Florida lawmakers are planning next week to release a draft version of a property insurance reform bill.
The Senate Banking and Insurance Committee has taken the lead on property insurance reform this year and so far has listened to more than five hours of testimony from regulators, state officials, business groups and consumer representatives.
The discussions have touched on ways to depopulate Citizens Property Insurance Corp. as well as restructuring the Florida Hurricane Catastrophe Fund, encouraging mitigation along with incentivizing private insurers to take on more risk.
Senate Banking and Insurance Committee Chair David Simmons (R-Altamont Springs), however, acknowledged upfront that it will be a challenge to put together a package of reforms that will find its way through the legislature to Gov. Rick Scott’s desk.
“We have a spectrum of options and one of those spectrums is to do nothing and continue to let Citizens gain its 8,000 policies per month,” said Simmons. “Or we can do a piecemeal approach, picking around the edges, or do a comprehensive approach.”
Simmons is in favor of a comprehensive approach that centers on resolving Citizens’ dual roles in the market as highlighted by Insurance Commissioner Kevin McCarty at an earlier committee meeting.
McCarty said that Citizens has an inherent conflict since it is intended to be a market of last resort while at the same time it is offering coverage at rates competitive with the private market.
Simmons expressed his support for one idea first proposed by Citizens months ago to create of a clearinghouse where any new application and possibly any renewal policy would first be shopped to private insurers.
Simmons said that for the clearinghouse to be effective something would need to be done on rates. He said that the “glidepath” that limits Citizens’ annual rate increase to 10 percent does not work and it’s time to “use a different mathematical method.”
For example, lawmakers could reinstitute a prior rating methodology that called for Citizens’ rates to be higher than the average rates charged by the top 20 private insurers writing policies in the state.
Another change would target the rates whereby applicants are not eligible for Citizens coverage. Currently, if applicants have private market options with rates no more than 15 percent higher than Citizens’, they are ineligible for placement with Citizens. Simmons said that number could be raised to a higher amount.
Superstorm Sandy could color any proposed changes to Citizens, the Cat Fund or the private market.
Cat Fund Executive Director Jack Nicholson told lawmakers that in 2008 the fund would have had a financial capacity of $13.3 billion, which was short of the $27.7 billion that the insurers that purchased fund coverage were counting on.
Under that scenario, Nicholson said that an estimated 75 to 85 percent of those companies would go under. He said given that state of affairs, the state would likely “have to go to the federal government with its hat in its hand.”
The idea that the federal government would provide a financial backstop in the event Florida found itself unable to cover the damages from a major storm has long influenced public policy. The fact that Congress allocated $50 billion in federal aid to help rebuild portions of New Jersey, Maryland, New York, and Connecticut hard hit by Superstorm Sandy supports the idea that the federal government would likely come to Florida’s rescue in a similar situation. Of that amount for Sandy, an estimated one-third will be distributed in the form of Community Development Block Grants to rebuild houses and businesses.
Simmons said the Sandy example of the willingness of the federal government to provide that level of financial support in the event of a major disaster could prove a disincentive for some lawmakers to make major reforms, especially if that means raising rates.
“There are those I want to point out who think it is okay to sell policies at unsound rates because we will be bailed out,” said Simmons.
Insurance Consumer Advocate Robin Westcott made a pitch to move the state’s public hurricane model out from under the auspices of the Office of Insurance Regulation and house it in the state’s Division of Emergency Management.
Westcott said the move would centralize the many different mitigation programs around the state and create a collective database that would provide a greater resource to measure risk around the state. Additionally, she said, it would provide the model with more expertise and expand its use beyond its role of just helping to calculate rate filings.
“Doesn’t it make sense that the primary responsibility of how we govern mitigation in our state would fall to the people who do that for a living every day?” asked Westcott.