsidized insurance to homeowners who assume no personal responsibility for managing their own exposure.

In closing, Mr. Chairman, the extensive testimony before this Task Force demonstrates the perilous financial position of Citizens and the increasing probability of significant “hurricane taxes” on AIF’s members, other Florida businesses, and charitable entities.  The above recommendations will reduce the probability of additional “hurricane taxes” by returning Citizens to its former role as a non-competitive residual market mechanism.  These and other meaningful measures need to be taken as soon as possible.

To quote from a recent St. Petersburg Times Editorial on the subject, “Act Before Luck Runs Out.”

Thank you.