Insurance is all about looking ahead and “betting” on the future. Lately, that has been a rather dicey situation. Who would have thought that after running out of hurricane names in the 2005 – 2006 season that we would not even get past “A” in 2006 – 2007? Or that Florida would once again be embroiled in a voting dispute in Katharine Harris' home county? (OK, that may have been an odds-on wager.)

However, taking into account that there rarely is a “sure thing,” four of Florida's top insurance experts agreed to speak out on what our industry may look like as 2007 unfolds.

Our thanks to Florida Insurance Council (FIC) Executive Vice President Sam Miller, Professional Insurance Agents of Florida (PIA) CEO Mark O'Connell, Florida Association of Insurance Agents (FAIA) Executive Vice President Scott Johnson, and Florida Association of Insurance and Financial Advisors (FAIFA) Lobbyist Tim Meenan of Blank, Meenan and Smith, P.A. in Tallahassee for their participation.

[Due to the production considerations of a monthly magazine, the information in this article was sent by the participants prior to the opening of the January Special Session.]

Q. What are your association's top legislative goals this year?

FAIFA: FAIFA continues to push hard for solutions to the insurable interest statutes to disallow stranger-owned life insurance arrangements. These transactions allow total investors to insure a stranger's life for a profit that relies on the favorable tax status of life insurance. Congress has been considering an excise tax on these arrangements…a troubling development to have congress considering opening up life insurance for taxation.

We oppose the reduction of pre-licensing education hours for life insurance agents. It currently requires more hours to become a hair dresser than to advise clients on the most important financial decision they make: the purchase of long term security for their family and for retirement. Decreasing the education needed for agents makes no sense, and we oppose this issue vehemently.

We join the chorus of agents that oppose reducing agent's commissions on property insurance premiums at Citizens Property Insurance Corporation, or anywhere in the private market. This is an unfair approach to attempting to resolve our current property crisis. Agents are at the front lines of helping consumers understand their increasing complex options and in finding markets willing to write their coverage.

We are very concerned about the “quiet crisis” in Florida, the lack of health insurance carriers willing to write policies in our state. We need to find funding for the high-risk pool to help take the already ill individuals off the table, so private carriers will write here. More carriers means more competition, which is good for everybody.

As the largest voice for life and health insurance agents, as well as for captive property agents, FAIFA has many other issues it will be actively defending and monitoring during the upcoming session.

PIA: Not as if we didn't already suspect it, but the 2006 election campaigns made it clear that insurance will drive the legislative agenda. The property insurance market is everyone's concern and campaign promises to reduce premiums will put a lot of pressure on elected officials to make it happen. While it's doubtful there is anything that could be done immediately to influence the rates in the admitted markets, it's likely much will be done to reduce the rates offered by Citizens. That's really the only way to have an immediate and far-reaching impact on rates.

The challenge for us is to get legislators to realize that we need to look at real reform for insurance or this exercise in futility will become an annual event. It's OK to provide short-term rate relief as long as everyone understands that it's only a stop-gap measure that does not address the root of the problem.

FAIA: This is the first time anyone can remember an insurance crisis in which no one, and we mean no one, even claims to have a solution that can generate consensus. Therefore, FAIA's first goal will be to help lawmakers avoid making things worse. They must keep their focus on meaningful, long-term reform. Unfortunately, several proposals have surfaced that do not meet this long-term/meaningful requirement. They, along with our explanation, are as follows:

Citizens' Commissions–Rumors abound that lawmakers will do “something” to Citizens' commissions. While FAIA is not automatically opposed to adjusting percentages in the face of increasing premiums, agent's increasing costs must be considered and the Board of Citizens, not the statutes, should make the determination. Indeed, matters regarding expense management of residual markets should not be subject to annual politicization. That's why, on at least two prior occasions, lawmakers have removed provisions mandating a specific commission from the statutes–once for the Auto JUA and once for the FWUA. Besides, no agent would send a policy to Citizens given another viable alternative. We've shown this to lawmakers along with our chart showing Citizens' commissions to be about half that of the voluntary market. Finally, unlike the voluntary market, reducing Citizens' commissions doesn't reduce Citizens' premiums.

Commission Disclosure–The Governor's Committee recommended, and a lawmaker or two will therefore likely embrace, the idea of identifying the amount (by dollar) of the agent's commission paid on each policy. Not only is this “anti-business,” it's probably not possible for many carriers to implement. Most pay different agents different percentages, which can even vary by coverage and/or territory. Besides, commission percentages are often not applied to the full amount of the premium. This will likely add to customer confusion causing many to think that commission is profit, instead of revenue utilized to offset the agent's overhead and other business related expenses.

