Fla. Insurance Problems Detailed

According to CAS, Ms. Durdan indicated that insureds themselves have caused some of the property insurance problems in Florida because of the state's growing wealth and concentrations of growth in coastal areas that are more exposed to loss.

Florida historically has been a very attractive place to live, and now it has a higher price tag. Ms. Durdan said another external factor in the crisis is the impact of term limits for elected state officials.

Term limits have reduced the experience and knowledge of the insurance industry at the Capitol in Tallahassee and impede its capability to come up with workable long-term solutions to the post-2004 crisis, Ms. Durdan commented.

John W. Rollins, vice president of AIR Worldwide Corporation modeling firm and a former senior actuary for Citizens, described for the Society how the public insurer evolved, the political perceptions of the industry in Florida, and why what happens with the quasi-governmental entity matters to both insurers and the state residents.

Mr. Rollins said Citizens–which is a combination of the old Florida Windstorm Underwriting Association, created in the '70s as a wind-coverage insurer of last resort for all coastal property in the state, and the Florida Residential Property and Casualty Joint Underwriting Association that was set up in 1993 following market disruptions caused by Hurricane Andrew–has grown into the largest property insurer in Florida and the fourth largest in the nation.

"Citizens has evolved into an insurer that current political leaders in the state view as working for the people, and not a 'profiteering insurance company.' Its mission is to write coverage affordably despite its costs, write anywhere in the state, and write it forever with few eligibility restrictions and few incentives to try and decrease its size," said Mr. Rollins.

"While there are no easy solutions to the problems of Florida's insurance market, attempts to regulate a way out of the problems won't work and will only delay the day of reckoning," he warned.

"Flex-band rate filing systems, along with annual filing requirements and phase-ins of individual premium shocks, lead to more consistent regulation. This predictability, along with a commitment to actuarially sound rates for both private insurers and Citizens, and continued state support of wind mitigation to lessen the potential for huge losses from expected large hurricanes, will bring needed risk capital back to Florida," he said.

Insurers who initially disliked the Florida Hurricane Catastrophe Fund concept, and were mandated by law to participate in it, over time have come to see the benefits of the fund's tax-exempt status to provide inexpensive reinsurance in the world's most catastrophe-prone area, said Lara Mowery, managing director of Guy Carpenter & Company Inc. reinsurance brokerage firm.

Ms. Mowery said insurers are now becoming concerned about the cat fund again because of changes made earlier this year by state lawmakers significantly increasing the fund's capacity.

Changes to the fund "were made to help the state's property insurance consumers–many of whom were voicing outrage over rapidly rising insurance rates," she said.

But the changes, Ms. Mowery noted, have caused reactions from many parties including financial rating organizations such as A.M. Best, which earlier this year increased its credit risk factor on cat fund recoverables from 4 percent to 12 percent.

She said the total future assessments that could be levied on every insurance consumer in Florida if a large storm depletes the fund and impacts Citizens and possibly the Guarantee Fund reserves are enormous.

W. Lockwood Burt, a former Florida legislator and insurance industry veteran who is now the chief executive officer for Royal Palm Insurance Company, said the 2004-2005 hurricane seasons have demonstrated to the citizens of Florida that this is not just a Miami or Tampa problem, but one that is affecting all areas of the state.

Mr. Burt said lawmakers acted to reduce rising homeowner insurance rates by "empowering consumers by allowing reductions in coverage." They eliminated the maximum deductible of 10 percent, contents coverage and wind coverage.

Those requirements for reduced coverage include a handwritten and signed statement from the insured, signatures from all named insureds, and a written statement from any lien holder approving the reduction in coverage, he said.

Mr. Burt said the savings projected by lawmakers for Florida insurance consumers this year under the new statute is $1.69 billion, or 16.9 percent of the estimated $10 billion in homeowner premiums.

"But most insurers have estimated their rate decreases to be significantly less than what lawmakers had promised, with a statewide average of between 10- and 12 percent," Mr. Burt noted.

Bradley L. Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers–an organization of highly capitalized reinsurers operating in Bermuda, the U.S. and Europe–said after the two horrific years of 2004 and 2005, reinsurers stepped up with additional capacity and are committed to providing capacity to the Florida insurance market through new products and temporary capital to meet imbalances in supply and demand.

Bermuda's reinsurers provide 40 percent of the U.S. property catastrophe reinsurance supply, he added.

Mr. Kading warned that the current rate suppression in the state "will result in it being served by thinly capitalized single-state carriers as national insurers continue to shrink their business in Florida."

He said a better approach to Florida's problems would be to eliminate price controls, attract private capital and subsidize the cost of insurance directly to homeowners.