The Florida Legislature took courageous votes during the 2009session to raise Citizens Property Insurance Corp. rates to betterposition the government-run insurer to be able to pay its claims ontime and to reduce the potential for statewide surcharges followinga major hurricane.

Citizens' rates will rise for the first time in three years, butunder a 10 percent cap. Another politically tough position was toroll back Florida Hurricane Catastrophe Fund (Cat Fund) coverage tomake the program financially sound once more. Private insurers areauthorized to replace Cat Fund layers being eliminated with moreexpensive private reinsurance, so their rates will go up, but alsounder a 10 percent cap.

Insurance is one of the most far-reaching and politicallydifficult issues faced by the Legislature each year and like mostissues in this group, final decisions usually come during the lastweek, even the last day. This year was true to form. TheCitizens/Cat Fund package (HB 1495), approved in the final hours,allows Citizens' rates to begin to move to an actuarially soundlevel, capped at 10 percent a year. It cuts $2 billion from the CatFund's Temporary Increase in Coverage Limit (TICL) layer this yearand establishes a plan to drawn down TICL completely after the 2013hurricane season, returning this coverage to the privatereinsurance market.

The ball is in Gov. Charlie Crist's court now on another hugeproperty insurance bill (HB 1171) approved on the final day. He isdeciding whether to veto a proposal allowing large insurers to sellresidential policies at rates not subject to approval by the Officeof Insurance Regulation (OIR).

The Legislature also preserved the critically important surpluslines industry by reversing the Florida Supreme Court's Essex v.Zota decision (HB 853). The court ruled last fall that surpluslines insurers were subject to OIR rate and form regulation,creating not only rate regulation for the future, but opening thedoor to lawsuits arising from claims disputes over the last 20years. Another big property bill (SB 714) was legislationcorrecting unintended consequences in the condominium associationinsurance bill passed during the 2008 session.

FIC Helped Drive Consensus

All property & casualty lobbyists were involved in thisinitiative, but Florida Insurance Council (FIC) lobbyists wereamong the most active. They worked to get the best deals possibleand crafted some of the key language. The big property insurancepackage launches two critical transitions: A 10 percent-a-yeardrive by Citizens toward actuarially sound rates following athree-year rate freeze; and a $2 billion a year phase out of theunfunded, $12 billion TICL program in the Cat Fund.

Sound Citizens' rates won't be achieved for years at the snail'space agreed to; however, it was all the governor and keylegislators could support, and it represents a beginning. Inaddition, one of the most important decisions was that theLegislature did not heed outrage expressed by south Floridalegislators and extend the rate freeze.

The TICL phase-out returns more of Florida's hurricane exposureto the private reinsurance market and lessens insurers' dependenceon higher levels of coverage in the Cat Fund, which are now “iffy.”That is an improvement because until the New York markets fortax-exempt bonds began to improve in recent weeks, this capacitywas “theoretical” only.

Private insurers will face higher reinsurance costs as Cat Fundcapacity is reduced and many have been required by Demotech andA.M. Best to secure liquidity facilities or line of creditcontracts in the event the Cat Fund cannot timely deliver. Theymust be allowed to quickly recover these increased costs. The finalproperty package helps through a special recoupment process — muchmore restricted than earlier versions and less than what the FICProperty Committee believed was needed. But the bill also replacesa rigid OIR prohibition against inclusion in the rate base of costsfor reinsurance “duplicative” to Cat Fund coverage.

At press time, Florida insurers, regulators and legislators werewaiting to see if the package would satisfy Demotech and A.M. Best,which have threatened to downgrade ratings for Florida insurers ifthey were relying on a Cat Fund that could not be expected todeliver timely after a hurricane.

Significant Rate Regulation Step

FIC could not take a position on the bill because many of itsmembers would qualify for this exemption from rate regulation. TheFlorida Insurers Legislative Committee, chaired by FIC member JohnRogan of Sunshine State Insurance Company, and including severalother FIC member insurers, believes the package gives State Farmand other large insurers an unfair competitive advantage. It hasasked Gov. Crist to veto the bill.

State Farm agents — who apparently first proposed the plan andthen apparently also got State Farm the company behind it — havecreated an Internet site enabling their policyholders to e-maillegislators and Gov. Crist to support the package. At least 12,000e-mails were sent during the final week of the session.

Whatever the outcome, and even though smaller insurers feel —and may well be –at a disadvantage initially, the debate on thisbill and its final passage are a historic step for insurance inFlorida. It may be the beginning of a monumental thaw and shiftaway from the most rigid rate regulation in the country. Itrepresents a change in a political and regulatory environment thatmany insurers found intolerable.

Gov. Crist boasted following the January 2007 special session,when rates for Citizens Property and the private industry wererolled back and frozen, “We have put the final nail in the coffinof greedy insurance companies.”

Fee Bill Squeaks By

Employers, business groups, the Florida Legal Reform Institute,and the insurance community passed their bill reversing the FloridaSupreme Court's Murray decision, once again eliminating hourlylegal fees in workers' compensation litigation. But it was a toughjob and the outcome appeared in doubt until the end. The Senatefinally accepted the House proposal, which it had rejected a dayearlier. If Crist signs the bill as expected, the National Councilfor Compensation Insurance will make a filing rolling back the 6.4percent rate increase implemented April 1 to recover increasedcosts from the Florida Supreme Court decision.

Bill Prohibits “Crash Tax”

Florida became the latest state in the country to passlegislation prohibiting charges by cities and counties when firedepartments and other emergency responders provide assistancefollowing an auto accident. This initiative was led by PropertyCasualty Insurers of America (who dubbed it the “crash tax”) andsupported by FIC members and our lobbyists. The bill (SB 2282E2)must now be signed by Gov. Crist.

More Significant, Less Punitive

For the first time in three or four years, the insurancecommunity was not the target and the villain. Instead of goodversus bad, it was, “we are in this together and it is not a goodplace to be.” If a major hurricane had struck last fall, the CatFund probably could not have timely delivered on all of itsfinancial promises and Citizens, heavily reliant on the program,would have faced a crisis, as would have private insurers.

The situation is only a little better going into the 2009hurricane season, although recent post-hurricane, tax-exemptbonding estimates have the Cat Fund close to being able to financeits basic program, at least. The ship heading toward the iceberghas been turned, as one House member put it. It took politicalcourage to force the turn because it means higher insurancerates.

Sam Miller is the executive vice president of the FloridaInsurance Council. He may be reached at 850-386-6668, ext. 223;www.flains.org.