Citizens All-Perils– Unfortunately, this idea is beginning to resonate with lawmakers. The theory is, by allowing Citizens to write only an all-perils homeowners' policy, not a wind-only policy in high-risk areas, two things will be achieved. One, Citizens will have more surplus from lower-risk perils to subsidize wind losses. And two, carriers fearful of losing the other perils to Citizens will voluntarily write more wind to avoid doing so. Being pushed by Insurance Commissioner Kevin McCarty, this is a huge gamble if implemented by lawmakers. While Citizens already writes the full policy outside of the high-risk areas, expanding the role of government further isn't likely to pay off as demonstrated by the fact that carriers can opt to write wind in high-risk areas today and even receive an offset of their assessments if they do.

Auto writers must write homeowners'–Even the Governor's Task Force did not recommend this one, but it will be a major proposal during the special session. The idea is that carriers who write homeowners' in other states but only write auto in Florida, must be required to write homeowners' here. Details vary as to how much, at what price, and whether there would be an interline subsidy between auto and homeowners'. There's also that Constitution to worry about. Most in the industry agree that without a cross subsidy from auto to homeowners', this proposal makes little sense and with a cross subsidy you create a captive market for domestic auto-only insurers that would devastate the most competitive auto marketplace in history.

Homestead/Non-Homestead–FAIA proposes that instead of assessing non-homesteaders at the back end, Citizens could merely surcharge them at the front end and, in doing so, kill several birds with one, far less expensive, stone. Many don't realize that non-homesteaders under current law could pay a 90 percent assessment. That's because non-homesteaders can be assessed up to 10 percent of their premium for deficits in all three accounts: the PLA, the HRA, and the CLA. They also get assessed when everybody else in either Citizens or the voluntary market gets assessed (for each account); that's a worst-case potential of 90 percent. Doesn't it make more sense to merely surcharge them up front and save the millions it would cost to calculate, bill, and collect an assessment of 90 percent? FAIA (and others) believes the homestead law either needs to be repealed or amended. If amended it should be, (1) an upfront surcharge instead of an assessment, and (2) eligibility should be determined by the tax rolls only. The former eliminates the need for a diligent search and the latter enables Citizens to determine homestead status via the county tax assessor's office.

Q. Property insurance is at the top of everyone's agenda this year – the public, the legislators, the governor, and the industry. What odds do you give for meaningful reform/action on solving Florida's property insurance problem?

FAIFA: FAIFA believes the governor, Cabinet, and legislature are going to make changes. The electorate demands it. But precipitous action not well thought-out could kill the remaining market that exists in Florida. The private market must be revived, and incentives instituted to entice more carriers into Florida.

FAIA: Because of the worsening property insurance crisis, last year FAIA formed a coalition with five other organizations to develop consensus recommendations for presentation to lawmakers and other government officials. (PIRC – The Property Insurance Reform Coalition – is comprised of FAIA, Florida Association of Realtors, Florida Home Builders Association, Florida Bankers Association, Mortgage Bankers Association of Florida, and Florida Apartment Association.)

The group has produced a consensus document containing four key pillars to meaningful long-term reform. The full report, entitled “The Gathering Storm,” is available from any of the sponsoring organizations.

1. Modification and Expansion of Catastrophic Funding – We must recognize that some part of Florida's catastrophic wind exposure is uninsurable by the private market. This means the state must identify the uninsurable portion and find a fair and efficient method to fund it. While the state's catastrophe fund helps keep premiums down and companies in Florida, it is no longer adequately funded and capable of handling the level of exposure we face going forward. Ways must be found to expand catastrophic funding and to enhance the ability of the state to partner with private insurers. It's also important that Florida stop funding its wind exposure with post-event assessments levied only on policyholders. We must find a fair and equitable way to build surplus, applying minimum impact on all those who benefit from available, affordable property insurance.

2. Transform Citizens Property Insurance Corporation – Citizens was established as Florida's insurer of last resort, but has grown to become the largest insurer in the state and the fourth largest insurer in the nation. As common-sense market reforms for catastrophe funding are implemented, Citizens will no longer be needed in its current form. Therefore, it must be restructured to avoid unnecessary growth in the future and to eliminate expensive and unnecessary bureaucracy. It should provide provisional coverage only to those who need it, and only for the time and extent of that need. It should never enable a financially capable individual to avoid the responsibility of hardening their home or business against hurricanes.

