A Look Back at 2008

We began 2008 with an eclectic mix of stories ranging from car rentals to climate change to surplus lines.

World on Fire: Climate Changes Put Insurers on the Hot Seat

According to Florida Insurance Commissioner Kevin M. McCarty (chairman of the National Association of Insurance Commissioners Catastrophe Insurance Working Group and the NAIC Property & Casualty Insurance Committee): "At the recent NAIC Climate Change meeting, it was discussed that a few insurers have introduced products to incorporate 'green' concepts into their product mix. AIG was mentioned along with a few others. In many instances, however, insurance companies have made little progress with respect to climate change. The OIR and insurance departments across the country would have concerns that insurance companies may use climate change as a reason to increase rates."

On the Road Again – Rental Cars, Tourists, and Insurance

"Rental cars in Florida are a little strange," said Toni Germinario, managing director of Insurance Agency Operations at AAA Auto Club South, with no small degree of understatement.

Florida Surplus Lines Service Office: The Industry's Best Friend

The surplus lines industry represents a significant portion of the country's available insurance capacity, with estimated total premiums of $38.6 billion in 2006. Of that amount, Florida accounted for roughly $4.6 billion, making the state the second largest surplus lines market in the country. The Florida Surplus Lines Service Office was created by the legislature as a means to provide some regulatory oversight of the excess and surplus lines industry, which largely falls outside of the insurance code.

While the FSLSO is focused on important issues such as collecting taxes and assessments, much of the office's resources are directed toward agents. The service office provides agents and brokers with educational courses, while maintaining a host of market data.

FEBRUARY

Homeowners' coverage and insights from various experts on the year ahead were featured in this issue.

The Homeowners' Market On Trial

[Governor Charlie] Crist and a majority of lawmakers were voted into office on the promise that they would bring rate relief to Floridians. As a result, they felt emboldened to turn Citizens Property Insurance Corporation into a competitive state fund. Lawmakers also targeted the industry's rating law, a move that had the effect of handing [Insurance Commissioner Kevin] McCarty wide-ranging authority to confront the industry with all the statutory tools at his discretion.

Four Insurance Experts Offer Forecasts and Reflections

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 the debate in the state houses and Congress in 2008.

MARCH

This issue focused on a number of topics: PEOs, workers' compensation, surplus lines, and legislative matters. But the big story, as usual, was the Cat Fund.

Reining in the Cat Fund

Chief Financial Officer Alex Sink is on a mission to point out that the state's current reliance on the Florida Hurricane Catastrophe Fund borders on the unrealistic and it's time to start reining in the assessments homeowners could face by shifting some of the burden back to the voluntary reinsurance market.

Sink's proposal has its genesis in the Legislature's decision last year to increase the capacity of the Cat Fund from $16 billion to $28 billion. Although it immediately helped many companies restructure their financial pictures, lawmakers presented policyholders with the risk of substantial assessments, or, as the CFO's office refers to it, a "tax."

Sink Objects to Trust Fund Raid

When Governor Charlie Crist unveiled his proposed $70 billion state budget for fiscal year 2007-2008, he followed other governors' leads to identify state trust funds with large balances and recommend appropriating some of the money to help fund other projects.

Crist is asking the legislature to appropriate $129.5 million from the Workers' Compensation Administrative Trust Fund (WCATF) to help underwrite other state activities.

Chief Financial Officer Alex Sink, however, is objecting to Crist's move, saying it could lead to higher costs on employers.

APRIL

Once again, property was front and center, with a cover story on Citizens and take-out companies. Feature articles included a story on the new reinsurance law.

Private Market Shows Willingness to Take Out Citizens' Policies

As of March, [Citizens] had 1.25 million policies in force. While the stability in the number of Citizens' policyholders can be attributed to a variety of factors, the number one reason is far and away the reemergence of the private market and its willingness to assume Citizens' polices.

