Florida Underwriter magazine has recently formed an EditorialAdvisory Board. Throughout the year, board members will bringreaders an Inside View of the state's insurance industry, itspolitics, challenges, and successes. Our inaugural column by MikeColodny focuses on the property market. For information on theboard and its members, go to the www.floridaunderwriter.com homepage.

Although legislative efforts at comprehensive Florida propertyinsurance reform were ultimately vetoed this year, actual passageof SB 2044, along with other recent developments, may indicate agrowing understanding by Florida lawmakers of underlying problemsthat continue to debilitate the state's property insurance market.In addition, the potential consequences from unaddressed issuessurrounding Citizens Property Insurance Corp. and the FloridaHurricane Catastrophe Fund could fuel legislators' concerns in thecoming months.

Like many of its successful omnibus predecessors, SB 2044 waspassed in the hectic final hours of the legislative session.However, unlike its handling of previous enactments, the 2010Legislature opted to engage in a more studied approach and analysisof the state's residential property insurance cost drivers. Topicsof in-depth consideration included: The role and impact ofreinsurance; the cost of capital; the application of windstormmitigation credits; the rise in sinkhole claims and correspondingadjustment costs; the considerable growth in public adjusters'solicitation and claims activities; and the ability ofpolicyholders to recover replacement cost value without anydeduction for depreciation or having repairs actually performed.These and other significant issues were addressed by SB 2044, whichwas advocated by many — even Florida's Insurance Commissioner KevinMcCarty — as a positive step toward a partial remedy for thestate's ongoing insurance crisis.

Notably, SB 2044 highlighted Gov. Charlie Crist and CommissionerMcCarty's evolving legislative and regulatory relationship. Whileactions taken during the 2009 legislative session demonstratedtheir similar viewpoints, the 2010 session revealed philosophicaldisagreements when the governor vetoed SB 2044 despite McCarty'ssupport for the bill.

Another indication that Florida's policymakers are hearing theindustry's message is evidenced by the commercial ratemodernization provisions of SB 2176. Signed into law this year, thebill exempts specified types of commercial lines from FloridaOffice of Insurance Regulation filing and review requirements whilemandating that rates not be excessive, inadequate or unfairlydiscriminatory.

Quick Fixes Not the Answer

In 2007, Gov. Crist used his election popularity and thestill-raw memories of the 2004-2005 hurricane seasons to prodlawmakers into addressing his perceived concerns over the state'svoluntary market premium levels. The resultant passage of HB 1Aduring the January 2007 Special Session was a quick-fix solutionfor the governor's political agenda through rate suppression andenhancement of the Cat Fund and Citizens. It has done little tocorrect the overriding concerns of Florida homeowner policyholders.In fact, a recent survey on voters' political and propertyinsurance-related views conducted by the Property CasualtyInsurance Association of America (PCI) and the Florida Chamber ofCommerce found that 86 percent of insured homeowners felt thatFlorida insurance laws passed over the last four years have notresulted in any corresponding improvement.

In the aftermath of HB 1A, the legislative concept of whatconstitutes consumer protection may be metamorphosing. Florida'sshrinking private insurer market and the corresponding uncheckedgrowth of Citizens may be prompting a legislative shift away fromthe political and public perception that insurers are merelyinterested in gouging consumers. The political realization that animplosion of Citizens or the Cat Fund could potentially become itsown catastrophe for Florida policyholders weighs heavily onlegislators. The result has been an increased understanding thatconsumer and public protection is best served by implementing arealistic and sound approach to fostering the vitality of afinancially strong voluntary market.

With 1.2 million policies currently in force, Citizens isFlorida's largest property insurer. That increased exposure, alongwith the fact that the Cat Fund currently exceeds its claims-payingcapacity, are factors that are receiving more legislative andpolitical considerations. It is now clear that, in the event thateither entity is unable to meet its financial obligations, Floridapolicyholders will face substantial surcharges and assessments.This massive potential policyholder liability may well be partialimpetus for a legislative and regulatory recognition that ratesuppression and ill-advised insurance regulation inevitably willhurt consumers in the long run.

An Unsuspecting Public

The PCI/Florida Chamber survey found that over sixty percent ofFlorida policyholders were not aware of the pass-through authorityof Citizens and the Cat Fund, which allows these entities toultimately surcharge almost all insurance policies (workers'compensation and medical malpractice are exempt) to meet theirclaims-paying obligations. In addition, the survey indicated thatonly one in five policyholders advocated these assessmentpowers.

While SB 2044 and SB 2176 may not have represented a completelegislative departure from using (and abusing) the insuranceindustry as a political pi?ata, they may signify a trend toward areturn to more balanced legislative analysis of insurance issues.Looking ahead, general political undercurrents suggest that aproperty insurance bill similar to SB 2044 may be proposed, andquickly passed, in 2011.

Although tumultuous, the last few years of policymaking haveindicated that legislators and regulators alike are slowlyappreciating the necessity of adequate rates and a free enterprisesystem where the coverage of risk is provided by a strong voluntaryinsurance market and not state-created entities.

Perhaps the portal to a stronger Florida insurance market isbefore us. If so, the legal maxim of "lex prospicit not respicit"(the law looks forward, not backward) could be the principle uponwhich a stable long-term insurance marketplace is eventuallybuilt.

Mike Colodny is with the law firm of Colodny,Fass, Talenfeld, Karlinsky & Abate, P.A. and serves on theFlorida Underwriter Editorial Advisory Board. www.cftlaw.com.