Dim the lights, turn on the projector, and cue the voiceover:"In a world gone mad, when everything was crumbling around them,one industry stood strong — INSURANCE!"

That could have been the preview for the disaster movie that wasFlorida's and the nation's economy in 2009.

As more than 1,000 attendees heard at the Property CasualtyInsurers Association of America's 2009 Annual Meeting in Orlando inlate October, the property and casualty business successfullynavigated difficult waters this past year. Despite the deepestrecession of our lifetime, with unemployment broaching ten percent,plummeting consumer confidence, a credit crisis that impactednearly every business, and a collapsed housing sector, insurancecompanies continued to operate the same way they did one year ago:Writing policies and paying claims without a federal bailout.

Few industries can say the same, especially in a state likeFlorida that was so far out on the crest of the construction andconsumer-consumption bubble. As usual, Florida represented bothtremendous opportunity and unprecedented risk, with five millioncatastrophe-exposed insured homes and 11.3 million insured cars.While we do not yet know the final numbers for 2009, insurers paidmore than $17 billion in Florida property casualty losses,including $7.9 billion of personal auto claims and over $2 billionof homeowners' claims, in a similarly quiet 2008.

The National View

Nationally, net written premiums declined by 3.6 percent duringthe first quarter of 2009, the biggest drop in first quarterpremium since ISO began recording quarterly changes. Premiums wereheld back in part by continued soft market conditions, primarily incommercial lines, which entered its fifth consecutive year ofdecline in 2009. If negative premium growth continues through theend of 2009, it will mark the first three-year sequential declinein premiums written since the Great Depression. In those bleaktimes, industry premiums fell for four consecutive years (1930through 1933, inclusive) after peaking in 1929.

Again nationally, the magnitude of rate decreases in most keycommercial lines had begun to diminish by early 2009, but remainedin negative territory. Nevertheless, whatever modest gains theindustry earned from higher rates were more than offset by economicweakness cutting into the demand for most types of insurance.

In particular, the weak economy nationally and in Floridacontinued to have a disproportionately large impact on commercialinsurers due to rising unemployment slicing payrolls and erodingthe exposure base for workers' compensation premiums and reducingconstruction and manufacturing activity.

Other Markets

Insurers were able to exhale, though, as the Florida Legislaturereversed the Oct. 23, 2008, Murray v. Mariner decision andreinstated the prohibition on hourly attorneys' fees in the state.We are pleased that 2009 will come to a close with the news thatthe Florida Office of Insurance Regulation (OIR) ordered a6.8-percent rate decrease for 2010, for a cumulative total decreaseof 63 percent since the now-preserved 2003 reforms.

Despite the good news from the Legislature, workers'compensation insurers are plagued with another layer ofuncertainty. Prior to the passage of the 2009 positive reforms, theOIR originally approved a 6.4 percent increase in response toMurray. This increase was effective April 1, 2009, and only for newand renewal business and not for policies in-force. As a result,insurers will continue to play catch-up as the claims andaccompanying attorneys' fees from those six months continue todevelop.

The OIR's annual report on the profitability and solvency ofmedical malpractice insurers doing business in Florida containedgood news. To quote the report: "Based on the trends found in thisreport, it would appear that the 2003 changes to the law havebenefited policyholders, the industry, assisted with the solvencyof medical malpractice carriers, and directly contributed tolowering the defense cost and containment ratio in the State ofFlorida."

The personal automobile market continued to show improvements incompetition, even as the industry continued to face OIR's and otherpublic officials' desire to prohibit credit-based insurancescores.

Homeowners', of course, continued to be the most troubled lineof business in Florida. The year began with State Farm Florida'sannouncement that it would withdraw from our property market, andcontinued with other discouraging news.

While risk-taking entrepreneurs have come in with new domesticsor expanded smaller companies in an effort to fill the void, theOIR reported that through the first six months of 2009, of the 21new companies writing new homeowners' policies in Florida, only sixhad underwriting gains; 15 suffered losses.

Even without a hurricane, the Florida market saw theliquidations of American Keystone Insurance Co., First CommercialInsurance Co., and Coral Insurance Co., and the suspension ofPeople's Trust Homeowners Insurance from writing new business forsix months.

Import Problems

But the biggest news in Florida insurance in 2009 sounded morelike the name of one of your son's favorite heavy metal bands thana consumer product: Chinese Drywall. Since the initial newsarticles began to garner attention in early 2009, media reports ofbodily injury and property damage allegations tied to Chinesedrywall have become more common, along with the consequentlitigation. Chinese drywall claims have caused a conundrum over whois financially responsible for these defective products. Drywallmanufacturers, their U.S. distributors, general contractors, andinstallers have all been named in lawsuits this year. Insurerswriting homeowners', commercial property, commercial generalliability, product liability, and home warranty lines are beingdrawn in as the public and politicians search for solutions.

Meanwhile, in case you weren't paying attention, the U.S.Congress decided to take a new look at how insurance is regulated,and therein lies probably the greatest challenge for the insuranceindustry going forward.

The current debate in Congress will determine the future of howall insurance operates. While the Florida regulatory environmentcould certainly benefit from a less adversarial posture, PCIcontinues to believe that efficient state-level regulation ofproperty and casualty insurers is effective, by being responsive toconsumers while keeping insurers solvent and competitive. Proposalsfor duplicative layers of federal regulation over insurers stand tonegatively affect consumers over the long-term.

Property and casualty insurers remain financially strong, didnot contribute to the current financial crisis, do not presentsystemic risk, and are already regulated effectively at the statelevel.

And that's no movie.

William H. Stander is assistant vice presidentof the Property Casualty Insurers Association of America. He may bereached at 850-681-2615 or [email protected].