Florida Underwriter magazine has recently formed an Editorial Advisory Board. Throughout the year, board members will bring readers an Inside View of the state's insurance industry, its politics, challenges, and successes. Our inaugural column by Mike Colodny focuses on the property market. For information on the board and its members, go to the www.floridaunderwriter.com home page.

Although legislative efforts at comprehensive Florida property insurance reform were ultimately vetoed this year, actual passage of SB 2044, along with other recent developments, may indicate a growing understanding by Florida lawmakers of underlying problems that continue to debilitate the state's property insurance market. In addition, the potential consequences from unaddressed issues surrounding Citizens Property Insurance Corp. and the Florida Hurricane Catastrophe Fund could fuel legislators' concerns in the coming months.

Like many of its successful omnibus predecessors, SB 2044 was passed in the hectic final hours of the legislative session. However, unlike its handling of previous enactments, the 2010 Legislature opted to engage in a more studied approach and analysis of the state's residential property insurance cost drivers. Topics of in-depth consideration included: The role and impact of reinsurance; the cost of capital; the application of windstorm mitigation credits; the rise in sinkhole claims and corresponding adjustment costs; the considerable growth in public adjusters' solicitation and claims activities; and the ability of policyholders to recover replacement cost value without any deduction for depreciation or having repairs actually performed. These and other significant issues were addressed by SB 2044, which was advocated by many — even Florida's Insurance Commissioner Kevin McCarty — as a positive step toward a partial remedy for the state's ongoing insurance crisis.

Notably, SB 2044 highlighted Gov. Charlie Crist and Commissioner McCarty's evolving legislative and regulatory relationship. While actions taken during the 2009 legislative session demonstrated their similar viewpoints, the 2010 session revealed philosophical disagreements when the governor vetoed SB 2044 despite McCarty's support for the bill.

Another indication that Florida's policymakers are hearing the industry's message is evidenced by the commercial rate modernization provisions of SB 2176. Signed into law this year, the bill exempts specified types of commercial lines from Florida Office of Insurance Regulation filing and review requirements while mandating that rates not be excessive, inadequate or unfairly discriminatory.

Quick Fixes Not the Answer

In 2007, Gov. Crist used his election popularity and the still-raw memories of the 2004-2005 hurricane seasons to prod lawmakers into addressing his perceived concerns over the state's voluntary market premium levels. The resultant passage of HB 1A during the January 2007 Special Session was a quick-fix solution for the governor's political agenda through rate suppression and enhancement of the Cat Fund and Citizens. It has done little to correct the overriding concerns of Florida homeowner policyholders. In fact, a recent survey on voters' political and property insurance-related views conducted by the Property Casualty Insurance Association of America (PCI) and the Florida Chamber of Commerce found that 86 percent of insured homeowners felt that Florida insurance laws passed over the last four years have not resulted in any corresponding improvement.

In the aftermath of HB 1A, the legislative concept of what constitutes consumer protection may be metamorphosing. Florida's shrinking private insurer market and the corresponding unchecked growth of Citizens may be prompting a legislative shift away from the political and public perception that insurers are merely interested in gouging consumers. The political realization that an implosion of Citizens or the Cat Fund could potentially become its own catastrophe for Florida policyholders weighs heavily on legislators. The result has been an increased understanding that consumer and public protection is best served by implementing a realistic and sound approach to fostering the vitality of a financially strong voluntary market.

With 1.2 million policies currently in force, Citizens is Florida's largest property insurer. That increased exposure, along with the fact that the Cat Fund currently exceeds its claims-paying capacity, are factors that are receiving more legislative and political considerations. It is now clear that, in the event that either entity is unable to meet its financial obligations, Florida policyholders will face substantial surcharges and assessments. This massive potential policyholder liability may well be partial impetus for a legislative and regulatory recognition that rate suppression and ill-advised insurance regulation inevitably will hurt consumers in the long run.

An Unsuspecting Public

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

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

Although tumultuous, the last few years of policymaking have indicated that legislators and regulators alike are slowly appreciating the necessity of adequate rates and a free enterprise system where the coverage of risk is provided by a strong voluntary insurance market and not state-created entities.

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

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

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