Four Insurance Experts Offer Forecasts and Reflections

FAIFA: Health insurance reform, and how to make health insurance more available and affordable appears to be an issue being looked at closely by Insurance Commissioner Kevin McCarty, the governor, the CFO, and the legislature. We do not have enough competition in the Florida health insurance marketplace, and one reason is that we don't have an open high-risk pool like the majority of other states. We have very few health insurers competing for business in Florida, which does not create enough price competition and opportunities for innovation in the marketplace. So pushing for a funded high-risk pool is a priority, but with this year's budget crisis, prospects look low. Guarding against stranger-owned life insurance, which allows investors to exploit the tax-free status of life insurance and annuities and purchase insurance on total strangers, is another goal. Throughout Florida, total strangers are loaning money to someone to buy life insurance, and then two years later after the incontestability period runs out, they are forgiving the "loan" and making the investors the beneficiaries under the life policies. Congress has begun looking at taxing life insurance under these arrangements, and that's a frightening thought. Insurable interest laws must be strengthened. Property insurance continues to be in a decline, and agents are under pressure from all sides. Guarding against further erosion of property and casualty agents' profitability is another goal.

PCI: PCI has taken positions on a number of industry issues. On property, we are prepared to aggressively defend the industry and oppose further efforts to export the problems in property insurance to other lines.

At the same time, PCI is committed to supporting common-sense solutions that return control and confidence to Florida homeowners by addressing long-term insurance market stability and reliability. We can do that by strengthening homes and increasing competition.

Innovations such as catastrophe bonds, high-deductible homeowners' policies, and financial assistance to low-income consumers will provide immediate help to families. In addition, financial incentives to strengthen new homes and retrofit existing homes, changes in the tax code to allow insurers to set build catastrophe reserves on a tax-free basis, and better enforcement of building codes will help fortify our state.

The workers' compensation market is doing well. We don't want to see any legislation that would upset that apple cart.

We don't think the legislature is going to have much stomach for any auto legislation this year.

Finally, we plan on bringing the legislature's attention to the growing issue of municipalities imposing accident taxes on drivers by charging fire and police response fees.

Q. On a scale of one to 10, with 10 being "tops," how would you score Governor Charlie Crist's first year in office in terms of being "insurance friendly"?

FIC: Governor Crist has been very hostile toward hurricane insurers, unlike the governors of most other hurricane-threatened states. It is most unfortunate Florida's top leaders are not promoting the private-public partnership to finance hurricane losses that is being developed in many other states. We hope that the acrimony will ease at some point and reasonable groups will be able to work together rationally for the benefit of all Floridians.

FAIFA: Loaded question number one! He feels like he is under a mandate to lower insurance premiums, and the approach the legislature took during 2007 didn't produce results the politicians liked. But there is a lot to like in the property market that's being overlooked. Reinsurance rates are poised to come down again this year in the private market, and the domestic insurance market is competing for business throughout most of Florida for the first time in several years. If the governor would give the market time, I think more price competition would come. We hope that over the long term, the governor looks at the good actors in the property market, and gives them credit where it's due. There needs to be an open dialogue between the state's chief executive and an industry that paid $37 billion in claims over 2004 and 2005. Agents deserve a lot of credit for being on the front lines of homeowners trying to find an insurer not to mention understanding the complexities of the homeowners' laws and coverages that have been substantially changed three times in the last 18 months.

Q. On a scale of one to 10, with 10 being "tops", how would you score CFO Alex Sink's first year in office, in terms of being "insurance friendly"?

FAIA: I am not sure "insurance friendly" is a fair term, but I would say that she is accessible and attempts to understand all sides before acting. I believe that is the best you can hope for from an elected official.

FAIFA: Loaded question number two! CFO Sink never promised during the campaign that she would lower rates. It's a very complex question, and her business background has given her the grounding to look for real solutions that help people yet encourage a thriving business environment. Her proposal to grant the Cabinet the power to annually adjust the Cat Fund early in the reinsurance cycle is a great idea and ought to be implemented. She appears to be taking the approach of reaching out to the insurance industry to get input on concepts before she acts, which is very positive.