Since 2006, 20 new companies have been licensed to write business in the state, and recently the Office of Insurance Regulation released a list of 10 companies that are authorized to remove more than 450,000 policies from Citizens.

Florida Looks to Change Reinsurance Collateral

Legislators have enacted a new law granting the insurance commissioner the discretion to reduce the collateral requirements on reinsurers if they meet certain prerequisites.

Florida's approach … [is] part of a broader effort to streamline the regulation of reinsurers. The NAIC's Reinsurance Task Force has long debated the issue, which is now the subject of legislation circulating through Congress. The NAIC proposal, however, would go much further and substantially change the regulatory framework for state oversight of reinsurance.

MAY

Murray v. Mariner earned the top spot in May as the industry awaited a decision from the Florida Supreme Court. We also devoted space to Citizens' assessments, healthcare, auto insurance, business ethics, and the homeowners' market. Whew!

Could the Supreme Court Derail Florida's Workers' Comp System?

Since the passage of the 2003 [workers' compensation] reforms, employers' rates have been cut by more than half.

No issue in 2003 received more attention than the payment of claimant attorneys' fees. When the Florida Supreme Court donned their robes to hear oral arguments in Emma Murray v. Mariner Health/ACE USA, all of those law changes were up for review.

"Everyone here would agree that the facts look crazy," [Justice Barbara Pariente] said. "You have an employer who is paying its attorney $16,000, but an experienced workers' compensation attorney who has done 80 hours of work gets $600."

Businesses Look to Prevent Citizens' Assessments

As more business owners come to understand the degree to which the state has advanced the public policy of placing the financial burden of hurricane losses on the back of policyholders, more policyholders are starting to balk at the potential strain it could have on their pocketbooks. Nowhere is this truer than among business owners who are staring at the possibility of multiple assessments.

The Domestic Homeowners' Market Rises

One reason for the resurgence of the domestic market is the void created by the decision of large companies to stop writing new business and reducing their exposures.

The Capital Build-Up Incentive Program is part of the plan passed last year, which in combination with the expanded Cat Fund, is designed to attract investors to the state. Lawmakers appropriated $250 million for the incentive program, which provided matching funds for investors who are willing to enter the market.

JUNE

The Homeowners' Bill of Rights earned the top spot in our June issue, with healthcare, disaster planning, and a legislative wrap-up rounding out our coverage.

Homeowners' Bill of Rights

[The bill] is largely a victory for the status quo. While there are positive aspects to the bill, it doesn't change one fundamental fact: the burden of paying for hurricane-related costs rests squarely on the backs of policyholders.

Having survived one hurricane season without significant losses, the state could find no compelling reason to change the formula.

Thus, even though the bill is not as drastic as its 2007 predecessor, it largely codifies the same features, the same risks, and the same promises for another year.

Agents Prevail on Legislative Issues

"The continuing education bill [relating to Citizens] was our main priority, and it passed," said Scott Johnson, executive vice president with the Florida Association of Insurance Agents.

Another bill affecting insurance agents targeted annuity fraud, and earned accolades from the Florida Association of Insurance and Financial Advisors. "We believe the legislature showed great probity in focusing much of this bill on the few bad apples that have taken advantage of consumers," said Bob Lotane, an FAIFA spokesman.

The House and Senate approved a bill that will create standards for selling personal insurance policies to individuals seeking to insure someone other than themselves. "Florida had an abbreviated statute addressing insurable interest," explained Steven Brostoff, a spokesman for the American Council of Life Insurers. "The new law establishes a clearer and stronger definition."

Finally, Florida Takes a Step Forward

The House and Senate passed the governor's plan to provide low-cost, no-frills health-care coverage to the 3.8 million uninsured Floridians.

Now comes the hard part: Actually convincing the uninsured to buy the plans.

Consumer advocates contend that people may be getting less coverage than they need from the plan and the policies may not be an easy sell.

