Gallagher Offers Homeowner Solutions

Florida's CFO Tom Gallagher recently proposed a list of ideas aimed at salvaging the state's insurance industry and protecting consumers from huge premium increases.

Among the suggestions were: removing exemptions in the state's building codes to weaken claims in the future; allowing homeowners tax-free savings to use for hurricane expenses; and encouraging reinsurance investors to help insurance companies deflect some of their losses from sizeable events.

He also joined a growing list of insurance leaders in the state and around the country in calling for Congress to create a national, government-backed catastrophic reinsurance fund, much like the state-backed hurricane reinsurance fund created after Hurricane Andrew. Gallagher has lobbied for this national fund for years.

Raising their voices in favor at this juncture are Gov. Jeb Bush and Florida Insurance Commissioner Kevin McCarty. McCarty joined insurance officials from three other Gulf states last month in meetings with members of the U.S. House of Representatives Banking and Insurance Committee on hurricane-related issues and to discuss a National Catastrophic Insurance fund. McCarty also was to attend a mid-November conference in San Francisco where officials from New York, Florida, Illinois, and California planned to begin strategic planning for establishment of such a national catastrophe fund.

Gallagher also urged Congress to approve tax-free catastrophic reserves for insurance companies – a longtime industry wish. The CFO sees opportunity in this move to limit the need for expensive reinsurance, which he sees translating into higher homeowners' premiums.

“If there is one thing we have learned in the past two years,” McCarty said, “it is that we must find a new way to help property owners and insurance companies deal with the local, state, and regional costs of deadly hurricanes.”

McCarty said that unless action is taken to provide property owners and insurers a stable form of catastrophic coverage, local, state, and regional economies are going to suffer long-term consequences when insurance becomes increasingly more expensive and less available.

Rep. Dan Gelber (D-Miami Beach) came out in favor of “re-tooling” Florida's hurricane catastrophe trust fund so policyholders with unpaid claims could directly tap the fund to pay for hurricane damage.

Gelber is the incoming minority leader of the Florida House. He sees the cat fund as useful in providing coverage to homeowners through existing agents and insurance companies.

“This fund would work just like conventional insurers, by stockpiling reserves, and investing them so there is an adequate cushion to pay hurricane claims in bad years. It could even buy reinsurance from other insurers, so it wouldn't have to absorb a claim's entire loss. And it could borrow money if it needed to pay claims,” said Gelber.

He predicted that its rates would be lower because it would not be profit-driven, nor would it pay taxes, and its rate-making would be open and transparent.

Gelber conceded that this is not a new idea, but one that is timely. He believes that the Florida insurance market never actually stabilized after Hurricane Andrew, and called the post-Andrew solution – Citizens Property Insurance – “a disaster” in a recent newspaper article.