PCI: We'll answer the Crist and Sink questions simultaneously. The insurance industry isn't looking for friendly favors from any elected official. We simply want reasonable, informed policy that includes us as part of the solution, rather than painting us as the source of the problem.

Q. Last year was a year of significant changes in the homeowners' market. Lawmakers ruled that rates for homeowners insured by Citizens Property Insurance Corporation will not be increased until Jan. 1, 2009. Private insurers will be required to report their national profits when filing for rate increases. No new Florida-only subsidiaries, or "pup" companies, will be permitted to insure property in Florida. How are the carriers handling this (in terms of capacity, pricing, underwriting)?

FIC: Citizens officials testified before the House Insurance Committee in 2007 that they would be unable to pay all of their claims from even a moderate hurricane without statewide assessments, even though Citizens has accumulated some surplus with no hurricanes in 2006 and 2007. Clearly, Citizens' rates are inadequate to cover Citizens' inevitable losses when a major hurricane strikes southeast Florida. The money will be raised, in significant part, through assessments on all homeowners, businesses, and motorists because auto insurance policies are assessable as well. OIR is refusing to approve rate increases, regardless of the demonstration made by carriers, forcing insurers into court. FIC is not aware of national carriers without Florida subsidiaries planning to launch one, so there may be no impact from the ban on creation of pups in the future.

FAIA: Domestic companies are proliferating. National and regional companies continue to withdraw from our state, particularly with respect to residential property insurance.

FAIFA: The domestic insurers appear to have lowered rates the most as a result of the 2007 reforms, and there is real competition for business almost everywhere except Dade, Broward, Palm Beach, Monroe, and parts of Pinellas, Hillsborough, and Pasco counties. The large carriers are thinning their books slightly, yet remain committed to maintaining the bulk of their policyholders in Florida. New companies have formed, and numerous takeouts from Citizens occurred throughout the year. The market is in turmoil, but it's not all bad news.

PCI: Due to antitrust concerns, we don't track that type of information.

Q. Insurance Commissioner Kevin McCarty ordered an 18.4 percent reduction in workers' compensation insurance rates, effective Jan. 1. The reduction is estimated to produce a savings of more than $700 million for Florida employers. That's good news for their pockets, but what impact will this have on carriers' willingness to write workers' comp here?

FIC: The latest rollback was somewhat higher than recommended by NCCI, although not too far out of line. The dramatic reduction in rates since the 2003 reforms is what the industry expected. It is good for Florida employers and the market has remained strong. We probably have gotten as much rate relief from the reforms as is practical, however.

FAIA: Based upon the cyclical nature of this line, it seems the lust for lower rates is a much greater priority than the long-term health and stability of the system. History repeats itself and suggests we will be in full-blown crisis mode within the next several years, particularly if an unfavorable Supreme Court ruling is rendered affecting attorneys' fees.

FAIFA: Florida has a competitive market, and agents tell me it's attractive to voluntary insurers.

PCI: We need to be careful that we don't drive the market into a negative cycle, particularly given the disparity between where we were pre-2003, and where we are now in regard to having a healthy, affordable market. We're especially watching the courts, because an adverse ruling on any component of the 2003 reform bill could cause the market to change directions.

Q. 2007 was a soft market in virtually all lines of insurance. Will there be further softening, a maintenance of the status quo, or some hardening in 2008?

FAIA: Two storm-free seasons seem to suggest further softening in the property line.

FAIFA: With no storms, property will soften slightly if the legislature leaves them alone. Lack of health insurers competing in Florida is the "silent insurance crisis." Florida ought to have 100 companies fighting for business, but we really have fewer than 10 real players. Florida must consider whether the amount of mandated health benefits it requires, and the lack of a high-risk pool, are contributing to the uninsured problem. Would an insurer sell a policy to a homeowner whose house is on fire at the time of application? Health insurers that must comply with "guaranteed issuance" requirements, without regard to health status, are in the same position. Without real reform, more employers will opt for the unregulated ERISA pre-emption and flee the private market, or simply decide to shift more costs to employees, or worse, stop offering health insurance coverage.