JULY

Our July Cover Story "Over-Regulated and Over-Priced," reported on a massive all-states' study that gave Florida an "F" in insurance.

Florida comes in near the very bottom of our ratings, almost entirely because of its unusually intrusive homeowners' insurance system. Since Massachusetts announced it would stop dictating the rates that insurance companies charge beginning this year, Florida has emerged as the only state that directly dictates insurance rates through state action. To a large extent, Florida's regulatory over-stretch remains limited to its homeowners' insurance market.

Although Florida possesses a highly competitive automobile insurance market, a series of government efforts over the past 15 years has crippled the ability of the state's private insurers to provide effective homeowners' insurance. Already burdened with a heavily concentrated homeowners' insurance market and some of the nation's highest homeowners' insurance rates, Florida consumers saw the state assume massive new liabilities. The situation resulted in a large-scale retreat of private insurers and a declining state bond rating, with the very real prospect of higher taxes for all Floridians.

We also uncovered problems in group health nationwide, as cited in our feature story, "NAPEO Survey – Group Health a Challenge for Small Business."

Exploding health-care costs have been small businesses' biggest problem for years. And it's not getting any better. More than half of the 365 small businesses the National Association of Professional Employer Organizations (NAPEO) surveyed recently said their premiums rose as much as 10 percent in 2007. One-fifth say they saw increases of 11 percent or more.

To relieve the pain, more and more companies are passing at least some of these increases on to workers. Some smaller companies are scrapping their insurance programs entirely; new companies are often reluctant to offer health benefits at all. As a result, every year more Americans face the terrible risk of going without health insurance. There are now 47 million uninsured people in this country, many of them children.

CFO Alex Sink delivered a sobering message at the Florida Insurance Council's annual convention, as reported in "Sink Speaks Out."

CFO Alex Sink said Florida "went in the wrong direction this year when the Legislature decided to freeze Citizens Property Insurance Corporation rates for yet another year solely out of need for political purposes."

She said the impact means, "We're subsidizing rates in this state, some rates as much as 40 and 50 percent."

AUGUST

Our Cover Story "Guilty of DWD – Driving While Distracted," prompted phone calls and e-mails from readers (hopefully not while they were driving).

"Driving While Distracted" — chatting on cell phones, checking Blackberries, texting, surfing the web — gives broader scope to the "Shut up and drive" bumper stickers of a few years ago.

Attorney Martin Stern, director of the general liability department at the Ft. Lauderdale office of Kelley, Kronenberg, Gilmartin, Fichtel & Wander, P.A., said that cell phone litigation is the newest trend in employer liability. "Attorneys are now asking who owned the cell phone, and whether it was being used for any work-related business. The answers to these questions can determine whether the deep-pocket employer is somehow liable for the accident.

"Generally, if the device is used for business — whether it's owned by the employer or the employee — the employer has liability exposure if the employee gets into an accident while using it," Stern said.

The Cat Fund manages to be news in almost every issue. In August, it merited two stories.

Cat Fund and Citizens Face the 2008 Hurricane Season

Floridians will face significant insurance surcharges some day to help generate funds needed by the Florida Hurricane Catastrophe Fund (Cat Fund), Citizens Property Insurance Corporation, and private insurers.

Nonetheless, Cat Fund officials were cautiously optimistic during the annual Participating Insurers Conference in June, saying that they can handle anything but a 1-in-100-year hurricane.

From a liquidity standpoint, the Cat Fund is in the best shape in its 15-year history, with $8.1 billion in cash.

In addition, the Cat Fund's underwriters are guardedly confident they could issue $10 billion in bonds for anything less than a single monster hurricane because the financing could be spread out for as much as four years.

Cat Fund Gets a $4 Billion Promise of Help

Fearful that a giant storm or a series of hurricanes could cripple the Cat Fund this year and lead to huge assessments, the trustees of the fund in July made an extraordinary decision to pay $224 million now to secure a guarantee from Berkshire Hathaway that the Nebraska-based conglomerate would buy $4 billion in bonds in the event that the amount of storm losses reach $25 billion.

