Insurance is all about looking ahead and “betting” on thefuture. Lately, that has been a rather dicey situation. Who wouldhave 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 disputein Katharine Harris' home county? (OK, that may have been anodds-on wager.)

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

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

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

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

FAIFA: FAIFA continues to push hard for solutions to theinsurable interest statutes to disallow stranger-owned lifeinsurance arrangements. These transactions allow total investors toinsure a stranger's life for a profit that relies on the favorabletax status of life insurance. Congress has been considering anexcise tax on these arrangements…a troubling development to havecongress considering opening up life insurance for taxation.

We oppose the reduction of pre-licensing education hours forlife insurance agents. It currently requires more hours to become ahair dresser than to advise clients on the most important financialdecision they make: the purchase of long term security for theirfamily and for retirement. Decreasing the education needed foragents makes no sense, and we oppose this issue vehemently.

We join the chorus of agents that oppose reducing agent'scommissions on property insurance premiums at Citizens PropertyInsurance Corporation, or anywhere in the private market. This isan unfair approach to attempting to resolve our current propertycrisis. Agents are at the front lines of helping consumersunderstand their increasing complex options and in finding marketswilling to write their coverage.

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

As the largest voice for life and health insurance agents, aswell as for captive property agents, FAIFA has many other issues itwill be actively defending and monitoring during the upcomingsession.

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

The challenge for us is to get legislators to realize that weneed to look at real reform for insurance or this exercise infutility will become an annual event. It's OK to provide short-termrate relief as long as everyone understands that it's only astop-gap measure that does not address the root of the problem.

FAIA: This is the first time anyone can remember an insurancecrisis in which no one, and we mean no one, even claims to have asolution that can generate consensus. Therefore, FAIA's first goalwill be to help lawmakers avoid making things worse. They must keeptheir focus on meaningful, long-term reform. Unfortunately, severalproposals have surfaced that do not meet this long-term/meaningfulrequirement. They, along with our explanation, are as follows:

Citizens' Commissions–Rumors abound that lawmakers will do“something” to Citizens' commissions. While FAIA is notautomatically opposed to adjusting percentages in the face ofincreasing premiums, agent's increasing costs must be consideredand the Board of Citizens, not the statutes, should make thedetermination. Indeed, matters regarding expense management ofresidual markets should not be subject to annual politicization.That's why, on at least two prior occasions, lawmakers have removedprovisions mandating a specific commission from the statutes–oncefor the Auto JUA and once for the FWUA. Besides, no agent wouldsend a policy to Citizens given another viable alternative. We'veshown 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'treduce Citizens' premiums.

Commission Disclosure–The Governor's Committee recommended, anda lawmaker or two will therefore likely embrace, the idea ofidentifying the amount (by dollar) of the agent's commission paidon each policy. Not only is this “anti-business,” it's probably notpossible for many carriers to implement. Most pay different agentsdifferent percentages, which can even vary by coverage and/orterritory. Besides, commission percentages are often not applied tothe full amount of the premium. This will likely add to customerconfusion causing many to think that commission is profit, insteadof revenue utilized to offset the agent's overhead and otherbusiness related expenses.

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

Auto writers must write homeowners'–Even the Governor's TaskForce did not recommend this one, but it will be a major proposalduring the special session. The idea is that carriers who writehomeowners' in other states but only write auto in Florida, must berequired to write homeowners' here. Details vary as to how much, atwhat price, and whether there would be an interline subsidy betweenauto and homeowners'. There's also that Constitution to worryabout. Most in the industry agree that without a cross subsidy fromauto to homeowners', this proposal makes little sense and with across subsidy you create a captive market for domestic auto-onlyinsurers that would devastate the most competitive auto marketplacein history.

Homestead/Non-Homestead–FAIA proposes that instead of assessingnon-homesteaders at the back end, Citizens could merely surchargethem at the front end and, in doing so, kill several birds withone, far less expensive, stone. Many don't realize thatnon-homesteaders under current law could pay a 90 percentassessment. That's because non-homesteaders can be assessed up to10 percent of their premium for deficits in all three accounts: thePLA, the HRA, and the CLA. They also get assessed when everybodyelse in either Citizens or the voluntary market gets assessed (foreach account); that's a worst-case potential of 90 percent. Doesn'tit make more sense to merely surcharge them up front and save themillions it would cost to calculate, bill, and collect anassessment of 90 percent? FAIA (and others) believes the homesteadlaw either needs to be repealed or amended. If amended it shouldbe, (1) an upfront surcharge instead of an assessment, and (2)eligibility should be determined by the tax rolls only. The formereliminates the need for a diligent search and the latter enablesCitizens to determine homestead status via the county taxassessor's office.