3. Incentives to Encourage Mitigation – The Florida Building Code is one of the strongest construction codes in the nation, but there is room for improvement. Stronger compliance with the code will be realized with more education and training. By establishing incentive programs and eliminating disincentives to mitigation, existing homes can be fortified to withstand hurricane strength winds, more lives will be saved, and the financial impact from property damage will be minimized. By taking steps to reduce and manage total exposure to hurricanes, Florida can help moderate damage claims and reduce insurance costs.

4. A More Consistent Approach to Regulation – In order to cultivate a viable insurance market, it is necessary to retain existing companies and bring more competition into the state. However, Florida has a reputation for having one of the country's least friendly regulatory and legal climates. It's important to protect the public from unfair trade practices, but creating a more consistent approach to regulation will also give consumers the additional benefit flowing from increased competition.

PIA: The Special Session will try to provide immediate rate relief, but it's not likely to be permanent. During the regular session I am sure insurance will dominate the agenda. There have been proposals hinting at forcing companies to write more property insurance, but the reality is that it's highly unlikely that would work. Unfortunately, it's not even a certainty that we could do anything to entice them to write more. The challenge before us is to either find a way to make Florida attractive to the admitted markets or we accept Citizens Property Insurance as our only hope. Whatever happens, Citizens is a fact of life for the foreseeable future and we need to help them become part of the solution and stop tearing them apart.

The storms of 2004 and 2005 showed us how vulnerable our buildings were to storm damage and the insurance companies saw the same pictures we saw. We need to face the reality of where we live and the risks that exist and start moving towards making our buildings better able to withstand the devastating effects of a hurricane. The state is moving toward making the building codes more closely reflect the risk but there are tens of thousands of homes that exist and do not meet these codes. We can't force people to upgrade their property, but we also shouldn't be expected to continue to subsidize the insurance for people who won't address this problem. Certainly putting money in to mitigation programs to provide assistance to those who need it makes more sense than allocating public money simply to absorb part of the premium. Making our properties more hurricane resistant will make them more insurable.

Citizens needs both short-term and long-term relief. Most of you are aware of the losses they incurred in both 2004 and 2005. Legislation forced them to adjust their rates and alter the way they assessed losses with the expectation that this would reduce the probability of future assessments. When the impact of those rate changes hit the marketplace, it became a political nightmare and the legislature will be addressing that in special session.

The reality remains, however, that Citizens is vulnerable and deficits are likely unless the rates are actuarially sound. The legislature cannot continue to artificially increase and decrease Citizens rates and ever expect any stability to come to the marketplace. There is some discussion to provide financial relief to Citizens and to build reserves that would ultimately reduce the need for higher premiums. At the same time that plan calls for supporting mitigation efforts. We need a dedicated source of funding if we ever hope to end the cycle of addressing the symptoms of the property insurance crisis and begin to address the causes. An additional one percent added to the sales tax in the form of a storm assessment could go a long way toward addressing this.

The question was what we thought odds were for meaningful reform. Meaningful reform will come if we can identify and then address the causes of our problems. Most of the energy has been spent alleviating the symptoms rather than curing the disease. This is understandable, given the fact that there really hasn't been any agreement on what the cure should be. What appears obvious is that there is no singular solution to this problem and there is no painless solution. Because this will be the third consecutive time our legislature has addressed the insurance crisis, I hold out hope they will look closer for long-term solutions. It's too early in the process to be cynical about its prospects.

FIC: Florida consumers faced homeowners' insurance rate increases last year, in addition to dramatic property tax increases and escalating home values in recent years, which have made their monthly mortgage unaffordable and they are after blood–the insurance community's, because we seem to be getting blamed for everything. Insurance rates were the top issue during the elections. Almost every candidate for major office had a plan to lower rates. The legislature is meeting in special session with public officials now forced to deliver on the promises they made. It is not easy.

The only way to reduce premiums in a significant manner is to expand the state's liability to pay claims after major storms and the liability of citizens throughout the state. Whatever state programs are expanded, like the Florida hurricane catastrophe fund and Citizens Property Insurance Corporation, or created, like the super cat fund proposed by Senate Democratic leader Steve Geller, will be financed through bonding when a big storm hits. The bonds will be retired through surcharges on all Florida property owners, regardless of whether they had a hurricane claim, and all automobile policyholders.

Our goal during the special session and regular session in March is to work with legislators as they produce the rate relief consumers are demanding and public officials promised, making sure everyone understands the true cost and the liability looming out there for Florida citizens and their children. We also will offer our help in assuring that the state expansion initiatives will operate so that hurricane victims' claims can be paid promptly and minimize the looming liability whenever possible.

We also will work to try to convince legislators that some proposals raised during the campaign and getting consideration now won't lower rates, although they sound good because they take hard slaps at the face of the insurance industry. Not only will they not lower rates, but they could threaten the continued existence of a private property insurance market in Florida.