Governor Charlie Crist, Attorney General Bill McCollum and Chief Financial Officer Alex Sink all voted in favor of the transaction.

McCollum called the put option a "very bad deal." But he also said it was the only responsible action that the state could take at the current time given the needs of the Cat Fund. Sink, likewise, criticized the deal, saying that Berkshire Hathaway was the only financial entity that was willing to negotiate with the state right now.

"We are being held hostage by one product," said Sink. "We've got both hands tied behind our back."

SEPTEMBER

September brought a grand mix of news on group health insurance, the escalating price of drugs in workers' compensation, Medicare Secondary Payer requirements, and a cover and features on various aspects of homeowners' coverages.

Writing Condo and Homeowners' Association Insurance

Florida is, hands down, the single largest market for community association insurance in the nation. It is estimated that the state has over 65,000 community associations, and there is no slowdown in sight. Although condominium and homeowners' association insurance may be a demanding and difficult line to write, it can be rewarding, both in its own right and as an entree to present other products to community residents.

In developing an insurance package to protect the association and its board, the place to begin is with a thorough understanding of the scope of the community association itself. The natural place to start is with the existing insurance products and coverage program.

D&O coverages vary greatly from one carrier to another. Although this is a generality, it appears that most D&O endorsements in package policies do not provide adequate coverage for today's community associations.

[Fidelity and crime insurance] coverage is very often a moving target. This is a first-party coverage and what is being insured is what the association "owns."

The umbrella liability policy is becoming a much more important part of the community association puzzle as our society becomes more and more litigious.

New Board Takes Over Citizens

Citizens Property Insurance Corporation has a newly reconstituted board, including a new chairman with a track record of dealing with troubled companies.

[CFO Alex] Sink tapped James Malone to succeed Bruce Douglas of Jacksonville as the new chairman. Shortly after his first meeting as chairman, Malone said he has no firm ideas of what direction Citizens should take. Instead, he said his main goal was to make sure that everyone who has to interact with Citizens is dealt with fairly and honestly. "I want to make sure everything we do has a transparency to it," said Malone.

OCTOBER

Your friends and ours from five industry groups spoke out on taxes, fees, and legislation for our cover story, "Drowning in a Sea of Regulations."

The Property Casualty Insurers Association of America:

Throughout Florida, more and more local governments are implementing a hidden fee for providing emergency response services. Everything from setting out cones, directing traffic, and completing a police report, to dousing an engine fire and extricating severely injured accident victims using the Jaws of Life could soon become a billable service.

As lawmakers in Tallahassee slash property taxes, local governments are faced with historic budget crunches. In order to avoid the difficult work of prioritizing and cutting spending, some cities have decided to charge a fee when the police or fire department is called to respond. Some elected officials see these accident fees as an opportunity to increase revenues without formally raising taxes. The Property Casualty Insurers Association of America (PCI) sees these so-called fees as an Accident Tax.

Florida Association of Insurance Agents:

At the time I'm writing this – September 8 – Governor Charlie Crist has yet to notify the staff of Citizens Property Insurance Corporation of his two appointees to the Citizens Mission Review Task Force (MRTF). This important eleven-member, statutorily created group was to begin meeting August 1 and provide a written report by January 31, 2009, on how Florida's property insurer can become, once again, a true "insurer of last resort."

Several years ago the Florida Association of Insurance Agents (FAIA) assembled a diverse business alliance: the Property Insurance Reform Coalition (PIRC). It unified members of the banking, mortgage, apartment, home building, and realtor communities in an effort to address affordability and availability problems with property insurance. While positions taken two years ago may not be the same today for some PIRC members, should it ever meet, the MRTF would hear FAIA's updated version of one PIRC recommendation: that of reconfiguring Citizens as a last resort insurer.