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

FAIFA: FAIFA believes the governor, Cabinet, and legislature aregoing to make changes. The electorate demands it. But precipitousaction not well thought-out could kill the remaining market thatexists in Florida. The private market must be revived, andincentives instituted to entice more carriers into Florida.

FAIA: Because of the worsening property insurance crisis, lastyear FAIA formed a coalition with five other organizations todevelop consensus recommendations for presentation to lawmakers andother government officials. (PIRC – The Property Insurance ReformCoalition – is comprised of FAIA, Florida Association of Realtors,Florida Home Builders Association, Florida Bankers Association,Mortgage Bankers Association of Florida, and Florida ApartmentAssociation.)

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

1. Modification and Expansion of Catastrophic Funding – We mustrecognize that some part of Florida's catastrophic wind exposure isuninsurable by the private market. This means the state mustidentify the uninsurable portion and find a fair and efficientmethod to fund it. While the state's catastrophe fund helps keeppremiums down and companies in Florida, it is no longer adequatelyfunded and capable of handling the level of exposure we face goingforward. Ways must be found to expand catastrophic funding and toenhance the ability of the state to partner with private insurers.It's also important that Florida stop funding its wind exposurewith post-event assessments levied only on policyholders. We mustfind a fair and equitable way to build surplus, applying minimumimpact on all those who benefit from available, affordable propertyinsurance.

2. Transform Citizens Property Insurance Corporation – Citizenswas established as Florida's insurer of last resort, but has grownto become the largest insurer in the state and the fourth largestinsurer in the nation. As common-sense market reforms forcatastrophe funding are implemented, Citizens will no longer beneeded in its current form. Therefore, it must be restructured toavoid unnecessary growth in the future and to eliminate expensiveand unnecessary bureaucracy. It should provide provisional coverageonly to those who need it, and only for the time and extent of thatneed. It should never enable a financially capable individual toavoid the responsibility of hardening their home or businessagainst hurricanes.

3. Incentives to Encourage Mitigation – The Florida BuildingCode is one of the strongest construction codes in the nation, butthere is room for improvement. Stronger compliance with the codewill be realized with more education and training. By establishingincentive programs and eliminating disincentives to mitigation,existing homes can be fortified to withstand hurricane strengthwinds, more lives will be saved, and the financial impact fromproperty damage will be minimized. By taking steps to reduce andmanage total exposure to hurricanes, Florida can help moderatedamage claims and reduce insurance costs.

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

PIA: The Special Session will try to provide immediate raterelief, but it's not likely to be permanent. During the regularsession I am sure insurance will dominate the agenda. There havebeen proposals hinting at forcing companies to write more propertyinsurance, but the reality is that it's highly unlikely that wouldwork. Unfortunately, it's not even a certainty that we could doanything to entice them to write more. The challenge before us isto either find a way to make Florida attractive to the admittedmarkets or we accept Citizens Property Insurance as our only hope.Whatever happens, Citizens is a fact of life for the foreseeablefuture and we need to help them become part of the solution andstop tearing them apart.

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

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

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

The question was what we thought odds were for meaningfulreform. Meaningful reform will come if we can identify and thenaddress the causes of our problems. Most of the energy has beenspent alleviating the symptoms rather than curing the disease. Thisis understandable, given the fact that there really hasn't been anyagreement on what the cure should be. What appears obvious is thatthere is no singular solution to this problem and there is nopainless solution. Because this will be the third consecutive timeour legislature has addressed the insurance crisis, I hold out hopethey will look closer for long-term solutions. It's too early inthe process to be cynical about its prospects.

