Fla. Insurance Reforms Potentially Risky: Milliman Reports

An insurer-commissioned report released today said that Florida's legislative reforms have provided the greatest benefit to coastal high risk areas, and could potentially raise premiums in less risky areas.

The report was prepared by Seattle-based actuarial consulting firm Milliman, Inc., and was commissioned by Property Casualty Insurers Association of America. It was unveiled at a press conference in Tallahassee this morning. Briefings for the state's chief financial officer and attorney general as well as members of the governor's staff followed the event.

"All agreed we have a long way to go to solve the problem," said PCI spokesman Joe Annotti following the press conference.

On Friday, State Chief Financial Officer Adelaide "Alex" Sink told an insurance group that Citizen, Florida's insurer of last resort, was writing actuarially unsound policies.

The report found that the new laws provide immediate savings for homeowners by shifting potential payments for hurricane losses from the homeowners receiving the current policy benefits to future policyholders, motorists and business owners, who would be assessed.

Earlier this year, the Florida Legislature expanded the capacity of the Florida Catastrophe Relief Fund to lower reinsurance rates and ultimately force primary premium reductions. In addition, it mandated a freeze on Citizens rates and expanded its coverage universe.

The report further said that greatest benefit of the reforms has been directed at households in Florida's highest risk coastal areas, potentially increasing household premiums in less risky areas if there is a reserve shortfall after a hurricane.

William Stander, PCI's assistant vice president and regional manager, said the Florida Legislature, under enormous pressure from voters, acted aggressively during both the January special session and the recently completed regular legislative session.

The lawmakers provided insurance rate relief to consumers hardest hit by price increases as a result of record-breaking hurricane losses in 2004 and 2005 and predictions for even more frequent and severe storms in the future, he said.

"And while the Milliman report finds that the new law should lower insurance prices for some consumers, all Floridians need to understand that this is accomplished by transferring much of the cost of paying for future hurricane losses to individuals and businesses in lower-risk areas across the state."

Nancy Watkins, principal and consulting actuary for Milliman and the report's co-author, said the legislation could result in unintended consequences that may eventually be harmful to both consumers and the state.

"The new law may drive away some private insurance companies that would otherwise want to conduct business in Florida," she said. "Along with the reduction in Citizens' rates, the result may that be more policies shift into Citizens."