Professional Insurance Agents of Florida:

Over the past few years, major national insurers have been pressuring Congress to take control of insurance regulation.

"This goes way beyond simply creating an insurance information office," said PIA of Florida President Phil Zelman. "The current version of this bill would effectively allow the Secretary of the Treasury to review and amend the laws and practices relating to insurance here in Florida and in any other state. That it simply unacceptable."

We must never forget that even though modernization of state-based oversight must continue at the state level, the current system is far from being broken and has yielded an insurance industry that is the envy of the world.

Florida Insurance Council:

As soon as Governor Charlie Crist took office in January 2007, he assembled a special legislative session to undo what lawmakers had done some eight months earlier. This created political capital for some policymakers to continue the negative rhetoric, eventually evolving into the introduction of punitive legislative measures toward the industry.

One of the most onerous pieces of legislation was a provision tucked away in a lengthy insurance bill during the 2008 Legislative Session that would have broadened the Florida Antitrust Act.

Thanks to effective lobbying efforts by the Florida Insurance Council and the entire insurance community, that provision was removed from the bill before final passage. However, the issue was not laid to rest.

The Senate ordered an interim study by the staff of the Senate Banking and Insurance Committee to evaluate the effects of applying the Florida Antitrust Act to the business of insurance.

It is unclear what the final Senate staff interim report will look like when it is submitted on or about October 1. What is known is that the stated objective of the interim report is to "evaluate the effects of applying the Florida Antitrust Act to the business of insurance and provide options for applying the Act to the business of insurance."

National Association of Insurance and Financial Advisors-Florida:

Florida insurance agents, in addition to countless other professions, have dodged a bullet. A proposed Amendment 5 was set to appear on state ballots in November. The amendment, which proposed to eliminate the education portion of local property taxes in exchange for some amorphous replacement "identified or created by the legislature," was scotched by a circuit court judge in mid-August.

Although Amendment 5 did not specifically call for a "services tax" — the wording was so flexible it would have earned a "10″ in the recent gymnastics competitions in Beijing — no one seriously disagreed that the clear intention was to eliminate many of the current exemptions.

While virtually all professions are against having a tax imposed on their services, insurance agents are particularly vituperative on the subject.

NOVEMBER

In November, we took a break from hurricanes and focused on workers' compensation. The long-awaited Murray v Mariner decision from the Florida Supreme Court came out as we were finalizing the issue. A reworking of some of our stories ensured that our readers got the latest information on that significant vote, along with thoughts on alternative markets for workers' compensation.

Taking a Different Route to Workers' Compensation Coverage

During the past five years, the $3.7 billion (2006) Florida workers' compensation market has experienced profound change. According to the Florida Office of Insurance Regulation, prior to 2003, Florida was consistently ranked either number one or two as having the most expensive workers' compensation rates in the U.S.

With pressure mounting, in 2003 the Florida legislature passed Senate Bill SB 50-A to reform the system. The reform addressed many provisions of the workers' compensation law, including attorneys' fees, construction industry requirements for workers' compensation insurance, fraud, and benefits for injured workers.

The Florida Supreme Court recently ruled on a significant, potentially far-reaching case. The case of Emma Murray v. Mariner Health/ACE USA challenged the cap on attorneys' fees, a key provision of the reform. The recent decision could potentially affect post-October 1, 2003, workers' compensation cases that are currently open as well as new cases going forward. The Murray case was critical to the success of the Florida workers' compensation reform and its potential impact looms over the Florida workers' compensation market.

In addition, conditions in the national insurance market are ripe for change. Economic uncertainty hovers. The soft market may be ready to turn. Rising medical costs continue to plague workers' compensation.

With so much market uncertainty, now may be the right time for Florida employers to explore alternative market options.

DECEMBER

This month, our coverage includes articles on Citizens, reinsurance, and PEOs, the annual Professional Liability Directory, and an exclusive interview with CFO Alex Sink. Enjoy.