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Florida legislators consider property insurance hikes as Citizens cap nears end

TALLAHASSEE — With the 2009 hurricane season fast approaching and the legislative session more than halfway over, lawmakers consumed in recent weeks by Florida's budget woes are turning their attention to the state's troubled property insurance market.

For residential property owners, that could mean paying premiums of between 10 and 20 percent more each year — but only if legislators can come to an agreement before the session ends in May. A Senate proposal this week stalled in its first committee amid concerns about raising homeowners' insurance costs during economic hard times.

"The last thing people can afford right now is increased premiums," said Sen. Mike Fasano, R-New Port Richey.

The problem facing the Sunshine State is this: Thanks in part to the global recession and tightening credit markets, Florida's Hurricane Catastrophe Fund is billions of dollars short of what it would need to cover massive property damage likely to come from "the big one."

Legislators' long-term solution, unveiled in recent days, is this: Let rates for state-run Citizens Insurance rise to more realistic market rates, but gradually, to boost cash assets and reduce the need for bonds. Encourage Citizens policyholders to strengthen their homes against storms, and slowly reduce the financial liability for Florida insurance customers should a major storm hit.

"Right now we know the exposure is too great for this state, and (Citizens) premiums are too low," said House Speaker Pro Tempore Ron Reagan. "We need to get to more realistic rates."

The current freeze for Citizens rates is set to expire next year, and many lawmakers worry that premiums will shoot up dramatically — as much as 40 to 55 percent, according to some estimates — if the Legislature doesn't act.

The House and Senate proposals (SB1950, HB1495) would limit annual base rate hikes for residential properties covered by Citizens Insurance, which has 1 million policyholders.

The increases would stop once premiums reached "actuarially sound" rates. Citizens officials estimate that rates would have to be at least 40 percent higher than they are to be sound, though there is debate about that threshold.

The legislation does not put a time limit on the increases, a fact that worries Fasano.

"It could be forever. It could be infinity," said Fasano, who would prefer that annual Citizens rate hikes be capped at 5 percent.

The House bill limits Citizens increases to 20 percent a year for individual policyholders and 10 percent a year on average statewide.

For policyholders with private insurance companies, the House would limit individual policy increases to 10 percent, but allow up to 15 percent in some areas.

Under the Senate legislation, which substantially limits the Office of Insurance Regulation's power to stop rate increases, private insurance companies could raise rates by up to 12 percent for any single policyholder, 10 percent on average statewide.

The Senate proposal also gradually reduces the state's Cat Fund exposure by cutting down the so-called TICL layer over six years. The TICL layer — short for "temporary increase in coverage limit" — is state-run cheap reinsurance that insurance companies buy from the state to insure themselves against losses. Lawmakers in 2007 established the layer, now at $12 billion, to provide cheaper reinsurance so that insurers didn't pass on higher private reinsurance costs to customers. But the layer has increased the Cat Fund coverage — and with it, the financial liability for all insurance customers should a big storm hit the Sunshine State.

The proposed Senate legislation would reduce the extra reinsurance layer from $12 billion to $2 billion in 2013, and it would slowly raise the cost to insurance companies — as another way of building up cash for the state Cat Fund.

"The idea is, we can't rely on bonding," said Jack Nicholson, chief executive for the Cat Fund. "The idea is, let's beef up everything so we're relying more on hard assets."

Right now the Cat Fund has about $4 billion in cash on hand and the ability to raise a few billion more through bonds, leaving a more than $18 billion gap of losses that need to be covered in the event of a major storm, Nicholson said. That's a shortfall that could financially devastate the state, and would have to be made up in part through assessments on all Florida property owners in the event of a big storm.

Christine Turner, director of legislative and external affairs for Citizens, supports the "glide path" of gradually increasing rates. But she has concerns about a provision in the bills to send 10 percent of revenue from the increased Citizens rates into the My Safe Florida program, which is designed to help Floridians harden their homes against a storm.

"If I am a Citizens holder, I want my money going to cover claims, not a home mitigation program," Turner said.

The proposal is likely to go before a Senate committee again this week, and the House's Insurance Committee passed it Friday.

Sen. Garrett Richter, sponsor of the Senate "glide path" bill, warned legislators that there is great risk in doing nothing this session.

"We're talking about fiscal responsibility in the state of Florida," said Richter, R-Naples, chairman of the Senate's insurance committee. "If we get a hurricane here months from now, we're stuck."

Shannon Colavecchio can be reached at or (850) 224-7263.

Other property insurance proposals:

• HB 1157 by Rep. Ellyn Bogdanoff, R-Fort Lauderdale: Do away with the state Catastrophe Fund and Citizens. Insurers in the private market would turn over all hurricane insurance policies to a new, state-operated fund just for hurricane policies. Bogdanoff said that by taking on the "one risk" that is making large private insurers flee the state, those companies will return to Florida to offer other important property owner policies like flood and fire.

• SB862 by Sen. Mike Fasano, R-New Port Richey: Extends the rate freeze in effect for Citizens Insurance.

• HB 1171 by Rep. Bill Proctor, R-St. Augustine: Allow large insurance companies meeting certain asset thresholds to charge whatever rates they want, giving consumers the power to decide. Those consumers would be exempt from statewide assessments charged to property owners if Citizens cannot cover losses after a storm. The idea is to lure large national insurers like Chubb and Farmers that don't now write policies in Florida — and to keep State Farm from leaving the state's property insurance market, as it plans to do.

Florida legislators consider property insurance hikes as Citizens cap nears end 04/04/09 [Last modified: Monday, April 13, 2009 2:40pm]
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