Florida has the ninth largest volume of insurance premiums in the world — larger than Texas, Canada, even China. Given that volume, decisions made in Tallahassee don't just affect policyholders from the Panhandle to the Florida Keys. Florida's insurance market — and the risk it bears — is of global significance. Recent insurance reforms in our state deserve praise and are especially noteworthy in a market of this magnitude.
Since 2003, when the Florida Legislature passed workers' compensation reforms, the statewide average rate has decreased by 60 percent. The 2003 reforms also provided for enhanced compliance, and in just the past fiscal year, the Department of Financial Services' Division of Workers' Compensation, which I oversee, assessed more than $48.5 million in penalties for non-compliant violations. In broad terms, Florida has gone from being one of the most expensive states for workers' compensation rates to now having a stable market with more affordable rates and enhanced enforcement, to the benefit of both workers and employers.
Florida also has one of the smallest residual markets for auto insurance, which again is impressive considering the volume of drivers in the state.
Homeowners' Remains Problematic
However, instability in the property insurance market continues to threaten Florida's economic health. The reverberations of Hurricane Andrew in 1992 and the eight subsequent storms in 2004-2005 still have a major impact on the insurance market, despite years of inactivity between and following these storms.
Also, attempts in the past couple of years meant to benefit Florida's homeowners have actually shifted more risk onto the backs of taxpayers. In January 2007, the Florida Legislature created and provided for the pricing of an additional $12 billion in optional reinsurance (TICL) coverage available through Florida's Hurricane Catastrophe Fund (Cat Fund) in an effort to achieve rate relief for Florida's insurance consumers.
Not only has the expected rate relief not been fully realized, but Floridians have taken on substantially more risk for future assessments from the Cat Fund. Also, given that the bond market has tightened considerably, there is great concern about how Florida could bond our $28 billion in hurricane risk.
I believe we need to lower Cat Fund exposure by gradually phasing out the TICL layer over a series of years. Also, I have approached legislative leaders with the idea of empowering another entity — such as the Florida Cabinet, a statutorily created entity, or a committee of legislators — with the ability to set coverage levels in the Cat Fund in the fall, which would allow the state to take advantage of the broader range of possible markets.
Citizens Property Insurance Corp., which was created by the state as an "insurer of last resort" but has become the largest insurer in Florida, must also be reformed. Even though it cannot happen overnight, I have spoken with legislative leaders about the need to write policies that are closer to an actuarially sound basis. It simply is not fair to ask all of Florida's homeowners to heavily subsidize Citizens' policies.
I have encouraged the Legislature to seriously consider the recommendations from the Citizens Task Force, especially the recommendation to create a glide path that would implement actuarially sound rates in specified increments, and the recommendation to allow no new development seaward of the 30-year-erosion projection line or in the Coastal Barrier Resources System designated areas to be insured by Citizens.
Some Good News
One positive outcome from recent storm activity is an increased interest in home mitigation. Since Hurricane Andrew devastated Miami, insurance companies, government agencies and organizations have been consistently inventing new ways to raise awareness about safety and mitigation. The result is that more Floridians are strengthening their homes.
Some of these efforts are simple and practical, including updated building codes. For residential properties, something as easy as installing hurricane shutters or replacing and protecting doors allows homeowners to better protect their homes and decrease their insurance premiums.
Since the creation of the My Safe Florida Home program in 2006, more than 400,000 homes have been inspected and over 29,000 homes retrofitted with grant funds to make them more secure. Although the program is set to sunset, I am urging the Legislature to continue the work of My Safe Florida Home by transferring into the fiscal year 2009-2010 budget the estimated $20 million remaining in the program.
Floridians cannot afford major shocks to their homeowners' insurance rates. I will continue to advocate for gradual solutions that are consumer-friendly and that will decrease Florida's financial exposure to hurricanes.
Until Florida establishes a long-term, strategic vision for addressing hurricane risk, our state will be overexposed and Floridians will be forced to pay the price in the event of a major storm. If we make smart decisions moving forward with regard to mitigation, land use, and actuarially sound rates, Florida's insurance market can grow and thrive.
Alex Sink is Florida's CFO. She oversees the Department of Financial Services, a multi-division state agency responsible for management of state funds and unclaimed property, assisting consumers who request information and help related to financial services, and investigating financial fraud. Sink also serves as the state fire marshal. www.fldfs.com.
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