This is the most serious crisis facing the property insurance industry in the 20 years I have worked with the Florida Insurance Council. It is a lot more than high insurance premiums.

Our consumers and their children will have to bear this massive, looming liability from expanded state intervention in the hurricane-loss financing system to produce lower insurance rates now. North and central Floridians face massive rate increases down the road for rate relief that would largely help south Floridians. This is an appropriate policy decision for the legislature because we are one Florida and rates for many citizens now truly are unaffordable. But the long-term liability, bonding, and looming statewide surcharges should be minimized.

If the punitive legislation under consideration passes, Florida consumers will find themselves without voluntary market options in those areas where private carriers continue to insure today. The bill will come due some day, and it will be magnified exponentially.

Q. Everyone agrees that the emphasis will be on property insurance, but the “second place” most worrisome insurance problem is up for grabs. If the property insurance problem were to magically disappear, what would we be talking about instead?

FAIFA: FAIFA believes the lack of health competition in the health insurance marketplace, the high rates of Floridians without health insurance, and the lack of funding of the high-risk pool is the next biggest issue. We also don't think personal injury protection insurance should be simply eliminated; either fix it or replace it with mandatory bodily injury. Abandoning it altogether will cause the legitimate health care costs of auto accidents to be shifted onto the voluntary health insurance market, causing additional upward pressure on health insurance rates.

PIA: It seems to have fallen off the radar screen, but PIP will be sunsetting this year unless some action is taken. The legislature actually passed a bill last year that provided minor reforms to PIP but the governor ended up vetoing it because he felt it didn't go far enough. We don't know how Governor Crist might respond to the same legislation, but unless PIP is revised or renewed during the upcoming session, it will go away. Even with the property insurance crisis on the agenda, PIP will need to be addressed.

FIC: PIP sunset is the second big issue.

Q. Did you actively support Alex Sink in her campaign? If so, why?

FAIFA: Many, many FAIFA members actively supported Alex Sink.

PIA: PIA was very active during this past election because we knew insurance was going to be the major campaign issue. As things turned out, we can comfortably say that we supported every one of the winners. Not surprisingly, we also supported every one of the losers. PIA's role in the political process is to focus on the message and we worked tirelessly trying to make sure every candidate understood the issues affecting the insurance industry. The real work was going to come after the election and we knew we were going to have to work with whoever won.

You can't call it a calculated risk when you endorse a candidate because it's about much more than whether or not that individual wins the election. Like it or not, partisan politics is a way of life and PIA absolutely needs to work with both parties and all of the elected officials. I'd love to believe it's a forgive-and-forget world and people understand, but life is not a fairy tale. Endorsing the winning candidate is not worth the risk of being shut out of the process after the election because we alienated an entire political party.

FAIA: Traditionally, FAIA doesn't get involved in statewide Cabinet races. In fact, we can only remember once, and that was when we needed to defeat a trial lawyer running for insurance commissioner. In 2002, the legislature made the insurance commissioner an appointed office directly regulating insurance companies. The chief financial officer, on the other hand, is an elected Cabinet officer, and directly regulates insurance agents. The CFO votes on the appointment of the insurance commissioner, but does not vote on legislation. Although there is no specific prohibition, the CFO practically never advocates positions outside of those related to the industries he/she regulates – in this case banks and insurance. After careful due diligence, we actively supported and endorsed Alex Sink.

Q. What are the “good news/bad news” aspects of working with a CFO new to statewide politics and one who ran on the Democratic ticket?

FAIFA: I only see good news. Alex Sink brings a fresh perspective to both Tallahassee and the regulation of agents along with the other industries overseen by the department of financial services. The old way of doing things usually is not the best. I sense she is willing to question the status quo in a lot of places that has not been done. Also, discourse is good. Some of our state insurance problems are so intractable and complex, we are way beyond partisan posturing. The voters expressed a desire for their elected officials to work together, and I think Alex's significant business background reveals a person who can bring many differing viewpoints together. She did it in business, and she can do it in government.

PIA: We're very excited with the prospect of working with Alex Sink. We spent a lot of time during the election talking to her about insurance and the related challenges facing us here in Florida. She's a very impressive and intelligent individual with an extensive business background that can only benefit the citizens of Florida. It's easy to see why she was such a success in the private sector. We look forward to working with her.

FAIA: We do not think that party affiliation is a concern for issues pertaining to the office of CFO.

FIC: Alex Sink is obviously very talented and we believe she will hold statewide office for some time to come.

Special Reports /

Four Experts Speak Out on Florida's Insurance Future

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