Dr. Robert P. Hartwig, CPCU, president of the Insurance Information Institute, is not known for shying away from controversy. He lived up to – and perhaps solidified that reputation – with his May 26 presentation at the Governor's Hurricane Conference in Ft. Lauderale. He took on Florida's regulatory environment with a PowerPoint presentation entitled, "Elephants in the Room: Big Problems in Florida's Insurance Markets that Nobody Wants to Discuss," in which he boldly declared that Florida is "America's most dysfunctional but not most uninsurable property insurance market." He blamed rate suppression, not hurricanes, as the principal source of the problem. Hartwig noted that the Heartland Institute's "2010 Property and Casualty Report Card: A State-by-State Analysis of Regulatory Burden," published this month gave Florida and New York both "F"s. They were the only two states in the country to earn that designation; Washington, D.C., Louisiana and Mississippi were not graded. To those who decry the profits made by insurance companies, Hartwig had a ready answer: "Florida's home insurers have been in the red on a cumulative basis since Hurricane Andrew struck the state in 1992," he said. The implementation of HB 1A in January 2007 (the massive Insurance Industry Accountability and Consumer Protection Act passed during Special Session 2007A), and the requirement to provide full mitigation discounts since March 2007 have been the primary causes for losses in premium income. The average loss per policy was $254.50 in 2007. It 2009, it was $421.22, an increase of 65.5%. The average homeowners' insurance premium as of Dec. 31, 2009, was down 14% since March 31, 2007, Hartwig reported. Hartwig zeroed in on Florida's huge residual market, noting that in 2009 it accounted for 64% of all residual market exposure of the states studied. Florida's "insurer of last resort" is Citizens Property Insurance Corp, formed in 2002 under then-Insurance Commissioner Tom Gallagher. The entity has been the focus of strong opposition since its creation, primarily because of its suppressed rates and assessment capabilities. Citizens is now the largest property insurer in the state, with over $1 million policies. Hartwig noted that over the years its exposure has increased by 163 percent, from $154.6 billion in 2002 to $406 billion in 2009. He also took issue with the state's dependency on "volatile credit markets," asking if "Florida is America's Greece?" With graphs and numbers, he detailed the Florida Hurricane Catastrophe Fund's structure, borrowing capacity, resources, claims paying ability, and balance. The picture he painted starkly showed how the stability of both Citizens and the Cat Fund is tied to subsidies, including those not related to the property insurance line. For the Cat Fund, only about 25% of its $33.5 assessment base is associated with homeowners' insurance. The rest is from auto and business policies. The assessment base includes all P&C lines except workers' compensation, medical malpractice, accident and health, and federal flood. Hartwig further reported that:

• Florida is America's No. 1 catastrophe problem. The current exposure is huge and will only grow.
• In 2007, Florida had almost $2.5 trillion in exposure. Residential structures accounted for $1.24 trillion of that total.
• Nearly 80 percent of all insured exposure in Florida is coastal, more than any other state.
• The insured value of all coastal property was $8.9 trillion in 2007.
• Florida accounted for 19% of all U.S. insured Cat Losses from 1980 – 2008: $57.1 billion out of $297.9 billion.
• Insured losses in Florida are nearly double that of any other state over the past 30 years.

Hartwig did offer some consolation to Florida property owners and insurers. "You can't ignore the dysfunction of a market in which insurers have been operating in the red from a cumulative standpoint since Hurricane Andrew in 1992," he said. "Yet despite that, the private insurance industry is financially prepared to handle a hurricane."

Hartwig's entire PowerPoint presentation is available at www.iii.org/presentations.