1. Archive


Senate pitches using long-term models, cutting CAT Fund risk.

The Senate Select Committee on Property Insurance Accountability closed a two-day hearing Tuesday with a pair of sweeping proposals that could profoundly change how insurers do business in Florida.

- Require that insurance companies calculate their rates using only state-approved, long-term catastrophe models rather than short-term models that usually lead to higher rates.

-Find a way to reduce the risk in the state's catastrophe fund (or CAT Fund), which lawmakers expanded by $12-billion last year, while at the same time keeping rates reasonable.

"We're going to come up with recommendations for legislation,'' said committee co-chair Sen. Steven Geller, D-Hallandale Beach. "I thought you could only use approved models, but companies do use (short-term models), so that's apparently unclear.

"And I don't see any way of reducing the (CAT Fund) risk without increasing premiums. We're going to have to recognize we can't have it all. We need balance.''

After Allstate and Nationwide took a verbal beating from committee members Monday, the insurance industry desperately needed someone to ride in and rescue them. That person appeared Tuesday in the form of Sen. J.D. Alexander, R-Lake Wales, who fired questions at state regulators about why Florida Farm Bureau's 26.8-percent rate increase was denied. Alexander acknowledged he is a Florida Farm Bureau policyholder and that he serves on the Polk County Farm Bureau board of directors.

"As an insured,'' Alexander said, "I applaud them for making sure Florida Farm Bureau policyholder claims get paid.''

But a few hours later, John Auer, CEO of St. Petersburg-based American Strategic Insurance, wowed the 20-member panel with a simple explanation of how his company used the expanded CAT Fund to lower rates an average 24 percent while maintaining an A(minus) rating from A. M. Best. Senators peppered Auer with questions about how he did what Allstate, Nationwide, Hartford and Farm Bureau could not.

Auer said ASI, which has about 250,000 policyholders statewide, bought about 40 percent of its reinsurance from the CAT Fund, kept its profits to 3.7-percent, and did not use short-term models. Auer was only at a loss when asked what barriers might be removed to allow other companies to do the same.

"I can't think of anything,'' he said. "We've managed to get along pretty well.''

But Auer cautioned that because ASI relied heavily on the CAT Fund, it could leave the company vulnerable if Florida was hit by a massive storm.

"If the CAT Fund doesn't live up to its commitment,'' Auer said, "yes, we'll have a problem.

The committee may meet again Feb. 18 or 19, Geller said, to hear from public and private modeling companies.

Tom Zucco can be reached at or (727) 893-8247.