Florida legislation approved over the weekend to cut property insurance costs could mean policyholders and taxpayers will bear a financial burden if a major hurricane hits this year, according to industry critics.

The measure is expected to be signed into law by Governor Charlie Crist.

Among the means to provide rate relief for property insurance policyholders in the bill is a provision to allow primary insurers to purchase additional reinsurance from the state catastrophe fund at cheaper prices than they would see from a private reinsurer.

Additionally, the legislation eliminates restrictions on the state's insurer of last resort, Citizens Property Insurance Company, which forbade it from directly competing for business with primary insurers.

However, because lawmakers sought to ensure the legislation would not be accompanied by a tax increase, no upfront funding was made available for the increased exposure faced by the Catastrophe Fund or, potentially, Citizens.

Instead, lawmakers expanded the ability of Citizens to make assessments after a catastrophe, allowing the company to make assessments against property and casualty and auto lines, excepting workers' compensation and accident and health coverage.

As a result, while lawmakers touted a reduction in premiums of between 5- and 20 percent, industry groups noted that a major storm would still put the burden on policyholders.

"If no hurricanes hit Florida in the next few years, all the state gains is a false sense of security," said Cecil Pearce, vice president of the Southeast region for the American Insurance Association.

"And if, as predicted, Florida experiences major storms that exhaust the funds of the Cat Fund and Citizens, all policyholders will be assessed for years to come to repay deficits," he predicted.

Adelaide "Alex" Sink, Florida's chief financial officer, said in a statement that she was "pleased" the legislature considered both the immediate need for rate relief and the long-term fiscal health of the state.

"Should we encounter truly devastating storms in the future, we must protect Floridians from being held liable for astronomical and unaffordable assessments," she said.

Tara Klimek, a spokesperson for the Department of Financial Services, said the statement reflected Ms. Sink's concerns over earlier versions of the legislation that would have put the state on the hook for virtually all losses above a certain threshold with no limit. Such a proposal would have put an enormous burden on future taxpayers, she said, and could also have affected the state's bond rating.

Ms. Klimek said the department recognized the financial risks a major event in the near future could pose to Citizens, the Cat Fund and policyholders throughout the states, but added that the costs of recovering from a storm would have to be borne regardless of when it occurs.

"It's a question of pay now or pay later," she said, adding that many homeowners had to deal with numerous assessments in the wake of the 2004 and 2005 storm seasons.

"You can't just legislate that insurance is going to be cheaper, so they tried to balance the need for rate relief and the need to protect the long-term future."

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Insurers: Woes Lie Ahead For Fla. Property Coverage

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