FIC: Florida consumers faced homeowners' insurance rateincreases last year, in addition to dramatic property tax increasesand escalating home values in recent years, which have made theirmonthly mortgage unaffordable and they are after blood–theinsurance community's, because we seem to be getting blamed foreverything. Insurance rates were the top issue during theelections. Almost every candidate for major office had a plan tolower rates. The legislature is meeting in special session withpublic 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 toexpand the state's liability to pay claims after major storms andthe liability of citizens throughout the state. Whatever stateprograms are expanded, like the Florida hurricane catastrophe fundand Citizens Property Insurance Corporation, or created, like thesuper cat fund proposed by Senate Democratic leader Steve Geller,will be financed through bonding when a big storm hits. The bondswill be retired through surcharges on all Florida property owners,regardless of whether they had a hurricane claim, and allautomobile policyholders.

Our goal during the special session and regular session in Marchis to work with legislators as they produce the rate reliefconsumers are demanding and public officials promised, making sureeveryone understands the true cost and the liability looming outthere for Florida citizens and their children. We also will offerour help in assuring that the state expansion initiatives willoperate so that hurricane victims' claims can be paid promptly andminimize the looming liability whenever possible.

We also will work to try to convince legislators that someproposals raised during the campaign and getting consideration nowwon't lower rates, although they sound good because they take hardslaps at the face of the insurance industry. Not only will they notlower rates, but they could threaten the continued existence of aprivate property insurance market in Florida.

This is the most serious crisis facing the property insuranceindustry in the 20 years I have worked with the Florida InsuranceCouncil. 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 thehurricane-loss financing system to produce lower insurance ratesnow. North and central Floridians face massive rate increases downthe road for rate relief that would largely help south Floridians.This is an appropriate policy decision for the legislature becausewe are one Florida and rates for many citizens now truly areunaffordable. But the long-term liability, bonding, and loomingstatewide surcharges should be minimized.

If the punitive legislation under consideration passes, Floridaconsumers will find themselves without voluntary market options inthose areas where private carriers continue to insure today. Thebill will come due some day, and it will be magnifiedexponentially.

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

FAIFA: FAIFA believes the lack of health competition in thehealth insurance marketplace, the high rates of Floridians withouthealth insurance, and the lack of funding of the high-risk pool isthe next biggest issue. We also don't think personal injuryprotection insurance should be simply eliminated; either fix it orreplace it with mandatory bodily injury. Abandoning it altogetherwill cause the legitimate health care costs of auto accidents to beshifted onto the voluntary health insurance market, causingadditional upward pressure on health insurance rates.

PIA: It seems to have fallen off the radar screen, but PIP willbe sunsetting this year unless some action is taken. Thelegislature actually passed a bill last year that provided minorreforms to PIP but the governor ended up vetoing it because he feltit didn't go far enough. We don't know how Governor Crist mightrespond to the same legislation, but unless PIP is revised orrenewed during the upcoming session, it will go away. Even with theproperty insurance crisis on the agenda, PIP will need to beaddressed.

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 AlexSink.

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

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

FAIA: Traditionally, FAIA doesn't get involved in statewideCabinet races. In fact, we can only remember once, and that waswhen we needed to defeat a trial lawyer running for insurancecommissioner. In 2002, the legislature made the insurancecommissioner an appointed office directly regulating insurancecompanies. The chief financial officer, on the other hand, is anelected Cabinet officer, and directly regulates insurance agents.The CFO votes on the appointment of the insurance commissioner, butdoes not vote on legislation. Although there is no specificprohibition, the CFO practically never advocates positions outsideof those related to the industries he/she regulates – in this casebanks and insurance. After careful due diligence, we activelysupported and endorsed Alex Sink.

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

FAIFA: I only see good news. Alex Sink brings a freshperspective to both Tallahassee and the regulation of agents alongwith the other industries overseen by the department of financialservices. The old way of doing things usually is not the best. Isense she is willing to question the status quo in a lot of placesthat has not been done. Also, discourse is good. Some of our stateinsurance problems are so intractable and complex, we are waybeyond partisan posturing. The voters expressed a desire for theirelected officials to work together, and I think Alex's significantbusiness background reveals a person who can bring many differingviewpoints together. She did it in business, and she can do it ingovernment.

PIA: We're very excited with the prospect of working with AlexSink. We spent a lot of time during the election talking to herabout insurance and the related challenges facing us here inFlorida. She's a very impressive and intelligent individual with anextensive business background that can only benefit the citizens ofFlorida. It's easy to see why she was such a success in the privatesector. We look forward to working with her.

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

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