PCI: According to data compiled by MarketScout in Dallas, rates as of Nov. 2007 were down 15 percent on a composite basis for all business property and casualty coverage placed in the United States. In addition, the Nov. 2007 consumer price index for personal auto insurance was up only about 0.2 percent from last year — much less than the 4.3 percent increase in overall consumer inflation recorded during the same period. We are clearly in a very competitive environment with one exception: property insurance in coastal areas.

Q. What is your reaction to Governor Crist asking three prominent trial lawyers to review the property insurance industry's compliance with last year's reform measures and recommend whether or not to sue the insurers, possibly in a class-action suit?

FIC: It's like, "What have you done for me lately?" The insurance community paid $37 billion and settled 1.7 million claims from the 2004 and 2005 hurricane seasons, and all some can do is criticize. The industry is accused of all sorts of things — all of the allegations are unfounded. Now the industry is being compared to the tobacco industry. That's absurd. There is no comparison. We don't kill people. The insurance industry protects families from catastrophic losses. When catastrophes do occur, the insurance industry helps people recover from all sorts of peril.

We will defend ourselves in court if we have to, and we will be proven right, just as the insurance industry has been proven right in lawsuits filed over similar issues in Louisiana and Mississippi.

The solutions to Florida's hurricane insurance problems will not come from lawsuits, but a partnership between the public, government, and insurers based on reason and facts, not acrimony. This is a partnership being developed in most other hurricane-threatened states, but not Florida.

The focus is on the wrong place. Public policymakers should be most concerned with the financial condition of the government-run Citizens Property Insurance Corporation, whose own CEO finally admitted that its rates — held artificially low to fulfill political promises — will not be able to pay its claims from a major southeast Florida hurricane without a major assessment on all Florida homeowners, all automobile policies, all business policies.

Those who call the insurance industry greedy are confusing the word "greedy" with responsible. Charging adequate premium to ensure a company can fulfill obligations to its policyholders to pay claims when they occur is responsible. Forcing rates down to where rates are insufficient to provide enough funding to pay claims is irresponsible.

FAIA: Astoundingly harmful to the re-establishment and stabilization of the private property insurance market, something that our state's economy desperately needs.

FAIFA: If grounds for a class action existed, believe me, trial lawyers would have already filed. The state is asking trial lawyers to sue insurers whose rates have been approved by … the state! I was at every committee meeting of the Jan. 2007 special legislative session. I did not hear one insurer promise the legislature during the special session that rates would decline by 25 percent. Not one. Yet the focus is that the insurers have somehow acted in bad faith. It sends the message that Florida does not want a private market for homeowners' insurance, and that we do not have a business-friendly climate.

PCI: Eighty percent of all the insured property in the state — worth nearly $2 trillion — is vulnerable to storm losses. And this number is growing as development in the highest risk areas of the state continues. All of the hearings in the world won't change that fact and will not get us any closer toward solving our problems with real solutions.

Denying the risk, driving private insurers out of the state, and placing more of the potential costs from a major storm on the backs (and wallets) of consumers only increases the chances that the next hurricane will devastate the financial security of Florida's families for generations.

We think it makes more sense to start working together to stabilize the property insurance market and protect consumers and the state's economy by making buildings stronger and people safer. We need to consider reform measures that address long-term insurance market stability and reliability through unleashing the innovative powers of the free market rather than restricting them.

Our state's insurance problem is unique, thus it will require a unique solution that re-establishes a healthy public-private partnership to spread risk across financial institutions and take it off of the backs of taxpayers. Moving forward and solving the problem of affordability and availability of property insurance is a challenge that we all face — together.

Q. What will be the major insurance story in 2008?

FIC: We will see a continuation of the controversy over hurricane insurance.

FAIA: What are all these assessments on my insurance bill?

FAIFA: Property, property, and property.

PCI: Coastal insurance issues from Massachusetts to Texas will dominate talks in the state houses and Congress in 2008.