Open Letter to Carriers

The Florida Association of Insurance Agents has worked for several years to enact meaningful reforms to assist all carriers in writing more property coverage in Florida. The recent special session proposals, while not driven by the industry, provided another opportunity where we, along with you our company partners, tried to influence changes balanced with a longer-term view.

We understand the concerns some carriers may have regarding what passed, particularly the new Cat Fund options, the expanding role of Citizens and increased regulations for insurance companies generally. We also understand that the approval of legitimate regulatory filings has been a problem for some and that some of the special session changes signal a worsening in the near term; though we hope not.

Despite these and other problems, there are a lot of reasons why a carrier should consider refraining from precipitous withdrawal activities. The Florida Association of Insurance Agents would ask that while you act in the best interests of your shareholders and policy holders, you also consider remaining in America's fourth largest marketplace at least until the impact of the reforms is fully known. Here are some reasons specifically relating to CS/HB IA for you to do this:

Most changes are not fully implemented until after the regular session which is less than 30 days away.

The new Cat Fund options, while beneficial in varying degrees to some carriers, are temporary and are scheduled to go off the books in three years.

The Excess Profits provision for property insurers is based on a ten-year profit cycle versus the annual approach used in auto or workers comp.

The suspension of “use and file” rates is only until December 31, 2008.

The suspension of “binding arbitration” is only until December 31, 2008.

The auto/home “cherry picking” provision isn't effective until January 1, 2008 and doesn't specify an amount of property business that must be written.

Increased deductibles are permitted and policyholders can exclude wind or hurricane damage under certain circumstances, statewide.

Capital market tools can be used to build Cat Fund reserves.

Sweeping mitigation reforms–A vast array of wind mitigation credits, incentives, buy downs, subsidies and standards are being implemented, including restricting Citizens eligibility for certain non-code plus buildings in coastal areas and elimination of the Panhandle exemption.

Changes to Citizens like the multi-peril option or expanded commercial offerings, are subject to a business plan that has not been approved yet and could contain phased in implementation based on market indications.

The State Board of Administration is authorized to manage Citizens assets.

Citizens accounts may be combined in the future which, along with an expanded assessment based from $9 billion to $30 billion, will serve to offset potential increases in assessment exposures.

Citizens writing multi-peril in windpool areas does not directly impact your ability to continue to exclude wind and write only the other perils if you choose. Credits against potential assessments are still valid and in the law.

Citizens will pay its pro-rated share of any FIGA assessments going forward, meaning voluntary carriers will pay less.

You will have the option to avoid paying sinkhole losses that are non-catastrophic in nature. Homes in sinkhole prone areas now will not need to seek coverage in Citizens, meaning less wind exposure in Citizens and more profitable policies available for voluntary carriers in high-sinkhole areas.

Lower deposit requirements are allowed or can be waived all together for reinsurers licensed in other countries.

While we understand there are concerns on myriad fronts, we also know that these and other benefits seem to warrant at least a “wait and see” response from most carriers. Should you have any questions on the above, or if you would like assistance in any way, please don't hesitate to contact us at any time.